S&P cuts NRG four notches

Standard & Poor's downgraded NRG Energy Inc. four notches and kept the company on CreditWatch with negative implications. Ratings lowered include the corporate credit ratings of NRG Energy Inc., NRG Northeast Generating LLC and NRG South Central Generating LLC, all cut to CCC from B+. The company's various series of notes were all cut to CCC from either B- or B+.

S&P said the downgrade of NRG reflects its view that NRG's liquidity position is severely constrained and even if the banks continue to waive the collateral requirements under the $2 billion construction revolver NRG would be challenged to meet debt service requirements without significant asset sales.

While the company has made some progress with asset sales, the amounts have been minimal relative to what is needed to either collateralize the banks or improve overall credit quality, S&P said. The bulk of the proceeds are not expected to be realized until the fourth quarter.

In addition, decreasing wholesale prices have hampered NRG's operating cash flow, S&P added.

The company's survival relies on significant asset sales, the amount and timing of which is uncertain, S&P said.

Moody's cuts Mrs. Fields

Moody's Investors Service downgraded Mrs. Fields' Original Cookies, Inc. including cutting its $140 million 10 1/8% senior notes due 2004 to Caa1 from B2 and Mrs. Fields' Holding Co., Inc.'s $28 million 14.0% senior discount notes due 2005 to Ca from Caa2. The outlook is negative.

Moody's said it lowered Mrs. Fields because of the immediate liquidity issues confronting the company and the medium-term concerns regarding the company's ability to accommodate cash interest payments and maintenance capital expenditures during 2003, particularly if fourth quarter 2002 results are weak.

Moody's said it is concerned about whether Mrs. Fields will be able to replace its revolving credit facility due March 2003 although the rating agency said it now believes the company likely will have enough cash to make the Dec. 1 senior note interest payment.

S&P confirms DTE Burns Harbor, off watch

Standard & Poor's confirmed DTE Burns Harbor LLC and removed the ratings from CreditWatch with negative implications including its $163 million 6.57% notes due 2003 at BB.

S&P said the notes were put on CreditWatch on May 4, 2001 to reflect a similar placement of Bethlehem Steel Corp. The project relies in large part on cash flow derived from its coke sales agreement with Bethlehem Steel, and cash flow from other revenue sources, specifically Section 29 tax credits, is not sufficient to completely cover debt service.

Bethlehem Steel and the Burns Harbor facility have continued to operate through Bethlehem Steel's bankruptcy, S&P noted. More importantly, Bethlehem Steel did not seek to vacate the contract and has remained current in its payments, with the exception of an outstanding receivable for a 1 1/2month period leading up to the filing.

The project continues to operate well and has made two debt service payments since the filing, S&P noted. Moreover, the project lenders benefit from a letter of credit that provides six months' debt service reserve. Given that the notes mature in January 2003, only one more debt service payment is remaining and it is fully covered by the letter of credit.

Moody's cuts Eagle Foods

Moody's Investors Service downgraded Eagle Food Centers, Inc. including cutting its $64.1 million 11.0% senior notes due 2005 to B3 from B2. The outlook is revised to negative from stable.

Moody's said the downgrade of the unsecured notes reflects the increased relative subordination of the notes to secured debt. Eagle Foods has upsized its revolving credit facility to $50 million from $40 million and repurchased $21 million of the unsecured notes at less than face value over the past two years, causing the relative proportion of secured debt to materially increase.

The outlook revision is in response to the increasingly competitive grocery retailing environment in the company's trade areas, Moody's said, adding that it the competition is the primary factor that has caused operating results to fall below its August 2000 expectations when the company emerged from bankruptcy.

Moody's raises Northern Natural Gas

Moody's Investors Service upgraded Northern Natural Gas Co. to investment grade affecting $500 million of debt including its senior notes, which were raised to Baa3 from B3. The outlook is positive.

Moody's said the upgrade follows MidAmerican Energy Holdings Co.'s purchase of Northern Natural Gas from Dynegy for $928 million in cash and the assumption of $950 million of debt. MidAmerican's senior unsecured rating is Baa3.

Moody's said the outlook is positive pending further discussions with MidAmerican management regarding structural issues and Northern Natural Gas' capital structure.

Preliminary discussions suggest management is considering reducing Northern Natural Gas' leverage and replacing existing secured bank debt with unsecured debt, Moody's said. Northern Natural Gas may also be structured as a ring-fenced bankruptcy remote entity, a structure MidAmerican has used with several of its other subsidiaries, resulting in ratings notched higher than the parent rating.

S&P lowers Concentra outlook

Standard & Poor's revised its outlook on Concentra Inc. to negative from stable and confirmed the company's ratings including its senior unsecured debt at B-.

Continued weak performance, coupled with tightening bank covenants over the next few quarters could result in a rating downgrade, S&P said.

Recent results have been below expectations, demonstrating the sensitivity of the company's key businesses to economic trends, S&P explained. Corporate staff reductions and a national decline in new hiring adversely impacted demand for Concentra's services. In fact, the company's health services business has experienced declines in the volume of patient visits over the past few quarters due to weakened employment trends.

