Moody's cuts ATA

Moody's Investors Service downgraded ATA Holdings, Corp. and its primary operating subsidiary ATA Airlines, Inc. including cutting ATA Holdings' senior unsecured notes to Ca from Caa3 and some enhanced equipment trust certificates of ATA Airlines, Inc. All ratings remain on review for possible downgrade.

Moody's said the actions reflect the company's weak internally generated cash flow, difficulties in meeting its intermediate term debt payments, lack of access to capital markets and the need to undertake an exchange offer for its outstanding unsecured notes due in 2004 and 2005.

The review for possible downgrade considers the uncertainties surrounding the outcome of the exchange offer and the difficulties the company could have in meeting its financial obligations if it is not completed, Moody's added.

Cash adequacy will be tested by the combination of large lease payments due in the first quarter or 2004 combined with the August maturity of its $175 million 10.5% unsecured notes, Moody's said. The company has announced an exchange offer for the 2004 notes and its $125 million 9.625% notes due in 2005.

The effect of the exchange, if it is successfully concluded, will be to substantially reduce the company's near and intermediate debt maturities and to provide the basis for a reduction in the company's rental payments, Moody's said. In addition to a reduction or elimination of the bond maturity, the company has negotiated reduced near term aircraft rental payments (contingent upon a successful completion of the exchange offer) further reducing demands on cash.

Supporting the ratings are several factors. Cash and cash flow have been bolstered by two events, a one time payment received under the provisions of the Emergency Wartime Supplemental Appropriations Act ($37.2 million) and the cash flow benefit of expanded military charter activity during the war in Iraq, Moody's said. However, military charter activities are expected to decline in the second half of 2003.

Moody's upgrades OM Group notes

Moody's Investors Service upgraded OM Group, Inc.'s $400 million senior subordinated notes due 2011 to Caa1 from Caa2 and confirmed its other ratings including its senior implied rating at B2. The outlook is positive.

Moody's said the action follows OM Group's sale of its precious metals business to Umicore for net proceeds of $730 million and subsequent reduction in debt, completed in July 2003.

The ratings derive support from the substantial reduction in OM Group's debt following the precious metals sale, the associated improvements in pro forma credit metrics and a reduced risk profile achieved through the divestiture of the volatile and lower-margin metals management business, Moody's said.

The ratings are also supported by the company's unique vertical integration, leading metal refining technology, the diversity of its customer base, and increased emphasis on new product development.

However, the ratings are constrained by OM Group's moderately high pro forma leverage with estimated debt to trailing 12 months EBITDA of 3.7 times (adjusted for the precious metals sale, restructuring charges, reductions in senior debt, and estimated D&A); recently weaker operating results due to reduced base metal demand, higher operating costs, and the stronger euro; the likelihood of continued weakness in the markets that impact cobalt pricing, particularly aerospace; and the prospect for additional restructuring expenses.

The ratings also continue to reflect the company's significant working capital requirements, foreign currency exchange risk, moderate acquisition risk, and concerns over the need to secure additional nickel feedstock.

The upgrade of the senior subordinated notes to Caa1 from Caa2 reflects the reduced likelihood of default following the precious metals sale and the significantly reduced proportion of senior secured debt in the capital structure, Moody's said.

The positive outlook reflects Moody's expectation that the ratings could be upgraded if OM Group expands cash flow from operations and completes restructuring initiatives while maintaining good liquidity.

S&P puts Motor Coach on watch

Standard & Poor's put Motor Coach Industries International Inc. on CreditWatch negative including its $143.5 million 11.25% senior subordinated notes due 2009 at CCC+ and $152 million revolving credit facility due 2005 and $310 million term loan due 2006 at B.

S&P said the watch placement reflects concern over the delayed timing of a private sector end-market recovery, coupled with reduced near-term demand from the previously robust public sector market.

Motor Coach continues to be adversely affected by the persistent weakness of private sector demand from independent tour and charter operators and national coach fleet operators, S&P said. The soft economy, lack of available credit and weak financial profiles of many customers have depressed sector demand for several years and the near-term outlook is uncertain.

A partial offset for the past few years has been the strong, but much smaller, public sector, where orders increased dramatically as customers have been replacing aging fleets. However, near-term public sector prospects are now less favorable, as the last delivery of Motor Coach's base order for its largest public sector customer has been completed and other customers may be close to the end of their replacement cycles.

S&P said it had previously assumed that strong public sector demand would last sufficiently long to enable private sector demand to recover.

Operating margins and EBITDA have been increasing from low points in 2000, as the firm is benefiting from restructuring and cost-cutting actions. For the first half of 2003, EBITDA interest coverage stood at about 1.4x, and debt to EBITDA on a last-12-month basis is about 6.5x, S&p said. The company is expected to remain in compliance with amended bank covenants for the balance of 2003, although it will likely be in violation of covenants in 2004 when original provisions are restored.

S&P upgrades Greyhound

Standard & Poor's upgraded Greyhound Lines Inc. including raising its corporate credit to CCC from CC, removed it from CreditWatch positive and assigned a developing outlook. The $150 million 11.5% senior notes due 2007 were confirmed at CC.

S&P said the upgrade follows a review of Greyhound and its relationship with its parent, Laidlaw International Inc. (BB/stable), which recently emerged from bankruptcy, as well as an assessment of Greyhound's operating performance.

Greyhound's ratings reflect its weak business and financial profiles, S&P said. Greyhound is, by far, the nation's largest intercity bus company, providing service to more than 2,600 destinations with a fleet of approximately 2,900 buses. However, Greyhound has been facing increasing competition from airlines offering low fares, automobile travel and, in certain markets, regional bus lines and trains, a trend expected to continue over the long term.

Reduced travel levels in general since 2001 have also negatively affected the company.

Greyhound's financial profile is very weak and the company has limited financial flexibility. In 2002, the company lost $112 million, primarily due to tax benefit reversals of $61 million and a $40 million goodwill impairment charge. The company's losses have continued in 2003, with a $26 million operating loss.

As a result, its credit ratios have deteriorated significantly, S&P said.

However, the company has initiated some revenue enhancement and cost-reduction programs to improve its profitability, which should result in some improvement in its credit profile over the intermediate term.

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