S&P raises Nextel outlook

Standard & Poor's raised its outlook on Nextel Communications Inc. to stable from negative and confirmed its ratings including its senior unsecured debt at B, preferred stock at CCC+ and Nextel Finance Co.'s senior secured bank loan at BB-.

S&P said the revision is in response to Nextel's solid operating performance in a highly competitive industry and lower financial leverage, though it still has substantial debt on the balance sheet.

Despite the weak economy in 2002, Nextel maintained strong net subscriber additions, industry-leading average revenue per user (ARPU), and low churn, S&P noted. This was primarily due to the company's unique push-to-talk offering and focus on business and public sector users, which accounted for about 70% of the company's 10.6 million subscribers at the end of 2002.

The solid operating performance and cost control allowed Nextel to grow annual revenues by 24%, expand its EBITDA margin to 38% in the fourth quarter of 2002 from 29% in the fourth quarter of 2001, and generate about $122 million in free cash flow for 2002, S&P said. EBITDA growth, along with the use of about $843 million in cash and the issuance of about 173 million shares of common stock to retire about $3.2 billion in aggregate face value of debt and preferred obligations in various privately negotiated transactions, allowed Nextel to lower its debt-to-annual EBITDA leverage substantially to about 3.9x at the end of 2002 from about 7.8x at the end of 2001.

Nextel's ability to improve its financial risk profile could be constrained by several issues, such as wireless number portability, better-capitalized competitors, and technology risks, S&P added. Wireless number portability, which will be phased in starting in November 2003, could increase future subscriber churn and selling expenses.

Several of Nextel's competitors are better capitalized and have the resources to take market share from the company once they narrow the technology gap that currently prevents them from offering a comparable push-to-talk capability, S&P said.

The rating agency added that Nextel has adequate liquidity at least through 2005.

Moody's cuts Hollywood Shreveport

Moody's Investors Service downgraded Hollywood Casino Shreveport's 13% secured notes to Caa2 from B3.

The rating agency said the action follows Penn National Gaming Inc.'s announcement that it will not provide financing or credit support to Hollywood Casino Shreveport and its announcement that it has completed the acquisition of Hollywood Casino Corp.

The Caa2 rating reflects the likelihood that Hollywood Casino Shreveport will eventually file for bankruptcy and that bondholders will suffer some level of impairment, Moody's added.

According to Hollywood Casino Shreveport's mortgage note indenture, when a change in control occurs, the company must offer to purchase all of the notes at 101% of their principal amount plus any accrued and unpaid interest. Penn National is not contractually required to honor this put option and has openly stated that it has no intention of providing credit support to Hollywood Casino Shreveport. As a result, Hollywood Casino Shreveport will not have financial resources to offer to repurchase its 13% senior secured notes.

Based on various valuation methods including the use of acquisition multiples, Hollywood Casino Shreveport's asset value is significantly less than the company's $189 million outstanding debt, Moody's said.

The downgrade also considers that debt service will be difficult to meet in 2004. Hollywood Casino Shreveport's annual EBITDA is significantly below original expectations and not enough to satisfy an annual interest burden of $25 million.

Moody's cuts Kemper Insurance

Moody's Investors Service downgraded The Kemper Insurance Cos. including cutting the surplus notes issued by Lumbermens Mutual Casualty Co. to Ca from Caa1. The outlook is negative.

Moody's said the action follows Kemper's announcement that it intends to enter into a renewal rights transaction with a new company, which is being capitalized by private equity funds managed by Securitas Capital, LLC; The Cypress Group LLC; Gilbert Global Equity Partners; and some members of Kemper's existing management team.

The renewal rights transaction will include Kemper's core middle market and small business accounts as well as certain other lines of business.

Given the renewal rights transaction and the substantial uncertainty with regard to Kemper's ongoing business prospects, Moody's said it believes that there is an increased chance that the regulators could deny the company's request to make upcoming June 2003 interest payments on the surplus notes.

S&P rates General Maritime notes B+

Standard & Poor's assigned a B+ rating to General Maritime Corp.'s proposed 10-year $250 million note offering. The outlook is stable.

S&P said the ratings reflect General Maritime's favorable business position as a large operator of midsize Aframax and larger Suezmax petroleum tankers with a strong market share in the Atlantic Basin, diversified customer base of oil companies and governmental agencies, and fairly good access to liquidity.

These factors are offset by significant, but managed, exposure to the competitive and volatile tanker spot markets and an aggressive growth strategy.

