Moody's puts Bowater on review

Moody's Investors Service put Bowater Inc. on review for possible downgrade including its senior unsecured notes, debentures, revolving credit facility and industrial and pollution control revenue bonds at Ba1 and Bowater Canada Finance Corp.'s senior unsecured notes at Ba1. The speculative-grade liquidity rating was confirmed at SGL-3.

Moody's said Bowater's financial performance remains stressed by the continuing difficult operating environment for newsprint and pulp producers despite recent improvements in pricing.

Although Bowater will benefit from a recently instituted price increase, the third increase in the past year, Moody's said it sees limited prospects for further improvements in the near term as newsprint demand remains sluggish.

Hence, free cash flow is expected to remain negative in the near term and Bowater's ability to reduce debt is limited, Moody's added.

S&P says Qwest unchanged

Standard & Poor's said Qwest Communications International Inc.'s ratings are unchanged including its corporate credit at B- with a developing outlook after the company filed its delayed 2002 10-K report.

The filing eliminates a major negative factor from the company's credit profile, S&P noted.

However, the company still continues to face other risks, including the ramifications of ongoing SEC, Department of Justice, and General Services Administration investigations, as well as the existence of numerous shareholder lawsuits, S&P said.

S&P says Georgia-Pacific unchanged

Standard & Poor's said Georgia-Pacific Corp.'s ratings are unchanged including its corporate credit at BB+ with a negative outlook after the company reported third-quarter earnings.

Results - which were broadly in line with expectations - continued to be hurt by competitive market conditions in consumer products; ongoing economic-related demand weakness for pulp, paper and packaging; and high energy and fiber costs, S&P said.

These negative factors were to some extent offset by sharply higher structural panel pricing, as well as cost and working capital improvements, and the company reduced net debt by $329 million during the quarter.

Asbestos trends continue to track management expectations.

Georgia-Pacific's completion of agreements with two of its insurers to confirm the amounts those companies will pay for the company's asbestos liabilities and costs through 2012 was a positive development, S&P said.

Although the exact impact of potential federal asbestos legislation on Georgia-Pacific remains uncertain, it could be slightly positive for credit quality, S&P said.

Despite gradual strengthening, credit measures remain weak for the ratings, but management has reiterated its commitment to debt reduction, S&P added.

S&P rates NeighborCare notes B+, loan BB+

Standard & Poor's assigned a B+ rating to NeighborCare Inc.'s planned $225 million senior subordinated notes due 2013 and a BB+ rating to its proposed $100 million senior secured bank facilities due 2008. The outlook is stable.

S&P said the ratings reflect NeighborCare's uncertain performance as a newly independent company, its position as the third-largest provider in a consolidating industry and its moderate debt burden.

The bank loan is rated one notch higher than the corporate credit rating because S&P believes there is a strong likelihood that secured lenders would experience full recovery in the event of a default.

NeighborCare is much smaller than industry-leader Omnicare Inc. and could be at a competitive disadvantage, S&P said. Operating margins of 8% (pro forma for the spin-off) compare unfavorably with Omnicare's 14%. Moreover, NeighborCare has for many years operated as a subsidiary, and the success of its newly independent operations and strategies is uncertain.

Financial policies are equally uncertain, although the company currently bears only a moderate debt burden, S&P added. Treating a convertible preferred stock as debt, pro forma total debt to capitalization is 43% and total debt to EBITDA is 2.6x. The company is expected to use internally generated cash to fund infrastructure and technology improvements and selected acquisitions. Whether management will be pressured to aggressively pursue acquisitions to maintain its position in a consolidating market is an uncertain risk at this time.

Moody's upgrades Genesis Health, rates notes Ba3, loan Ba1

Moody's Investors Service upgraded Genesis Health Ventures, Inc. including raising its senior implied rating to Ba2 from B1 and assigned a Ba3 rating to its $225 million offering of senior subordinated notes due 2013 and a Ba1 to its planned $100 million senior secured credit facility. The outlook is stable.

Moody's said the upgrade reflects the anticipated decrease in leverage following the spin-off of the nursing home operations, as well as the reduction in business risk.

More specifically, Genesis Health Ventures will have reduced exposure to general and professional liability risks, direct government reimbursements and the ongoing nursing shortages. All three issues are major concerns for the nursing home industry.

Additional factors supporting the ratings include positive industry growth trends, favorable recent operating results and the company's desire to maintain a stronger credit profile and lower leverage, Moody's added. The rating agency also noted that the company is one of the leading players in the industry and that its competitive position should be enhanced post-spin since it will no longer compete directly with the nursing home customers.

Negative factors include Moody's concerns over potential acquisition activities, pricing pressures in the industry, cuts in Medicaid reimbursements, the high level of competition and the uncertainty surrounding the impact a Medicare drug benefits program may have on the industry.

In addition, Moody's said it is somewhat concerned that corporate overhead expenses may come in higher than expected post-spin and margins may be impacted.

The company's leverage, as measured by adjusted debt (8x rent)/EBITDAR, will decline to approximately 2.7 times for the fiscal year ending 2003 from approximately 3.5 times based on LQA June 2003 results, Moody's said. Coverage (EBITDAR/interest + rent) will increase to approximately 4.1 times from 3.6 times.

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