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.

Moody's ups Extendicare

Moody's Investors Service said it upgraded Extendicare Health Services Inc.'s senior implied rating to Ba3 from B1, its $150 million 9.5% senior unsecured notes due 2010 to B1 from B2, and its senior unsecured issuer rating to B1 from B2.

Moody's said the ratings upgrade reflects the improvement in operations over the last few years, as well as the material reduction in leverage over the same period.

The rating agency also assigned a Ba2 rating to Extendicare's $155 million senior secured revolving credit facility due 2009 and a B2 rating to the company's $125 million senior subordinated notes due 2014.

The rating action follows the announcement by the company that the new note issuance, along with cash on the balance sheet and borrowings under an amended and restated revolving credit facility, will be used to tender for the company's $200 million 9.35% senior subordinated notes due 2007.

The outlook is stable.

S&P cuts MasTec ratings

Standard & Poor's said it lowered its corporate credit rating on MasTec Inc. to BB- from BB, its senior secured bank loan rating to BB from BB+, and its subordinated debt rating to B from B+.

At the same time, all ratings remain on CreditWatch with negative implications, where they were placed on March 17. Total debt (including present value of operating leases) was $226 million at Sept. 30, 2003 for the Miami, Fla.-based provider of infrastructure services.

S&P said the downgrade follows MasTec's disclosure of preliminary results of its operations for 2003, including a net loss of $40 million, in part due to the breakdown of certain financial controls and policies, leading to credit measures that are no longer reflective of the rating.

In addition, the company reported appointment of a new chief financial officer and potential covenant violations, resulting in current discussions for an amendment to its credit agreement with lenders.

S&P placed the ratings on CreditWatch after the company announced a delay in its 2003 10-K filing and expectations for a net loss for 2003, which implied charges or losses in the fourth quarter of an unknown magnitude, as the company had reported earnings of about $7 million for the nine months ended Sept. 30, 2003.

S&P lowers Boyd Gaming

Standard & Poor's said it lowered its senior secured debt rating on Boyd Gaming Corp. to BB from BB+ and concurrently affirmed the BB- senior unsecured debt rating on Boyd. Both ratings were removed from CreditWatch where they were placed on Feb. 10.

At the same time, a BB rating was assigned to Boyd's proposed $1.5 billion senior secured credit facility along with a recovery rating of 2.

Proceeds from the proposed facility will be used to refinance existing debt and fund a portion of the pending acquisition of Coast Casinos Inc., and for fees and expenses.

The outlook is stable.

S&P said the ratings on Boyd reflect the company's relatively aggressive growth strategy, a lack of overall brand identity, increased near-term capital spending, and pro forma credit measures that provide little room for weakening within the current rating and outlook.

Offsetting these factors are a diversified portfolio of gaming properties that will be enhanced with the Coast and Shreveport asset acquisitions, the company's experienced management team, its historical and expected ability to generate relatively steady cash flow, and S&P's expectation that debt leverage will be reduced from current levels beyond 2005.

Fitch cuts Taubman Centers

Fitch Ratings said it assigned a BB issuer rating to Taubman Realty Group, the operating partnership of Taubman Centers Inc., and downgraded Taubman Centers Inc.'s $200 million of outstanding preferred stock to BB- from BB.

Additionally, Fitch has removed Taubman's ratings from Rating Watch negative.

The outlook is stable.

According to Fitch, the downgrade reflects continued pressure on cash flow coverage measures which declined as a result of borrowings related to Taubman's development pipeline. Despite the stabilization of several of these development assets, the earnings contribution from the recently completed projects is insufficient to return the risk profile of the preferred stock to previous ratings levels.

Moody's may upgrade Hockey

Moody's Investors Service said it placed the ratings of The Hockey Co. on review for possible upgrade following the announcement that the company will be acquired by Reebok (Baa3 - senior unsecured rating).

Affected by this action are the $125 million senior secured notes due 2009 at B2; the senior implied rating of B2; and the senior unsecured issuer rating of B3.

