S&P upgrades Corrections Corp., rates notes B

Standard & Poor's upgraded Corrections Corp. of America including raising its $250 million 9.875% senior notes due 2009 to B from B- and $595 million term loan B due 2008, $75 million revolving credit facility due 2006 and $75 million term A loan due 2006 to BB- from B+. S&P also assigned a B rating to the planned $200 million senior unsecured notes due 2011. The corporate credit rating is confirmed at B+ and the outlook remains positive.

S&P noted the rating on the proposed notes is one notch below the company's corporate credit rating, reflecting the unsecured notes' pro forma junior position relative to the firm's secured debt.

S&P said the actions follow Corrections Corp.'s recent announcement that it intends to offer 6.4 million shares of new common stock and issue $200 million of new senior unsecured notes. It will also prepay about $57 million of the company's senior secured term loan facilities with $25 million of cash on hand and an expected $32 million tax refund.

S&P said the upgrade reflects Corrections Corp.'s plan to reduce its senior secured bank debt by more than $100 million during the second quarter of 2003. This debt reduction is expected to result in greater asset coverage of the senior secured debt, which would then be sufficient to fully cover the bank debt.

Furthermore, the company's senior unsecured debt would be at less of a disadvantage to its secured debt obligations, following the reduction of the company's bank debt, S&P added. Consequently, the senior unsecured debt rating would only be one notch lower than the corporate credit rating.

For the bank debt, S&P said it believes that the proceeds from the liquidation of collateral in a distressed situation would be sufficient to fully cover the bank debt.

Corrections Corp.'s ratings continue to reflect its narrow business focus, inherent political risk, and highly leveraged financial profile, S&P said. Somewhat mitigating these factors is the company's leading position in the U.S. private correctional facility management and construction business.

While Corrections Corp.'s leverage will remain high following the proposed transaction, the company continues to improve its financial performance, S&P said. Moreover, the company's liquidity position should improve as near-term required bank debt amortization is reduced.

S&P expects EBITDA coverage of interest (including preferred stock dividends treated as interest) to improve to about 2.3x in 2003 from 1.6x in 2002, with total debt (adjusted for preferred stock) to EBITDA to improve to less than 5x in 2003 from more than 6x in 2002.

S&P cuts CB Richard Ellis

Standard & Poor's downgraded CB Richard Ellis Services Inc. including lowering its $210 million bank loan due 2008 and $50 million bank loan due 2007 to B+ from BB- and $229 million 11.25% senior subordinated notes due 2011 to B- from B. The ratings were removed from CreditWatch with negative implications. The outlook is stable.

S&P said the downgrade is because of CB Richard Ellis's increased indebtedness used to fund part of the Insignia acquisition, and limited debt service capacity.

While the acquisition will leave the firm with a substantially stronger business position, the significant debt component to the financing will further challenge the firm's debt service capacity, which was already challenged by the current operating environment, S&P said. The majority of revenue still comes from sales and leasing transactions, which are sensitive to economic cycles.

S&P added that while volatility remains in the core transaction-based business, the Insignia acquisition will increase the geographic diversity of earnings. Additionally, the existing bank debt financial maintenance restrictive covenants will be modified.

CB Richard Ellis has made it through the very difficult past two years by cutting overhead, which should help to sustain it going forward, S&P noted. While the overall volume of transactions is still being limited by the environment, there was some growth during the past two quarters, which resulted in year-over-year growth in revenue and earnings for the last half of the year.

S&P cuts Texas Industries

Standard & Poor's downgraded Texas Industries Inc. including cutting the $200 million 5.5% shared preference redeemable securities issued by TXI Capital Trust I to B- from B+. The outlook is negative.

S&P said the downgrade reflects Texas Industries' poor financial performance and declining liquidity due to very challenging conditions in the structural steel industry.

A number of factors continue to negatively affect the company's profitability, including low structural steel selling prices resulting from the oversupply caused by soft demand and excess capacity. Significant increases in steel scrap and natural gas costs are putting additional pressures on profitability. High natural gas costs are also affecting the company's margins in the cement, aggregates and concrete segment. Moreover, it is likely that these difficult conditions in the structural steel segment will persist for the intermediate term and preclude meaningful improvement in the company's financial results.

TXI has typically maintained a moderate financial profile, targeting total debt to total capitalization of 35% to 40%. The company had breached these targets in the past couple of years, spending heavily on expansion programs and meaningfully increasing debt, S&P noted. Since completing its growth spending in 2001, the company has focused on reducing costs and generating excess cash flows to reduce debt.

From May 31, 2001, to Feb. 28, 2002, the company paid down debt by $190 million and lowered its debt to capital to 39% from 46%. Despite these actions, the company's EBITDA interest coverage declined to 1.1x for the quarter ended Feb. 28, 2003, from 4.0x in the same quarter the year before, S&P said.

