S&P confirms Cluett American

Standard & Poor's confirmed Cluett American Corp. including its $125 million 10.125% notes due 2008 at CCC- and $43.2 million term A loan due 2004 and $50 million revolving credit facility due 2004 at CCC+ and removed it from CreditWatch negative. The outlook is stable.

S&P said the confirmation follows the company's refinancing of its credit facility, which alleviates near-term liquidity concerns.

Under the previous credit facility, Cluett was required to make a $45 million loan reduction by March 31, 2003, (this was subsequently extended to May 7, 2003). With the refinancing of its secured credit facilities, maturities have been extended until 2008.

Nevertheless, Cluett continues to operate in a very challenging retail environment and S&P said it expects operating results and credit measures to remain very weak.

Cluett American's ratings are based on the company's high debt leverage, narrow product portfolio, customer concentration risk, highly competitive and cyclical market conditions, the seasonality of the company's sales, and its lack of meaningful cash flow generation. These factors are partially offset by the company's leading position in the branded sock segment.

The operating environment remains challenging for apparel makers as margins are pressured by the highly promotional and competitive retail environment, especially in the department store channel, S&P said. The firm's EBITDA margin declined to 13.5% for the 12 months ended March 29, 2003, from 14.5% the year before. This was a result of one-time start-up costs associated with the launch of new products, costs related to the planned exit of private-label sock programs, and plant inefficiencies related to the company's manufacturing restructuring plan. Credit measures remain weak: EBITDA coverage of interest expense is expected to remain in the 1.4x-1.6x range in fiscal 2003 and total debt to EBITDA in the 7.0x-8.0x range.

S&P upgrades Saskatchewan Wheat Pool

Standard & Poor's upgraded Saskatchewan Wheat Pool including raising its C$100 million term loan due 2004, C$240 million revolving credit facility due 2005 and C$35 million seasonal bulge bank loan to B from D and C$150 million step-up notes due 2008 and C$255 million 9% notes due 2008 to CCC+ from D. The outlook is stable.

S&P said the ratings reflect Saskatchewan Wheat Pool's completion of its financial restructuring, a relatively stable market position with a modern grain-handling infrastructure, and an expected return to more historical levels of profitability in fiscal 2004 (year ending July 2004), following the two worst drought years in the past century for Canadian grain handlers.

These factors are offset by fiscal 2003 results, which are expected to be extremely weak; leverage that remains relatively high; and liquidity that is somewhat constrained.

The past two years have been very difficult for Canadian grain handlers such as Saskatchewan Wheat Pool, given the capital-intensive nature of the grain-handling business, whereby costly grain elevators have been significantly underused due to drought conditions that have dramatically reduced grain-handling volumes.

Despite the difficult operating environment, SWP has maintained its No. 2 grain-handling market share at approximately 23%. Cost reductions have been achieved through staff reductions, whose ranks have been reduced by almost half since 2000, S&P noted.

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