Reebok announced that it intends to acquire The Hockey Co. through an equity tender offer valued at about $204 million, plus the assumption of $125 million in debt. Both companies' boards of directors have approved the transaction, as has The Hockey Co.'s leading shareholder, Wellspring Capital Management.

The acquisition is likely to require a change-of-control offer for the notes, as governed by the indenture.

Moody's said its review will focus on ultimate resolution of the tender offer, including position and standing of The Hockey Co.'s debt within the combined legal and capital structure of Reebok. Further, Moody's will evaluate the strategic and financial plans for The Hockey Co. under its new owners, and expectations for operating performance given recent favorable trends and potential risks going forward related to challenges facing the NHL.

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).

S&P: American Seafoods on watch

Standard & Poor's said that it revised its CreditWatch listing on the ratings of American Seafoods Group LLC and its wholly owned subsidiary American Seafoods Inc., changing the implications to negative from positive.

S&P rates American Seafoods Group LLC's corporate credit BB-, senior secured debt BB, and subordinated debt B. American Seafoods Inc.'s subordinated debt is rated B.

The CreditWatch revision comes amid S&P's ongoing review of American Seafoods' financing plans, specifically the plan of the parent company's sole general partner, American Seafoods Corp., to issue $650 million in income deposit securities. Each of these securities consists of one share of common stock and $5.80 of principal of the company's subordinated notes.

"Based on additional information about the securities product and further review, Standard & Poor's believes that the IDS structure, in general, exhibits an extremely aggressive financial policy," said S&P credit analyst David Kang. "Though the amount of the consolidated company's debt outstanding would change little after the IDS offering, American Seafoods 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 weather potential operating challenges and also reduces the likelihood for future deleveraging.

S&P said 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 American Seafoods Corp. This could make the IDS securities uneconomic and expose American Seafoods to refinancing risk and a claw-back of prior years' liability (there is generally a three-year limit on such a claw-back).

S&P: Coinmach on negative watch

Standard & Poor's said it placed its BB- corporate credit and senior secured bank loan ratings, as well as its B senior unsecured debt rating, on Coinmach Corp. on CreditWatch with negative implications.

The CreditWatch placement comes after Coinmach's parent company, Coinmach Service Corp., filed a registration statement with the Securities and Exchange Commission for an initial public offering of income deposit securities representing shares of Coinmach Service's common stock and subordinated debt. In connection with this offering, Coinmach is expected to redeem a portion of its outstanding subordinated notes due 2010 and some of its existing secured bank loan.

S&P said it believes that the IDS structure exhibits an aggressive financial policy and significantly reduces a company's financial flexibility, given the anticipated high dividend payout rate.

S&P noted it is already concerned about Coinmach's weak financial performance, which stems from a combination of high vacancy rates in the firm's key markets and higher costs related mainly to insurance and health care.

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 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.

S&P: Las Vegas Sands on positive watch

Standard & Poor's said it placed its ratings for Las Vegas Sands Inc., including its B corporate credit rating, and ratings on its wholly owned subsidiary, Venetian Casino Resort LLC, on CreditWatch with positive implications.

The senior secured bank facility is rated B+, and the senior secured notes rating is B-.

The CreditWatch placement stems from the Venetian's announcement that it had agreed to sell its existing Grand Canal Shoppes to General Growth Properties Inc. for $766 million in cash. In addition, General Growth has agreed to purchase the multi-level retail space in the proposed Phase II expansion, which will sit adjacent to the Venetian.

The minimum purchase price for the Phase II retail space will be $250 million, payable upon opening. In addition, the price is subject to upward adjustment based on net operating income during the first 30 months of operation (a 6% capitalization rate on the first $38 million of net operating income and 8% thereafter). According to the company, the agreement could be worth as much as $1.4 billion.

The net proceeds from the transactions would be available to reduce debt, finance the Phase II and Macao expansions, and to pursue any other growth opportunities that may arise. The sale is subject to standard closing conditions and is expected to close on or about May 17, 2004.