Moody's confirms Affinity

Moody's Investors Service confirmed Affinity Group Holding, Inc. including its $130 million 11% senior unsecured notes due 2007 at B3 and maintained a stable outlook.

Moody's said the ratings reflect the high financial risk associated with the company's high lease adjusted debt leverage and the modest free cash flow as well as the potentially rising business risks associated with the company's store expansion plan.

These risks are balanced by Affinity's leadership position in the direct marketing of goods and services to the recreational vehicle segment.

The confirmation incorporates the expectation that the company will remain weakly positioned in the Ba3 rating category over the next 6-12 months, however this is mitigated by the expectation that the company will grow into its balance sheet over the 24 month rating horizon, Moody's said.

As of Dec. 31, 2002, leverage is high with adjusted debt/EBITDA of 4.75 times and coverage is moderate with EBITDAR/(interest + rent) of 1.9 times, Moody's said. Further, free cash flow available to repay debt is low relative to the company's rating category with (cash flow from operating activity -

capex)/debt of 3%.

However, Moody's does expect Affinity's credit metrics to improve to performance levels in line with its rating category over the rating horizon as it benefits from revenue growth and uses free cash flow to reduce debt.

S&P says Smurfit-Stone unchanged

Standard & Poor's said Smurfit-Stone Container Corp.'s ratings are unchanged including its corporate credit at B+ with a stable outlook after the company announced it expects a first quarter loss of about $0.10 per share before unusual items, a negative swing of $0.24 per share or roughly $60 million from the previous quarter.

Results are being pressured by lower product prices, soft containerboard and box volumes, higher energy costs, and increased pension and employee benefit expense, S&P noted.

Offsetting positives include sufficient liquidity and use of the approximately $190 million in cash proceeds from a recent asset exchange with Jefferson Smurfit Group plc to reduce debt, S&P added.

Moody's rates Cumulus loan Ba3

Moody's Investors Service assigned a Ba3 rating to Cumulus Media Inc.'s planned $325 million term loan C, confirmed its existing $112.5 million revolving credit facility and $112.5 million term loan A at Ba3 and upgraded its senior implied rating to Ba3 from B1. The outlook is stable.

Moody's said the upgrade reflects consistent improvement in Cumulus' financial performance, including lower debt leverage (about 5.5 times pro forma for pending acquisitions and this transaction, as dramatically reduced from more than 8 times in 2001); improving margin performance (about 37% in 2002, up from 34% in 2001); increased free cash flow; and the expectation that the lion's share of acquisitions are now behind the company.

Performance has improved with greater management oversight, increased expense controls and the benefit of maturing stations. The ratings also incorporate the company's meaningful asset value when compared with its debt burden. Further, Cumulus' station portfolio is geographically diverse with prominently ranked stations in most of its market clusters. The ready market for radio assets enhances the financial flexibility of the company, Moody's added.

In addition, the ratings are supported by the use of equity to repay debt and fund acquisitions; the company's focus on local advertising revenue which is more durable in an uncertain economic environment than national revenue; and ample liquidity to execute its business plan, Moody's said.

Moody's notes that the bank ratings were not upgraded as a part of this process since following the transaction the bank facilities will comprise the entirety of Cumulus' debt capital structure.

As of Dec. 31, 2002, Cumulus' debt-to-EBITDA ratio pro forma for the company's 2002 acquisitions is comparatively moderate at approximately 5 times, and interest coverage is reasonable at 2.9 times after capital expenditures, Moody's said. Leverage should rise to about 5.4 times during 2003 pro forma for the acquisitions announced during the first quarter, and moderate by year-end.

S&P cuts Oregon Steel

Standard & Poor's downgraded Oregon Steel Mills Inc. including cutting its $305 million 10% first mortgage notes due 2009 to B+ from BB- and $75 million revolving credit facility due 2005 to BB- from BB. The outlook is stable.

S&P said the downgrade reflects its assessment that the weaker than expected operating environment in Oregon Steel's key markets, a shift to a lower product mix, and higher natural gas and steel scrap costs will result in weakening financial performance.

OSM is affected by intense competition, cyclical swings in demand, and fluctuations in the price of energy as well as steel scrap and slab, which are critical raw materials, S&P noted. The company primarily competes in markets west of the Mississippi River and in Western Canada, where there are few competitors, providing a transportation cost advantage relative to East Coast producers.

Despite lackluster economic conditions in some of its markets, the company had record shipments and a favorable product mix during 2002. Sales of its highest margin product, large diameter pipe, reached 479,000 tons, 370,000 of which was derived from its Kern River expansion project that was completed in December 2002.