In January 2003, the company announced it would acquire the 19 vessels owned and operated by Metrostar Management Corp. for $525 million, increasing General Maritime's fleet to 47 vessels (28 Aframax tankers and 19 Suezmax vessels) with capacity equal to about 6% of the world Aframax and Suezmax fleets. The transaction is expected to conclude by April 30.

This acquisition expands General Maritime's scope of operations to Europe, the Mediterranean, and the Black Sea, in addition to increasing the total fleet cargo carrying capacity, with a small decrease in the combined fleet's average age, S&P noted.

Tanker rates increased dramatically in the fourth quarter of 2002, reversing declines during the second half of 2001 and most of 2002, and have remained high, reflecting a cold winter, war premiums associated with a potential conflict with Iraq, and an extension of transit time to supply North America due to the oil company strike in Venezuela, S&P said. Although rates may moderate from the current high levels, industry fundamentals over the near to intermediate term are expected to remain favorable.

General Maritime's operating margins after depreciation and amortization averaged a respectable 35% in 2000 and 2001, S&P said. At Sept. 30, 2002, lease-adjusted debt to capital was 38%, with trailing lease-adjusted debt to EBITDA of 3.6x and pretax interest coverage of 1.4x. These numbers reflected the poor September 2002 year-to-date tanker market.

Pro forma for the transaction, debt leverage will be 63% with a total debt burden of $817 million, S&P said.

Moody's rates Barney's notes B3

Moody's Investors Service assigned a B3 rating to Barney's, Inc.'s planned $100 million (face value) senior secured notes due 2008. The outlook is stable.

The ratings reflect Barney's high actual and effective leverage; modest operating profitability, which provides little cushion; a high potential for sales volatility due to geographic concentration and the nature of high-fashion retailing; a high level of rents, which raises fixed costs and contributes to effective leverage; changeable levels of working capital and vendor support due to seasonal variations, as well as a vendor base which consists largely of small companies and foreign vendors; concentration of equity ownership; and the threat of competition from other retailers and designer stores, Moody's said.

The ratings also consider a high level of intangible assets dating to Barney's emergence from bankruptcy in 1999, which Moody's believes are at risk of being revalued and reducing the company's equity base.

The ratings are supported by Barney's well-defined identity, which leads to high recognition and loyalty among its targeted customer base, demonstrated by favorable comparable store growth relative to other high-end apparel retailers since 2001, Moody's added. The ratings also recognize the potential for operating costs to continue to decline under the current management team led by Howard Socol; benefits to margin performance and customer loyalty from private label merchandise and a self-financed private credit card; distinct sales formats which focus on specific segments of the total potential customer base; and a modest store opening program.

Moody's said it expects that Barney's can realize some additional cost reductions over the near term without negatively affecting the customer experience. The limited size of the store network, geographic concentration, and the highly selective customer base makes Barney's particularly vulnerable to top line volatility. Nonetheless, Moody's notef that Barney's sales trends reacted much more favorably than those of other luxury retailers in the post-9/11 environment.

Moody's rates General Maritime notes B1

Moody's Investors Service assigned a B1 rating to General Maritime Corp.'s planned $250 million senior unsecured notes due 2013. The outlook is stable.

The ratings are supported by: General Maritime's record to date of free cash generation and debt reduction; potential positive effects of the $525 million acquisition of 19 vessels from Metrostar Management Corp.; and an increasing leadership position that Moody's expects General Maritime will hold in the medium-size crude oil tanker sector in a favorable market environment, the rating agency said.

The ratings also reflect the high leverage due to the 100% debt-funded purchase of Metrostar vessels, uncertainty regarding potential future acquisitions by the company, and the historically volatile nature of earnings experienced in the crude oil tanker sector.

The stable outlook depends primarily on the company's aggressively reducing senior debt during the next two years, Moody's said. Any reluctance or inability to meet expectations in this regard by borrowing to fund another large acquisition, or because market conditions deteriorate more severely than anticipated, will likely result in a ratings downgrade.

Despite debt reduction, leverage relative to profitability more closely reflects changes in market conditions. When the company expanded its fleet and re-capitalized in 2001, debt stood at 3.0x EBITDA in a strong tanker market. However, although General Maritime was able to reduce debt in 2002, debt/EBITDA actually increased to 3.6x as a consequence of relatively weak charter rates experienced in that year, Moody's said.

Moody's rates Barry Callebaut B1

Moody's Investors Service assigned a B1 rating to Barry Callebaut AG's planned €150 million senior subordinated notes to be issued through Barry Callebaut Services NV. The outlook is stable.

