S&P puts Lyondell on watch

Standard & Poor's put Lyondell Chemical Co. on CreditWatch with negative implications including its $1 billion 9.875% senior secured notes series B due 2007, $275 million 11.125% senior secured notes due 2012, $350 million revolving credit facility due 2005, $730 million 9.5% senior secured notes due 2008, $900 million 9.625% senior secured notes series A due 2007 and $420 million term E bank loan due 2006 at BB and $500 million 10.875% senior subordinated notes due 2009 at B+ and Lyondell Chemical Worldwide, Inc.'s $100 million 10.25% debentures due 2010, $100 million 9.375% debentures due 2005 and $225 million 9.8% debentures due 2020 at BB.

S&P said the watch placement reflects elevated concerns related to 58.75% owned Lyondell-Citgo Refining LP and the potential that recent operating disruptions caused by the lack of crude deliveries from Venezuela, if not resolved soon, could negatively affect credit quality at Lyondell.

Lyondell-Citgo Refining reportedly has reduced its production by almost half in response to a general strike against the Chavez administration and related disruptions at the state owned oil company, PDVSA, S&P noted.

These developments, and the lack of clear resolution that will enable Lyondell-Citgo Refining to resume normalized production levels, raise concerns that previously anticipated cash distributions from Lyondell-Citgo Refining to Lyondell are likely to fall well below expectations.

The availability of cash distributions from Lyondell-Citgo Refining is an important consideration given that most of Lyondell's other petrochemical businesses remain depressed due to a prolonged chemical industry downturn, and the expectation at the current ratings for continued improvement to the financial profile, S&P said.

S&P also confirmed Equistar Chemical LP saying a modest Lyondell downgrade would not necessarily result in credit deterioration at Equistar.

Moody's cuts New World Pasta, still on review

Moody's Investors Service downgraded New World Pasta and kept it on review for possible further downgrade. Ratings affected include New World Pasta's $20 million senior secured revolving credit due 2005 and $124 million term loan B due 2008, downgraded to B3 from B1, and $160 million senior subordinated notes due 2009, downgraded to Caa3 from Caa1. Moody's does not rate the company's $55 million term loan C, $23 million term loan D, or the recent $60 million addition of uncommitted availability to the credit facilities funded through participation by affiliates of Joseph, Littlejohn & Levy, New World's equity sponsor.

Moody's said the action is in response to continuing uncertainty about the company's liquidity and financial position.

New World's liquidity appears extremely limited. The next coupon of $7 million is due to senior subordinated noteholders on Feb. 15, Moody's said.

The senior secured creditors waived defaults under the credit facilities in early December and agreed to add $60 million of uncommitted availability, of which $10 million was utilized. The waivers expire, however, on Feb. 10, Moody's added.

In addition, the company has indicated that access to incremental borrowings is not assured and cash flow generation may not cover cash requirements.

Funding provided by affiliates of Joseph Littlejohn, while providing liquidity, dilutes the asset and enterprise value available to senior subordinated creditors.

The company's financial position remains unclear, Moody's said. The company still has not filed its third quarter 10-Q. It announced in November that its 2002 internal financial statements were incorrectly stated, primarily with respect to accounts receivable and inventories, reflecting systems design, integration and implementation problems.

S&P rates Jack in the Box's loan BB+

Standard & Poor's rated Jack in the Box Inc.'s $300 million senior secured credit facility at BB+. The rating outlook is stable.

The facility consists of a $175 million three-year revolver and a $125 million 4 ½ year term loan. It is secured by a first priority perfected interest in 100% of the capital stock of the subsidiaries and all tangible and intangible assets.

Proceeds from the facility will be used to refinance existing debt and for general corporate purposes, permitted acquisitions, and fees and expenses.

"Standard & Poor's believes that Jack in the Box would be reorganized under a default scenario rather than liquidated based on its established brand. A distressed scenario could occur due to the intense competition within the restaurant industry exacerbated by the company's highly leveraged capital structure. Based on this analysis, Standard & Poor's expects that secured lenders would realize substantial recovery of principal in the event of a default or bankruptcy," S&P explained.

Ratings reflect the company's solid regional presence, good operating performance and ability to develop and market new products, S&P said. These factors are partially offset by the competitive quick-service segment of the restaurant industry.

S&P cuts Venture Holdings notes

Standard & Poor's downgraded Venture Holdings Co. LLC's $205 million 9.5% senior notes due 2005 to D from CC. Venture's senior secured debt remains at CCC on CreditWatch with negative implications.

S&P said the action follows the company's failure to pay the Jan. 1 coupon on the notes.