However, with contracted shipments at about half last year's levels, Oregon Steel's large diameter pipe shipments in 2003 will be well below last year's level, which will meaningfully reduce the company's margins, S&P said.

S&P added that it is concerned that with the lack of new pipeline construction projects, demand for large diameter pipes could remain soft and prevent Oregon Steel from returning to its current profitability levels for an extended period. Plate, another key product with about 20% of its volumes was sluggish in 2002 and is expected to remain so as weakness in the nonresidential construction industry will likely continue for the intermediate term.

S&P puts Northwestern on watch

Standard & Poor's put Northwestern Corp. on CreditWatch with negative implications including its senior secured debt at BBB-, senior unsecured debt at BB, preferred stock at BB- and NorthWestern Energy Montana's senior secured debt at BBB-, senior unsecured debt at BB and preferred stock at BB-.

S&P said the watch placement follows NorthWestern's announcement of a $880 million write-off associated with the company's non-regulated businesses.

The rating action is the result of the continued problems associated with the company's Expanets Inc. and Blue Dot Inc. subsidiaries and management's continued inability to adequately project the performance or value of the non-regulated businesses, S&P added. The $880 million write-off depleted the equity layer of the capital structure.

S&P said it remains concerned about the performance of NorthWestern's non-regulated businesses, specifically Expanets and Blue Dot, and their ability to meaningfully contribute operating income. The company has not provided guidance for Expanets and Blue Dot in 2003.

The financing plan for the Montana Power asset acquisition in early 2002 included $200 million of equity to be issued in the first quarter 2002, S&P added. NorthWestern did issue about $83 million of equity in September 2002, but, given the company's current stock price, S&P does not believe the company could issue additional equity in the foreseeable future. Instead, NorthWestern may potentially incur additional debt to substitute for equity issues.

Moody's keeps Bombardier on review

Moody's Investors Service said Bombardier Inc.'s Baa3 rating remains on review for possible downgrade to junk, affecting $3.6 billion of securities.

Moody's continuing review comes after Bombardier announced that it has obtained a covenant amendment to its two main syndicated bank credit facilities; that it will be issuing at least C$800 million of equity; that it will launch an asset sale program which could yield proceeds in excess of C$1.5 billion, that will include the sale of its recreational products business; that the scope of Bombardier Capital's business will be reduced and it will focus on only two portfolio categories; that it has adopted new accounting policies to enhance transparency.

These changes in accounting policy, together with significant revisions of estimates, resulted in cumulative non-cash pre-tax write-downs of C$2.2 billion.

Moody's said it views the actions favorably but added that its ongoing review will focus on the expectation for the current year's cash flows as well as the specific elements impacting it; the timing of and actual proceeds realized from the equity issuance and asset sales; Bombardier's ability to obtain sufficient third-party financing to replace financing that was provided by Bombardier Capital for its businesses; progress in winding down Bombardier Capital's discontinued portfolios in terms of the size of the reduction of receivables, timing, and realizing prudent valuations compared to book values; the impact of the geopolitical conditions on future orders and deliveries of aircraft as well its current exposure to aircraft financing.

S&P rates Huntsman International notes B

Standard & Poor's assigned a B rating to the new $150 million senior unsecured notes due 2009 of Huntsman International LLC and confirmed the ratings of the company and its parent Huntsman International Holdings LLC. Ratings confirmed include Huntsman International Holdings' senior unsecured debt at B- and Huntsman International LLC's senior secured debt at B+, senior unsecured debt at B and subordinated debt at B-.

S&P said the new notes will improve near-term financial flexibility by continuing Huntsman International's efforts to reduce scheduled debt amortization over the next couple of years.

The ratings on Huntsman International Holdings LLC and its subsidiary Huntsman International LLC, reflect a highly aggressive financial profile and vulnerability to industry cyclicality, which outweigh strong positions in several chemical markets, S&P said.

The PO, TIO2, and polyurethane businesses are characterized by relatively few players, significant barriers to entry (including technological complexity and long-term customer relationships), and more stable operating performance over the course of a typical business cycle, S&P noted. Still, recent operating results have reflected a vulnerability to economic downturn, which has depressed pricing for most products.

Other persistent challenges have included oversupply conditions and low operating rates in petrochemical product lines, and unusually volatile raw material costs.

Credit statistics reflect an aggressive financial position, with total debt to EBITDA above 7x (including payment-in-kind seller notes issued by Huntsman International Holdings) and EBITDA interest coverage below 2x, S&P said. Accordingly, the current ratings incorporate expectations that key credit ratios will exhibit gradual improvement:-EBITDA interest coverage and debt to EBITDA should strengthen to about 2.5x and 4.5x, respectively, during the next couple of years.

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