Moody's said the ratings are based on Barry Callebaut's leading market positions in industrial chocolate, its limited exposure to commodity prices but also on high debt levels linked to the high working capital, the moderate growth characteristics of the industry and a degree of political risk affecting in particular the main cocoa producing country and three facilities of the company in this country.

The volatility of cocoa prices may possibly affect the company's liquidity and its debt levels, Moody's added.

The outlook is stable reflecting Moody's expectations that the company will smoothly reduce debt over time although the evolution of cocoa prices might impact the pace of debt reduction. The currently assigned ratings provide some leeway for limited debt-financed acquisitions that are limited by bank loan documentation and also for some possible moderate impacts of political crisis in Ivory Coast.

Moody's upgrades Hollywood Casino

Moody's Investors Service upgraded Hollywood Casino Corp. including raising its $310 million 11.25% senior secured notes due 2007 and $50 million floating-rate senior secured notes due 2006 to B1 from B3.

Moody's said the action follows Penn National, Inc.'s announcement that it has completed its acquisition of Hollywood Casino and called for redemption all of Hollywood Casino's outstanding senior secured notes. The ratings will be withdrawn once the notes are redeemed.

Fitch cuts Fiat to junk

Fitch Ratings downgraded Fiat SpA to junk including cutting its senior unsecured debt to BB+ from BBB-. The outlook remains negative.

Fitch said it lowered Fiat because it is concerned the creditworthiness of the company's future core operations is no longer consistent with an investment-grade credit profile.

Fiat announced on Feb. 28 its intention to dispose of its two best performing operations, Fiat Avio and Toro Insurance to reduce indebtedness.

Fitch said it views the announcement, alongside the appointment of a new CEO and chairman, as reflecting a change in strategy.

The downgrade also takes into account Fiat Auto's lower than expected profit generation for fiscal 2002, Fitch said. Fitch expects the European auto market to decline by 2% in fiscal 2003 due to the weaker economic environment, which will increase competitive pressure.

Fitch acknowledges that the announced transactions aim at supporting the Fiat Auto restructuring plan and at achieving a sounder credit profile at the other group businesses. However, the disposal of the profitable Fiat Avio and Toro result in a weaker underlying profit mix, as the group retains its interest in the underperforming Comau (production systems), Teksid (metallurgy products) and Magneti Marelli (components) operations. These activities will remain exposed to cyclical markets, which are undergoing structural changes and consolidation.

S&P raises Hollwood Casino

Standard & Poor's upgraded Hollywood Casino Corp. and removed it from CreditWatch with positive implications. Ratings raised include Hollywood Casino's $310 million 11.25% senior secured notes due 2007 and $50 million floating-rate senior secured notes due 2006, lifted to B+ from B.

S&P said the upgrade follows completion of the previously announced merger between Hollywood Casino and Penn National Gaming Inc.

Penn National has called the notes and S&P will withdraw its ratings if the notes are redeemed.

S&P cuts Hollywood Shreveport

Standard & Poor's downgraded Hollywood Casino Shreveport including cutting its $150 million 13% contingent interest notes due 2006 and $39 million 13% senior secured notes due 2006 to CCC- from CCC+. The outlook is negative.

S&P said the downgrade follows the announcement by Penn National Gaming Inc., the indirect parent company of Hollywood Casino Shreveport, that holders of the outstanding Hollywood Casino Shreveport bonds failed to provide the required majority to consent to a waiver of the change of control provision required under Hollywood Casino Shreveport's existing bond indentures.

As a result, given Penn National's comments that it does not intend to provide financing or credit support to assist Hollywood Casino Shreveport in making the obligated offer to repurchase its outstanding notes upon a change of control, and S&P's belief that the funding of the change of control repurchase on a stand-alone basis by Hollywood Casino Shreveport is unlikely, the notes are vulnerable to nonpayment, the rating agency said.

Fitch cuts Potlatch

Fitch Ratings downgraded Potlatch Corp. including cutting its senior secured debt to BBB- from BBB, senior unsecured debt to BB+ from BBB- and senior subordinated debt to BB from BB+. The outlook is now negative.

Fitch said the action is based on several quarters of weak market conditions for wood products-prices having hit a 10-year low-and declining margins in tissue hurt by certain competitors' strategy to buy market share.

Despite strong housing starts and fair remodel and repair markets in 2002, U.S. lumber companies have struggled with a multiyear slump in wood prices brought on by an oversupply of lumber and panel production, Fitch noted.

Until some reduction of capacity occurs, Fitch said it expects overproduction will continue and is uncertain when and by how much lumber and panel prices will improve.

