Moody's rates UCAR's planned notes B2, raises outlook

Moody's Investors Service assigned a B2 rating to UCAR International Inc.'s planned offering of $250 million senior unsecured notes due 2012 through its UCAR Finance Inc. unit and confirmed UCAR's senior secured bank term loans and revolving credit facility at Ba3. Moody's also raised the company's outlook to stable from negative.

Moody's said its ratings reflect UCAR's sizable leverage and negative net worth; Moody's expectation that prices for graphite electrodes, the company's principal product, will remain low and may fall further; UCAR's exposure to the cyclicality and current weakness of the electric arc furnace steel industry; and increased concentration and currency exchange risk associated with its international operations.

On the positive side, Moody's said UCAR's ratings are supported by its significant market share; its market and production-base diversity; its industry-leading cost position, which will be strengthened by a recently announced cost saving and restructuring plan; and its improved liquidity following the completion of the bond offering.

Moody's also anticipates an eventual rebound in the amount of steel produced worldwide by electric arc furnaces and incorporates the growth potential of UCAR's Advanced Energy Technology division in the ratings.

Moody's said it raised the outlook because it expects UCAR will be able to maintain its current cash flow, "even under very difficult market conditions for graphite electrodes," through plant rationalization and cost saving initiatives, augmented by asset sales.

S&P rates new UCAR notes B-, lifts outlook to stable

Standard & Poor's assigned a B- rating to UCAR Finance Inc.'s planned offering of $250 million senior unsecured notes due 2012, confirmed UCAR International Inc.'s corporate credit rating at B+ and raised the outlook to stable from negative. Ratings affected include:

S&P said it raised UCAR's outlook to reflect the announcement of cost savings of an additional $80 million by 2004 and proceeds from asset sales totaling an estimated $60 million to $65 million after tax; improved financial flexibility resulting from the successful negotiation of a more flexible covenant package and less onerous amortization schedule from its bank creditors and; payment deferral of antitrust litigation fines.

S&P added that UCAR's ratings reflect its position as the world's lowest-cost producer of graphite and carbon electrodes and its leading market share, offset by an aggressive financial profile and significant exposure to the cyclical steel markets.

"Following extensive industry consolidation, participants in the graphite electrode industry have demonstrated capacity restraint and are somewhat insulated from new production, given the high barriers to entry," S&P noted.

However the steel industry is cyclical and U.S. produces have been experiencing "extremely difficult market conditions," S&P added.

Moody's downgrades KMC Telecom

Moody's Investors Service downgraded KMC Telecom Holdings Inc., affecting $736 million of debt. Ratings lowered include KMC's $275 million of 13.5% global senior notes due 2009 and $461 million senior discount notes due 2008, both lowered to C from Caa2.

Moody's said it lowered the ratings because KMC's core CLEC operations have fallen short of Moody's expectations, adding that it is concerned the company does not have enough liquidity to fund its operations over the intermediate term.

"KMC has experienced substantial recent growth in its National Data Platform (NDP), however future cash flows associated with the NDP have already been largely monetized through a number of securitized loans," the rating agency said.

Although cost controls have reduced operating leverage at KMC's CLEC operations, revenue growth has remained slow and this business has yet to turn a profit, Moody's said.

At Sept. 31, 2001, KMC reported cash of $123 million, restricted investments of $73 million and net PP&E of $1.24 billion to support approximately $1.5 billion of debt securities, Moody's said. Of these, $570 million of net PP&E and $569 million of debt pertain to securitized transactions.

In view of KMC's "strained" liquidity, Moody's questioned the company's ability to make required bank loan payments without a restructuring.

S&P cuts Global Crossing to D

Standard & Poor's downgraded Global Crossing Ltd. to D after it filed for bankruptcy. Asia Global Crossing Ltd. remains on CreditWatch with negative implications because it was not part of the bankruptcy filing.

Ratings affected include Global Crossing Holdings Ltd.'s $500 million preferred stock, $800 million 9.625% senior notes due 2008, $900 million 9.125% senior notes due 2006, $1.1 billion 9.5% senior notes due 2009 and $1 billion 8.7% notes due 2007, all previously rated C, and its $1 billion secured bank loan, previously rated CCC-; Global Crossing Ltd.'s $1 billion 6.375% cumulative convertible preferred stock, $500 million 7% cumulative convertible preferred stock and $1 billion 6.75% convertible preferred stock, all previously rated C; Frontier Corp.'s $100 million 9% debentures due 2021, $6 million 5% cumulative preferred stock, $300 million 7.25% notes due 2004 and $200 million 6% dealer remarketable securities notes due 2003, all previously rated C; and Asia Global Crossing Ltd.'s senior unsecured debt rated CCC-.

S&P cuts Pen Holdings to D

Standard & Poor's downgraded Pen Holdings Inc. to D after it filed for Chapter 11 bankruptcy protection.

Ratings affected include Pen Holdings' $100 million 9.875% senior notes due 2008 previously rated CC.

Fitch confirms Bally Total Fitness

Fitch confirmed Bally Total Fitness Holdings Corp. including its senior secured bank credit facility rated BB- and senior subordinated notes rated B+, affecting $525 million of debt. The outlook is stable.