More recently, the company's other two key businesses, network services and care management, have also experienced weaker performance due to the weakened economy, S&P added. Concentra is also subject to competition from numerous smaller local competitors.

The company's credit protection is thin, with lease-adjusted debt to capitalization of over 80%, S&P said. Marginal cash flow protection, with funds from operations to lease-adjusted debt of about 13%, is adequate for the rating.

Moody's cuts Primus

Moody's Investors Service downgraded Primus Telecommunications Group, Inc. concluding a review begun in October 2001. Ratings lowered include Primus' $69 million 9.875% senior notes due 2008, $118 million 11.25% global senior notes due 2009, $87 million 11.75% senior notes due 2004 and $115 million 12.75% global senior notes due 2009, all cut to Caa3 from Caa2, and its $71 million 5.75% convertible subordinated global debentures due 2007, cut to Ca from Caa3. The outlook is negative.

Moody's said it lowered Primus because it is concerned that despite recently improved operating metrics and lowered debt service carrying costs the company is unlikely to build up sufficient liquidity to service its heavy debt burden in the intermediate term.

In particular, there can be no assurance of Primus's ability to retire approximately $87 million in senior notes maturing in August 2004, Moody's said.

Largely through the grooming of its less profitable wholesale voice accounts and significant cuts in scalable costs, Primus has progressively increased its positive EBITDA generation over the past four quarters, the rating agency noted.

During the second quarter 2002, management revised and increased its full-year 2002 cash flow guidance to $95-$100 million, which would imply an interest coverage of approximately 1.4 times for 2002. Interest coverage has also been assisted by a substantial lowering of Primus's interest expense, resulting from a successful debt reduction program that has lowered total debt from $1.3 billion at the end of December 2000 to $615 million at the end of June 2002, Moody's added.

S&P cuts Abraxas second lien notes

Standard & Poor's downgraded Abraxas Petroleum Corp.'s $191 million second lien notes due 2004 to CC from CCC- and confirmed its other ratings including its $63.5 million first lien notes due 2003 at CCC-. The outlook remains negative.

S&P said the action follows a review of Abraxas' asset coverage which found proved oil and natural gas reserves fail to cover the full value of the $191 million second lien notes.

Moody's cuts Elgin National

Moody's Investors Service downgraded Elgin National Industries, Inc. including cutting its $74 million 11% senior notes due 2007 to Caa3 from B2. The outlook remains negative.

Moody's said the downgrade reflects Elgin's sharply deteriorating performance, substantially constrained liquidity, and Moody's heightened concerns over its ability to meet its debt obligations.

The negative outlook reflects the weak prospect for the company's engineering services business, and likely bank covenant violations in the coming quarters, the rating agency added.

Elgin experienced a substantial decline in operating performance in the first half of 2002 as the precipitous drop in new project volume in the coal mining and power utilities sectors has severely impacted its engineering services business, which provides design, engineering, and construction management services to the mining, electric utility, and mineral processing industries, Moody's said.

The outlook for the engineering services business remains bleak, as project backlog continues on a downward trend, falling to $35.5 million at the end of June 2002 from $44.3 million in December 2001 and $60.1 million in June 2001, Moody's said.

Moody's believes that a rebound in new projects is unlikely over the medium term as investments in new coal preparation facilities and coal-fired power plants continue to be depressed, exacerbated by unresolved environmental regulation-related permitting issues in the coal mining industry.

As a result of the weakening operating performance, Elgin's credit profile has deteriorated considerably. At June 30, total debt of $99.2 million rose to 8 times the last 12 months' EBITA (6.5 times on an EBITDA basis), from 5.3 times EBITA (4.5 times on an EBITDA basis) at Dec. 31, 2001, Moody's said. For the first half of 2002, EBITA and EBITDA were insufficient to cover interest expense.

In addition, Elgin's liquidity position has become highly constrained, and the company is also likely to breach bank covenants in the third quarter of this year, given Moody's expectation of continuing weak performance, the rating agency said.

S&P puts Broadwing on watch

Standard & Poor's put Broadwing Inc. on CreditWatch with negative implications. Ratings affected include Broadwing's senior secured bank loan at BB, subordinated debt at B+, preferred stock at B and commercial paper at B and Cincinnati Bell Telephone Co.'s senior unsecured debt at BB.

S&P said it put Broadwing on watch because it is concerned that the company may find it challenging to meet scheduled bank debt amortization in 2003 and 2004 in the absence of significant new capital and an amendment to its bank credit agreement.

With projected liquidity of about $150 million at the end of 2002 and a forecast of moderate free cash flow in 2003, Broadwing is currently not well positioned to pay down about $230 million of bank debt in 2003, S&P said.

In addition, with continued weakness at Broadwing Communications, low growth at its ILEC, and a limit to the extent to which expenses could be cut without affecting service quality, S&P said it does not anticipate that Broadwing will generate sufficient free cash flow to meet about another $1 billion of bank debt repayment in 2004.

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