Moody's cuts, withdraws Outsourcing Services

Moody's Investors Service downgraded of Outsourcing Services Group, Inc.'s ratings including cutting its $105 million 11 3/8% senior subordinated notes due 2006 to Ca from Caa2, assigned a negative outlook, and withdrew the ratings since Outsourcing Services is no longer filing public financial statements with the SEC.

The ratings downgrade and negative outlook reflects Moody's expectation that Outsourcing Services faces a challenging operating environment given the soft economy and associated excess capacity at many of its customers and competitors.

The company has been attempting to control costs in this environment through various restructuring initiatives. Nonetheless, the ratings recognize the cash outflows required to implement these programs that, when combined with difficult business conditions and a highly leveraged capital structure, could restrain Outsourcing Services' liquidity and financial flexibility.

Outsourcing Services' credit agreement requires minimum availability of $2.5 million under the revolving credit facility, which could be problematic around the company's semi-annual interest payment on Sept. 1, 2003. Moody's also believes that financial covenants may be tight, providing little cushion for Outsourcing Services to underperform relative to plan.

S&P upgrades Edelnor

Standard & Poor's upgraded Empresa Eléctrica del Norte Grande SA's corporate credit rating to B- from CC and rated its $217 million debt certificates at B-. The outlook is stable.

S&P said the action reflects a more favorable maturity schedule after the company completed its Chapter 11 reorganization and strategic plan.

Edelnor completed a Chapter 11 reorganization on Nov. 5, 2002, which replaced $340 million in bank debt with $217 million 15-year debt certificates and a $46 million subordinated shareholder loan.

Although this reorganization improved Edelnor's debt and maturity profile, financial performance remains fairly weak as a result of the significant oversupply in the SING, which is Edelnor's area of operation, S&P said.

S&P expects Edelnor's funds from operations interest coverage, including cash inflows from its 21% owned Norandino Natural Gas Pipeline, to improve to levels of about 2.5x-3x times from 1.8x in 2002 but believes financial flexibility will remain significantly restricted.

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