Tissue markets are also facing substantial capacity additions which could harm Potlatch's operating margins, Fitch added. The Resource segment continues to be profitable, and Fitch estimates that the market value of Potlatch's timberlands exceeds the company's aggregate debt.

S&P cuts Ntelos

Standard & Poor's downgraded Ntelos Inc. including cutting its $100 million senior secured revolving credit facility due 2007, $150 million senior secured tranche B term loan due 2008 and $75 million senior secured tranche A term loan due 2007 to D from CCC.

S&P said the action follows Ntelos' Chapter 11 bankruptcy filing.

Fitch rates CSN Islands notes B

Fitch Ratings assigned a B senior unsecured foreign currency rating to Companhia Siderurgica Nacional's $85 million one-year notes issued though its CSN Islands II Corp. subsidiary. the outlook is negative.

Fitch noted CSN's foreign currency rating is constrained by Brazil's B, outlook negative foreign-currency rating.

The proceeds from this issuance will be used primarily for working capital needs.

CSN's leverage, net debt-to-EBITDA, was 3.4 times at June 30, 2002, while EBITDA-to-interest expense was 4.3x, Fitch said.

Due to higher steel prices worldwide, as well as increased production volumes and a higher value-added product mix, Fitch said it expects CSN to generate about $725 million of EBITDA for the full year 2002.

With total debt expected to be less than $2.0 billion, and with cash and marketable securities expected to be about $500 million, EBITDA-to-interest should remain above 4.0x, while net debt-to-EBITDA should improve to less than 3.0x for year-end 2002, Fitch added.

S&P cuts Allegiance, still on watch

Standard & Poor's downgraded Allegiance Telecom Inc. including cutting its $205 million 12.875% senior notes due 2008 and $250.5 million discount notes due 2008 to C from CC and Allegiance Finance Co.'s $500 million secured bank facility due 2006 to CC from CCC. The ratings remain on CreditWatch with negative implications.

S&P said the actions reflect the likelihood that Allegiance Telecom will need to restructure its debt in the near term due to the terms of an interim amendment to its bank agreements.

The amendment requires the company to reduce total indebtedness by about 50% to $645 million by April 30, 2003. If this debt reduction is not consummated prior to the issuance of the 2002 audit report by its independent accountants, KPMG LLP, and in a manner that provides the company with sufficient available cash to fund operations for at least the next 12 months, Allegiance Telecom has been informed by KPMG LLP that the report will contain a "going concern" qualification, S&P noted.

Allegiance Telecom's financial profile has been adversely impacted by the slow turnaround in the economy and the increased number of carrier and retail customer bankruptcies, S&P said. Although the company has made progress in reducing its EBITDA loss over the past year, its ability to service its overall debt is unlikely given the fundamental challenges facing the competitive local exchange carrier industry.

S&P rates Barneys B-

Standard & Poor's assigned a B- rating to Barneys Inc.'s proposed $100 million senior secured notes due in 2008.

Although the notes are secured by a second priority lien on substantially all of the company's assets, they are still considered junior to a substantial amount of first priority debt, S&P noted. Accordingly, they are rated one notch below the corporate credit rating.

The ratings on Barneys reflect the company's weak credit protection measures, along with a small store base and high geographic concentration, S&P added. Moreover, the company participates in the highly competitive high-end niche of the specialty retailing segment. These risks are somewhat mitigated by the strength of the company's brand name and its strong relationships with major designers.

Barneys is highly leveraged with pro forma total debt to EBITDA of about 6.0x (lease adjusted) for the fiscal year-ended February 2003, S&P said. Though slightly improved from the year before, pro forma EBITDA coverage of interest expense was still weak at about 1.8x for the fiscal year ended February 2003 compared with 0.9x a year ago on a lease-adjusted basis. If the company is able to continue with its disciplined approach towards managing expenses and increasing comparable-store sales, a gradual improvement in credit protection measures is foreseen.

S&P puts US Airways 2000-3 class C on negative watch

Standard & Poor's revised its CreditWatch on US Airways Inc.'s series 2000-3 pass-through certificates, class C to negative from developing. The security is rated C.

S&P said the action follows the airline's failure to make a $44.5 million payment due on March 1 on the series 2000-3 pass-through certificates Class G and C.

The company is negotiating with "certain interested parties" regarding these payments, including Airbus, the manufacturer of the aircraft (14 A319s, 3 A320s, and 6 A321s) securing the deal, and expects to reach an agreement within the five-business day cure period, S&P said. There is no assurance that an agreement will be reached. The AAA ratings on the class G are not affected, as it is insured by MBIA Insurance Corp.

