S&P lowers Forest Oil outlook

Standard & Poor's lowered its outlook on Forest Oil Corp. to stable from positive and confirmed its ratings including its senior secured bank loan at BB+, senior unsecured debt at BB and subordinated debt at B+.

S&P said the action is based on weaker-than-expected results at Redoubt Shoal and growing reliance on acquisitions to fuel reserve growth. The long-term implication of the company's increasing exposure to the Gulf of Mexico is also a concern.

The ratings incorporate Forest's announcement that it has signed an agreement with Union Oil Co. of California (Unocal) to purchase properties in South Louisiana and offshore Gulf of Mexico, S&P added. The transaction, which is expected to close by Oct. 30, will be funded with a relatively balanced mix of both debt and equity.

The acquisition is expected to add approximately 151 billion cubic feet equivalent of proven reserves for a purchase price of $260 million, or about $1.72 per thousand cubic feet equivalent.

This transaction follows three smaller acquisitions that totaled $51 million and added 49 billion cubic feet equivalent of reserves. Post-acquisition, the company will become the fifth-largest acreage holder in the Gulf of Mexico. The company's capital expenditures in the Gulf of Mexico are expected to rise from 33% of total capital investment in 2002 to 51% in 2003.

Production from the recently announced acquisitions should help offset accelerating production declines from its existing Gulf Coast properties, S&P noted. However, Forest's near-term need to replace reserves from rapidly producing properties and the unpredictable nature of the acquisition market highlight the company's challenges to consistently increase reserves and production at acceptable costs.

S&P said it is concerned that Forest's increasing focus on the Gulf of Mexico, which is characterized by short-lived reserves, could become a concern in the event that prices fall significantly, and the company must rely on external financing to fund reserve replacement.

S&P says GrafTech unchanged

Standard & Poor's said GrafTech International Ltd.'s ratings are unchanged including its corporate credit at B+ with a stable outlook following the company's announcement that it will be issuing 16 million shares of common stock with proceeds going toward debt reduction.

Despite the material reduction in debt from the equity proceeds and future asset sales as well as the improved 2004 earnings guidance provided by the company, pro forma credit measures are only expected to return to levels appropriate for its current ratings from the extremely weak measures that have existed over the past three years, S&P said.

S&P lowers Unifi outlook

Standard & Poor's lowered its outlook on Unifi Inc. to negative from stable and confirmed its ratings including its senior unsecured debt at BB.

S&P said the revision follows Unifi's announcement that it expects to incur a net loss in the range of approximately $5 million to $8 million for the September 2003 quarter. This contrasts with the company's net income of $4.3 million for the same quarter last year.

The expected decline in profitability is due to the continuing erosion of average unit prices and volumes as the effects of weak economic conditions, Asian imports and excess supply chain inventories continue to affect textile and apparel manufacturers.

S&P said it is concerned that Unifi's financial performance will continue to be pressured by challenging business conditions in the intermediate term.

Unifi's ratings reflect the company's narrow business focus, highly competitive market conditions and fundamental changes in industry dynamics that have hurt operating performance, S&P said. These factors are somewhat mitigated by the company's leading market position and diverse end-use markets, as well as its moderate financial profile.

Unifi has been focused on strengthening its balance sheet and improving its cash flow, S&P added. The company paid down about $25 million of debt during fiscal 2003 and had about $267 million of total debt outstanding at June 29, 2003. Lease-adjusted EBITDA coverage of interest expense was about 4.3x and lease-adjusted total debt to EBITDA was about 3.1x for fiscal 2003. S&P said it believes Unifi will be challenged to maintain credit protection measures at these levels given current industry conditions and the recent announcement that the company expects to incur a loss for the quarter ending September 2003.

S&P says Centennial unchanged

Standard & Poor's said Centennial Communications Corp.'s ratings are unchanged including its corporate credit at B- with a stable outlook after the company withdrew its planned 30 million-share common equity offering.

S&P said it confirmed Centennial's ratings and outlook on Sept. 12, when Centennial announced the planned offering and indicated it would use net issuance proceeds to repay unsecured subordinated notes due July 2009. At that time, S&P indicated that the degree of improvement from a potential full paydown of the company's approximate $203 million of accreted value of mezzanine debt with the net issuance proceeds would not have been sufficiently material to support a higher corporate credit rating.

Paydown of the mezzanine debt also would not have increased availability under the secured bank facility financial covenants, as this debt is excluded from the calculations under the financial covenants. Moreover, because the mezzanine debt was non-cash-pay, its refinancing would not have improved the company's net cash flow position.

S&P cuts Salton, rates loan BB-

Standard & Poor's downgraded Salton Inc. including cutting its senior secured debt to BB- from BB and $125 million 10.75% senior subordinated notes due 2005 and $150 million 12.25% notes due 2008 to B- from B and assigned a BB- rating to Salton's $275 million senior secured bank loan due 2007. The outlook is negative.

S&P said the bank loan is rated one notch above the corporate credit rating because in a stressed scenario it believes that senior lenders could expect significant recovery of principal.

The downgrade reflects increased competitive pressures that have eroded profitability, including more intense price competition at the retail level, S&P said. In addition, the George Foreman line of indoor grills has matured and sales of these products in Europe have not offset domestic weakness.

The ratings reflect Salton Inc.'s participation in the highly competitive small appliance market, concentrated retail sales, accelerating price deflation at retail and high debt leverage, S&P added. Somewhat mitigating these risks is Salton's solid track record in new product development and in successfully marketing its existing branded product portfolio. The company's business model has a flexible cost structure. Salton uses third-party companies mostly in China to manufacture its products, eliminating factory overhead and allowing the company to shift production to the lowest cost producers of its appliances.

EBITDA for the fiscal year ended June 28, 2003, fell 45% versus the previous year, as the company discounted merchandise to retain market share in the second half in a weak retail environment, S&P said. With increased discounting and higher advertising expenses to drive sales, the EBITDA margin fell to 7.8% in fiscal 2003, from 13.8% the year before. Despite lower profitability, with cash generated by working capital, both from lower inventories and increased payables from an acquisition, discretionary cash flow rose to $107.6 million in fiscal 2003 from negative $10.9 million the previous year. While the company used its strong cash flow to repay about $95.9 million in debt, debt reduction did not offset the decline in profitability. As a result, adjusted for operating leases, total debt to EBITDA was 5.9x at June 28, 2003, versus 4.0x in 2002. Similarly, EBITDA coverage of cash interest expense, adjusted for operating leases, was 1.8x at June 28, 2003, compared with 3.4x in 2002.

Moody's rates CSK liquidity SGL-2

Moody's Investors Service assigned an SGL-2 speculative-grade liquidity rating to CSK Auto, Inc.

Moody's said the SGL-2 liquidity rating reflects the expectation that CSK Auto will maintain good liquidity and that its internally generated cash flow and cash on hand will be sufficient to fund its working capital, capital expenditure and debt amortization requirements for the next 12-18 months.

The company's $125 million revolving credit facility, which matures June 2008, is expected to remain largely undrawn and is used only for seasonal needs and letter of credit support.

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