A forbearance agreement with its bank lending group dated Oct. 21, 2002, prevents Venture from paying interest on its public bonds, S&P noted. The forbearance agreement expires on April 15, 2003.

Venture is working with its creditors, customers, and shareholder to restructure and recapitalize the company following the Oct. 1, 2002, commencement of formal insolvency proceedings of its German subsidiary, Peguform GmbH, S&P added. Venture had opposed the insolvency proceedings. Peguform, which accounted for 70% of Venture's 2001 sales, is being sold by a court-appointed administrator. The potential magnitude and ultimate distribution of sale proceeds in excess of Peguform's obligations are unclear.

Although the loss of Peguform's cash flow has severely weakened Venture's ability to service its financial obligations, the company continues to make required bank loan payments, S&P said. In addition, Venture's sole equity holder, Larry Winget, has provided secured guaranties and pledged additional collateral to the lenders.

Moody's cuts Wellman

Moody's Investors Service downgraded Wellman, Inc. including cutting its senior unsecured shelf to (P)Ba2 from (P)Baa3 and subordinated shelf to (P)Ba3 from (P)Ba1 and assigned a Ba2 senior implied and issuer rating.

Moody's said the downgrade reflects its concerns about the weakening profile of Wellman's two major business areas, PET resins and polyester fibers.

This weakness arises from inherently volatile operating margins in PET resins, because of seasonal demand and an inability promptly and consistently to pass through raw materials cost increases, Moody's said.

The rating agency expects that resin prices, and therefore margins, are also likely to be constrained by both new North American capacity and the threat, if not the actuality, of Asian competition.

Moody's said it also anticipates continued erosion of both volumes and margins in Wellman's core fiber business, only minimally offset by efforts to develop new specialty products.

Moody's noted Wellman faces significant and immediate refinancing requirements on approximately 40% of its debt outstanding as of Sept. 30, 2002. Wellman's $275 million revolving credit facility and its $80 million accounts receivable program both mature in September 2003. Current borrowings under these facilities total approximately $83 million. In addition, approaching debt maturities include $50 million of private placement debt due in February 2003, industrial revenue bonds of $10 million expected to be repaid in 2003, and the $150 million sale-leaseback transaction that matures in June 2004.

S&P says Sanmina-SCI unchanged

Standard & Poor's said its ratings on Sanmina-SCI Corp. is unchanged at a BB- corporate credit rating with a stable outlook on news of a three-year supply agreement to provide IBM Corp. with outsourced manufacturing services, that is expected to result in revenues in excess of $3.6 billion over the term of the agreement.

S&P said Sanmina-SCI's ratings already incorporate the expectation for such transactions that improve utilization levels and enhance revenue growth.

S&P cuts Saskatchewan Wheat

Standard & Poor's downgraded Saskatchewan Wheat Pool including cutting its $150 million 6.6% medium-term notes due 2007 and $150 million 7.25% medium-term notes due 2004 to CCC- from B+ and C$170 million revolving credit facility due 2003 and C$50 million non-revolving credit facility due 2003 to CCC- from B+. The ratings were removed from CreditWatch with negative implications and a negative outlook assigned.

S&P said the downgrade reflects its opinion that even though the company is not in violation of its newly renegotiated financial covenants its banks have notified it that it is not in compliance with certain non-financial covenants of existing credit agreements.

This has been challenged by Saskatchewan Wheat Pool, with the banks having agreed to examine the company's financial condition on a daily basis up until the completion of the restructuring plan, due Jan. 31, 2003, S&P said.

The ratings also take into account the impact of a severe drought on financial results, and a liquidity position that is limited to Saskatchewan Wheat Pool's existing credit facilities (the company had C$95 million in bank line availability at year-end July 31, 2002), given that the company had no cash on hand as at fiscal year-end and asset disposals were, for the most part, complete, S&P said.

Credit protection measures remain extremely weak, with full-year fiscal 2002 adjusted EBITDA interest coverage at 1.1x, declining from 1.7x in fiscal 2001, while EBIT interest coverage weakened to 0.1x in fiscal 2002 from 0.8x in 2001, S&P said.

The pool is currently in the midst of a financial restructuring that has yet to be approved by either its banks or bondholders, S&P noted. The proposed amendments call for an increase and extension of Saskatchewan Wheat Pool senior secured facilities of up to C$375 million, in combination with a proposed refinancing of existing bank debt into new public notes. The new facilities would be used to refinance existing bank debt, to finance the phase-out of the company's securitization program, and to provide a source of working capital.

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