S&P said it believes the proposed transaction, in addition to the solid financial performance of The Venetian, significantly enhances the company's financial flexibility by providing added liquidity to fund its ongoing and expected capital spending initiatives, most importantly its Phase II expansion project in Las Vegas.

S&P: Foot Locker unaffected

Foot Locker Inc.'s (BB+/stable/--) announcement that it has signed a definitive agreement with Footstar Inc. to purchase approximately 350 of its Footaction athletic footwear and apparel stores for $160 million in cash has no impact on the company's credit rating or outlook, Standard & Poor's said Tuesday.

Footstar Inc. filed for Chapter 11 bankruptcy protection in March 2004.

S&P said it expects that funding the proposed transaction will not have a material impact on Foot Locker's financial profile given the modest size of the acquisition. The company has solid liquidity, provided by significant cash balances of more than $400 million as of Jan. 31, 2004.

Foot Locker expects the acquisition to be accretive within the first full year of operation and expects to close the transaction during the second fiscal quarter of 2004.

S&P: NDCHealth unaffected

Standard & Poor's said Tuesday that the ratings and outlook on NDCHealth Corp. (BB-/stable/--) are not affected by the company's announcement that it has filed for an extension for posting its 10-Q for the quarter ended Feb. 27, 2004.

NDCHealth was unable to file its 10-Q within the prescribed time period due to an internal board investigation related to the timing of revenue recognition of sales to the value-added reseller channel in NDCHealth's physician systems business unit. The physician systems business unit is about 8% of NDCHealth's sales and 6.5% of the company's total operating income.

Nonetheless, ratings could be reviewed for a downgrade if the delay in NDCHealth's filing its 10-Q results in a covenant violation, or if the internal review results in significant changes in financial information, or if the scope of the review is expanded, the agency said.

S&P: Alaska Communications unaffected

Standard & Poor's said that the ratings and outlook on Alaska Communications Systems Group Inc. (B+/stable/--) and subsidiaries are not immediately affected by the company's plans to issue $400 million in securities comprising new class A common stock and new senior subordinated notes due 2014.

The class A common stock will include a quarterly cash dividend.

S&P said although the equity and debt composition of the proposed offering has not yet been disclosed, the financial profile could improve modestly because a portion of deal proceeds will be used to permanently repay the company's existing $200 million secured term loan. The relative standing of the senior unsecured and senior subordinated debt in the debt structure could also improve.

Nevertheless, any modest strengthening of the financial profile is unlikely to be sufficient to support a higher corporate credit rating because of the company's below average business risk profile. Furthermore, S&P said it is concerned that an ongoing call on free cash flow from a quarterly dividend could erode some of the financial cushion important to weathering the company's narrow, competitive, and stagnant market.

S&P: Alliance Laundry unaffected

Standard & Poor's said Tuesday that the ratings and outlook on commercial laundry equipment manufacturer Alliance Laundry Systems LLC (B/stable/--) would not be affected at this time after the company's parent, Alliance Laundry Holding Inc., filed a registration statement with the SEC for an initial public offering of income deposit securities representing shares of the parent's common stock and subordinated debt.

In connection with this offering, the company is expected to enter into a new credit facility, the net proceeds of which are expected to repay Alliance Laundry's existing debt.

Even though S&P expects that the proposed IDS transaction will reduce the company's financial flexibility because of the anticipated high dividend payout rate, Alliance Laundry's existing ratings already take into account the company's very aggressive financial profile.

S&P: Aquila unaffected

Standard & Poor's said Tuesday that Aquila Inc.'s (B-/negative/--) approved $37.5 million rate increase from the Missouri Public Service Commission will not affect the company's ratings or outlook.

Approximately half of the rate settlement is an electric base rate increase and the other half provides for the implementation, for a two-year period, of an interim energy charge. The charge reflects energy costs in excess of those that are to be recovered in base rates.

S&P said the rate increase for Aquila's 282,000 electric customers in Missouri is an important part of Aquila's plan to improve its financial position. The event does not constitute the basis for a rating action, however, because the current ratings already reflected the expectation of the rate settlement.

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