This move is significant as it is the third instance of US Airways attempting to revise or terminate its financing on Airbus planes, which form US Airways' core fleet, rather than those on Boeing or other manufacturers' planes, which it is gradually replacing, S&P said. The A319 and A320 models are popular aircraft that incorporate current technologies, and their values have until now held up better than those of most other aircraft.

Moody's raises RCN liquidity

Moody's Investors Service upgraded its speculative-grade liquidity rating on RCN Corp. to SGL-3 from SGL-4.

Moody's said the change reflects its assessment that RCN's liquidity profile is now best characterized as "adequate" and no longer "weak".

The revision follows the company's recently completed sale of cable television system assets in central New Jersey which resulted in proceeds of about $245 million (less transaction expenses and a portion to be held in escrow for the next year), and the ensuing completion of Moody's own analyses in support of the revised contention that RCN is no longer expected to experience a liquidity shortfall over the next year.

Moody's did note that financial maintenance covenants as stipulated in the company's senior secured bank credit agreement do continue to be notably tight, nonetheless, and that the minimum consolidated EBITDA test which is scheduled to be applicable again starting in 2004 may prove particularly challenging to remain compliant with if a transition to positive cash flow is not affected.

Moody's puts Stillwater on review

Moody's Investors Service put Stillwater Mining Co. on review for possible downgrade including its $65 million term loan due November 2005, $135 million term loan due November 2007 and $50 million revolving credit facility maturing November 2005 at Ba2 and $30 million senior unsecured exempt facility revenue bonds Series 2000 due 2020 at Ba3.

Moody's said the review is in response to uncertainty surrounding the company's efforts to establish adequate near-term and long-term liquidity.

In the short term, this depends primarily on Stillwater gaining access to the unused portion, approximately $17.5 million, of its revolving credit facility, which contains production covenants that Stillwater does not believe it will attain at March 31, 2003.

Stillwater is currently working with its banks to obtain amendments or waivers to the bank covenants and to obtain access to additional borrowings under the revolver, Moody's noted.

Longer term, Moody's believes the company needs to obtain additional capital in order to fund capital projects at its Montana mines and ensure adequate liquidity while it works to solidify the performance of the company.

Its plan to sell a majority interest in the company to MMC Norilsk Nickel for consideration currently valued at $300 million addresses this longer-term need. This transaction is subject to governmental, shareholder, and bank group approval and the company expects the transaction to be completed by the end of the second quarter of 2003.

While successfully concluding the Norilsk transaction could lead to a confirmation of Stillwater's ratings, the ratings have been placed under review for possible downgrade due to the uncertainty associated with the company's ability to obtain covenant relief from the credit facility lenders so that Stillwater can access the revolver credit facility and successfully conclude the Norilsk transaction.

S&P puts Trenwick on watch

Standard & Poor's put Trenwick Group Ltd. on CreditWatch with negative implications including Trenwick America Corp.'s $75 million 6.7% notes due 2003 at CCC- and Chartwell Re Corp.'s $75 million 10.25% senior notes due 2004 at CCC-.

S&P said the watch placement is because it believes Trenwick's ability to restructure its senior debt to keep it out of default is remote.

Trenwick had a covenant in its recently renewed bank letter of credit facility that required a refinancing of its April 1 maturity of $75 million of senior debt by March 1. Although management has a waiver of the covenant, S&P said it believes its ability to restructure such that the senior debt is not in default remains remote.

Fitch cuts Kemper

Fitch Ratings downgraded Kemper Insurance Cos. including cutting the $700 million surplus notes issued by Lumbermens Mutual Casualty Co. to C from CCC. All ratings were removed from Rating Watch Negative.

Fitch said the actions follow recent announcements by the company regarding operating results and future strategic initiatives.

Fitch's concerns regarding the financial condition of Kemper are evidenced by the decline in consolidated policyholders' surplus to approximately $1.0 billion at year-end 2002 from approximately $1.5 billion at year-end 2001. The decline was primarily caused by adverse prior year loss development, additional funding obligations for Kemper's pension plan, and significant realized investment losses.

Included in these concerns is the increasing likelihood that interest payments on Lumbermen's surplus notes may not be made as scheduled, as the next interest payment is due in June 2003, Fitch said.

The reduction in capital reported at year-end 2002 strains an already thin capital base that is heavily levered. Policyholders' surplus at Lumbermens is currently estimated at $700 million at year-end 2002. This is comprised entirely of the surplus notes, which represents financial leverage of 100%, and is far greater than industry peer ratios which are typically in the 25%-30% range, Fitch added.

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