Moody's cuts Salton ratings

Moody's Investors Service said it downgraded the debt ratings of Salton Inc. following weak second quarter operating results, which suggest that the company's new products, lower-cost sourcing, and international growth initiatives are not generating sufficient returns to offset continued sales and profit declines in its core North American business.

Ratings downgraded include the company's senior implied rating to B2 from B1; $150 million 12¼% senior subordinated notes due 2008 to Caa2 from B3; $125 million 10¾% senior subordinated notes due 2005 to Caa2 from B3; $100 million subordinated shelf registration to prospective Caa2 from prospective B3; $100 million preferred shelf registration to prospective Caa3 from prospective Caa1; senior unsecured issuer rating to Caa1 from B2; and speculative grade liquidity rating to SGL-4 from SGL-3.

The outlook is negative.

Moody's does not rate Salton's $275 million senior secured revolving credit facility due 2007.

Moody's said the ratings receive support from Salton's large brand portfolio (several with leading shares); its history of product innovation, category creation and brand development; its long-standing relationships with customers and vendors; its somewhat flexible business model given its entirely outsourced production; and its historical usage of infomercials to introduce new products in a low-cost, low-risk manner.

However, Moody's said, the ratings continue to reflect Salton's high leverage, its dependence on the Foreman brand (still representing around one-third of sales), and its participation in market segments which are highly sensitive to economic trends, seasonality, and the success of new products.

S&P: United Agri Products on watch

Standard & Poor's said it placed its ratings for United Agri Products Inc. on CreditWatch with negative implications.

United Agri Products Inc.'s corporate credit is rated B+, senior secured credit facility is rated BB-, and senior unsecured debt is rated B.

S&P said the CreditWatch placement follows the recent S-1 filing by UAP Holdings Corp. (the parent company of United Agri Products) stating that the company plans to issue about $625 million in income deposit securities and subsidiary guaranteed senior subordinated notes.

Based on its preliminary review, S&P said it believes that the IDS structure, in general, exhibits a more aggressive financial policy than factored into the current rating.

Though the amount of the consolidated company's debt outstanding would change little after the IDS offering, UAP will have significantly reduced its financial flexibility given the anticipated high dividend payout rate. As a result, the structure limits the company's ability to withstand potential operating challenges and also reduces the likelihood for future deleveraging.

A further risk is that the debt portion of the IDS may not be treated as debt for U.S. federal income tax purposes by the IRS. If all or a portion of the subordinated notes are treated as equity rather than debt, then the interest on the subordinated notes will not be deductible by UAP. This could make the IDS securities uneconomic and expose UAP to refinancing risk and a claw-back of prior years' liability (there is generally a three-year limit on such a claw-back).

Moody's rates iPCS notes B3

Moody's Investors Service said it assigned a B3 rating to the pending issuance of $180 million of senior notes due 2012 by iPCS Escrow Co. Moody's also assigned a B3 senior implied rating to iPCS Inc. with a stable outlook and a speculative grade liquidity rating of SGL-3.

Moody's said the B3 senior implied rating reflects the improved financial profile of iPCS upon its emergence from Chapter 11 bankruptcy protection, as well as its improved operating conditions due to the amendment of its affiliation agreements with Sprint PCS.

Nonetheless, the agency said iPCS will be challenged to improve its subscriber growth, which has been negative since last February. iPCS must also resume spending more appropriate amounts of capital on its network as well as invest to improve its distribution channels.

S&P rates iPCS notes CCC

Standard & Poor's said it assigned its CCC rating to iPCS Escrow Co.'s $180 million senior unsecured notes due 2012. iPCS Escrow is a wholly owned indirect subsidiary of iPCS Inc.

Simultaneously, S&P assigned its CCC+ corporate credit rating to iPCS Inc. and iPCS Escrow Co. The outlook is developing.

iPCS Inc. is a Sprint PCS affiliate that provides wireless personal communications services (PCS) under the Sprint brand name to more than 220,000 subscribers in portions of Illinois, Michigan, Iowa, and eastern Nebraska. Pro forma for the reorganization and the new note deal, total debt outstanding is about $180 million.

S&P said ratings on iPCS reflect the company's high debt leverage near term, its high churn rate, and the weak business position common to all Sprint PCS affiliates. These factors are mitigated somewhat by the company's improved relationship with Sprint PCS and its opportunity for growth given its 3.8% penetration rate.

S&P rates UnitedGlobalCom converts

Standard & Poor's said it assigned its CCC+ rating to Denver-based cable operator UnitedGlobalCom Inc.'s €500 million 1.75% convertible senior notes due 2024. The note purchasers also have the right to acquire an additional €125 million of notes.

The company indicated that the net proceeds of the issue will be used for working capital and other corporate purposes, including potential repayment of certain debt of its subsidiaries.

At the same time, S&P affirmed its B corporate credit rating on the company. The outlook is stable.

S&P said the rating reflects UnitedGlobalCom's significant business risk in its 11 European cable markets, which comprise the vast majority of its revenues and EBITDA. UGC Europe Inc. emerged from bankruptcy in September 2003. The company relied heavily on debt to fund the ambitious upgrade of its network to support aggressive growth in its video, internet, and telephony subscribers. However, such growth failed to materialize.

S&P rates Holmes loan

Standard & Poor's said it assigned its B senior secured bank loan rating and its 4 recovery rating to small appliance manufacturer The Holmes Group Inc.'s $315 million first-priority senior secured credit facility due 2011.

S&P also assigned its CCC+ senior secured bank loan rating and its 5 recovery rating to Holmes' $105 million second-priority senior secured credit facility due 2011.

At the same time, S&P revised the outlook on Holmes Group to stable from positive and affirmed the B corporate credit rating on the company.

S&P said the ratings on Holmes Group reflect its very aggressive financial policy and highly leveraged capital structure, intense competition in the kitchen and home environment appliance markets, the seasonal nature of sales (influenced by both Christmas demand and vulnerability to weather), and customer concentration.

Somewhat mitigating these factors are the company's strong brand names, which have leading market shares, particularly in the small kitchen appliance category, and its cost structure improvements.

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