Fitch said the ratings reflect Bally Total Fitness' position within the leisure industry and likelihood that its customer base will increase usage (as well as gain new customers) as consumers stay closer to home.

Also incorporated in Fitch's assessment is Bally's efforts to improve operating margins via the sale of ancillary products as well as its controlled new club acquisition program.

Moody's downgrades Ispat

Moody's Investors Service downgraded various ratings of the Ispat companies. The outlook is negative. Ratings affected include Ispat Europe Group SA's €150 million senior secured notes, cut to Caa2 from B2, Ispat Mexicana SA de CV, cut to Ca, and Ispat Inland Inc. and its affiliate, Ispat Inland LP, which saw their senior secured debt lowered to Caa2 from B3 and senior unsecured debt to Ca from Caa2.

Moody's said the downgrade reflects the "deteriorating financial situation" of Ispat International, the holding company and guarantor of Ispat Europe, Ispat Inland Inc. and Ispat. The outlook is negative.

For Ispat Europe, Moody's said there is an increased likelihood Ispat International will experience an event of default under its guarantee obligations after the exchange offer launched by Ispat Mexicana for notes guaranteed by Ispat International. A potential default at Ispat International would trigger cross acceleration covenants in Ispat Europe's bonds and could therefore create liquidity issues at Ispat's European. Ispat International's liquidity problems could potentially result in the sale or liquidation of Ispat Europe, Moody's added. However it added that on a stand-alone basis, Ispat Europe's operating performance and debt protection measures are satisfactory considering the stress on the steel sector, Moody's said.

Ispat Mexicana is currently facing an "imminent liquidity shortfall" with US$170.3 million of debt service payments due this year that it will be unable to meet, Moody's said. The company has proposed an exchange offer to holders of its Export Trust No. 96-1 certificates that would postpone principal repayments until June 2005. Moody's said it considers the offer a distressed exchange to avoid default.

For Ispat Inland, Moody's said ratings were lowered because of the challenging conditions in the US integrated steel industry which have resulted in weak cash flow that may render the company unable to meet the minimum consolidated EBITDA financial covenant in its credit facilities. The waiver for this covenant expires on March 31, 2002. At Dec. 31, 2001, the parent company informed its subsidiaries that it does not have sufficient funds to provide additional support to them, Moody's said.

Moody's puts Bausch and Lomb on review for downgrade to junk

Moody's Investors Service put Bausch & Lomb, Inc. on review for downgrade to junk, affecting $700 million of debt. Its senior unsecured debt is currently rated Baa3.

Moody's said its action follows Bausch & Lomb's fourth quarter earnings which showed continuing weaknesses in the company's operations, as well as a reduction of balance sheet cash.

Revenues declined in four out of five product categories, Moody's said, adding that despite revenue contribution from new products it believes Bausch & Lomb will continue to face significant product cannibalization, competition, and economic uncertainty, particularly in the area of refractive surgery.

Moody's also noted a reduction balance sheet cash, "which has been a primary stabilizing factor for the company's ratings. Although the decline in cash is attributable in part to debt repayment, Moody's also notes several cash acquisitions made in the quarter, totaling approximately $40 million."

S&P downgrades Delta Mills, still on watch

Standard & Poor's downgraded Delta Mills Inc. and kept it on CreditWatch with negative implications. Ratings affected include Delta Mills' $150 million 9.625% senior notes due 2007, lowered to B- from B+.

S&P said the downgrade reflects Delta Mills' "significantly weakened operating performance and related credit measures for the six months ended Dec. 29, 2001, and the expectation that such measures will remain pressured in the near term."

The weak economy and "extremely difficult conditions at retail" led to considerable volume and unit declines during the period, S&P said, resulting in margin pressures and a meaningful drop in operating profits.

The company has financial flexibility from its unused $50 million secured bank facility but S&P warned Delta Mills may need a waiver or amendment at some future date.

Moody's downgrades Telefonica de Argentina

Moody's Investors Service downgraded Telefonica de Argentina SA (TASA) to B2 from B1, affecting $900 million of debt. The outlook is negative.

The rating agency said it lowered TASA's ratings because of increased uncertainty about whether it will be able to make future dollar-denominated payments should a new Argentinean law be approved which would preclude Argentinean-domiciled companies from making any payments in foreign currency.

There is also uncertainty about regulations which will set TASA's future tariff increases, Moody's said.

Moody's added that TASA is rated five notches above Argentina based on the perceived strong implicit support from Telefonica SA, which owns 98% of TASA, and the strategic value of TASA.

S&P raises Merisant outlook to positive

Standard & Poor's raised its outlook on Merisant Co. to positive from stable and confirmed the company's ratings including its corporate credit and senior secured debt at BB-.

S&P said it raised the outlook because Merisant has paid down debt ahead of scheduled, improving its credit protection measures.

S&P said it expects the company's financial profile to continue to strengthen.

The confirmation of Merisant's ratings reflects the firm's proposed $70 million increase to its existing secured credit facility with proceeds to refinance higher interest subordinated debt.

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