S&P downgrades Xerox to junk

Standard & Poor's downgraded Xerox Corp.'s corporate credit senior unsecured ratings to junk, saying it anticipates non-finance revenue and operating income will be significantly less than expected for 2001 and 2002. S&P noted its previous rating incorporated the expectation that Xerox's non-finance EBITDA (earnings before interest, taxation, depreciation and amortization) would show "significant" sequential improvement in 2001. The outlook is stable.

S&P's downgrades include Xerox's corporate credit and senior unsecured debt ratings, cut to BB from BBB-, its subordinated debt, cut to B+ from BB+, its preferred stock, lowered to B from BB and its commercial paper, reduced to B from A-3. Xerox Credit Corp. saw similar downgrades on its corporate credit rating, its senior unsecured debt and its commercial paper.

S&P commented that its ratings reflect Xerox's "good position in its core document-processing business, a sizable recurring revenue base, and a broad product lineup, offset by highly competitive industry conditions with diminished growth expectations. The ratings also reflect Standard & Poor's expectations of substantial, ongoing debt reductions and successful renegotiation of Xerox' bank facility maturing in October 2002."

The rating agency added that Xerox has made "material progress in executing its turnaround program" including more than $2 billion of asset sales, significant cost reductions, actions to conserve cash and agreements to move the majority of its equipment financing to third parties.

"However, economic weakness and diminished capital spending levels have reduced Xerox' prospects for significant improvement in operating earnings and debt protection measures in the near term," S&P said.

Moody's puts DR Horton on downgrade review, Schuler Homes on upgrade review

Moody's Investors Service put D.R. Horton, Inc.'s ratings on review for possible downgrade and Schuler Homes, Inc.'s ratings on review for upgrade following the announcement that D.R. Horton will acquire Schuler Homes.

Ratings affected include D.R. Horton's $150 million 8 3/8% senior notes due 2004, its $200 million 10½% senior notes due 2005, its $150 million 10% senior notes due 2006, its $385 million 8% senior notes due 2009 and its $200 million 7 7/8% senior notes, due 2011, its $381.1 million convertible zero coupon senior notes due 2021 and its $825 million senior unsecured bank credit facility due 2003, all rated Ba1; its $150 million 9¾% senior subordinated notes due 2010 and its $200 million 9 3/8% senior subordinated notes due 2011, both rated Ba2; Schuler Homes' $100 million 9% senior notes due 2008 and its $250 million 9 3/8% senior notes due 2009, both rated Ba3; and its $150 million 10½% senior subordinated notes due 2011, rated B2.

Moody's said its review will focus on the combination of the two companies and the associated integration risks. The rating agency will also be looking at Horton's "commitment to debt reduction in light of management's prior assurances that debt leverage would be reduced."

On a pro forma basis, total debt as a percentage of total capitalization will stand at approximately 57% upon completion of the transaction, Moody's said. Among its Ba1 peer group, Horton "stands out as the most heavily leveraged, although certain other of its financial metrics provide some offsetting balance."

Moody's said it will also look at whether management will be able to achieve cost savings of $30 to $40 million per year.

Moody's downgrades Huntsman notes to Ca from Caa1

Moody's Investors Service downgraded Huntsman Corp. and Huntsman Polymers Corp., affecting $2.2 billion of debt. Among the ratings lowered are Huntsman Corp.'s $1.4 billion senior secured credit facility, cut to Caa2 from B1, and its $275 million senior subordinated notes due 2007, its $200 million senior subordinated notes due 2007 and its $125 million senior subordinated notes due 2007, all reduced to Ca from Caa1; and Huntsman Polymers Corp.'s $175 million senior notes due 2004, cut to Ca from B3.

Moody's said the downgrade reflects "the high risk of payment default."

It said a planned transaction with Bain Capital and Blackstone Capital, including a proposed $200 million cash infusion to improve the "strained liquidity" of Huntsman Corp., "has not materialized and there can be no assurances that the transaction will be completed."

In addition, the rating agency said, Huntsman is in default on some financial covenants of its credit facility.

Huntsman is also affected by "anticipated continuing downcycle conditions in its commodity chemicals, the further economic slowdown, the company's high debt service burden, and its weak financial condition," Moody's said.

S&P rates new Pennzoil-Quaker State notes BB-

Standard & Poor's rated Pennzoil-Quaker State Co.'s upcoming $250 million of senior notes due 2008 at BB- and its $350 million revolving bank loan at BB+.

S&P rates Majestic Investor Holdings planned notes B

Standard & Poor's rated at B the planned issue of $140 million of senior secured notes due 2008 to be issued by Majestic Investor Holdings LLC and its Majestic Investor Capital Corp. subsidiary.

Proceeds of the notes will be used to help fund the company's acquisition of three casinos from Fitzgerald's Gaming Corp., S&P noted, with closing expected by the end of the year, subject to financing.

S&P said the ratings reflect Majestic Investor's "small cash flow base, high debt levels, and competitive market conditions. These factors are mitigated by the company's solid pro forma credit profile for the rating and adequate financial flexibility."

Moody's cuts Philipp Brothers Chemicals sr sub debt to Ca from B3

Moody's Investors Service downgraded Philipp Brothers Chemicals, Inc.'s ratings, including its $100 million of senior subordinated notes due 2008 which were cut to Ca from B3. The ratings were removed from review for possible downgrade where they were placed in October 2000 following the company's announced acquisition of Pfizer Inc.'s medicated feed additives business. The outlook is negative.

Moody's said the action and negative outlook reflect the Philipp Brothers' "continuing weak earnings trends, as well as higher leverage to fund debt-financed acquisitions, nominal equity, and weaker creditor protection measures."

Moody's confirms Petco ratings, assigns B3 to new deal

Moody's Investors Service confirmed Petco Animal Supplies, Inc.'s ratings, including its B1 rated $350 million secured bank debt, and assigned a B3 rating to the company's new $200 million of senior subordinated notes. The outlook remains stable.

Moody's said the ratings reflect Petco's "high effective leverage and thin fixed charge coverage; modest financial flexibility to respond to unexpected market conditions; operating and financial risks arising from the company's young store base and aggressive growth plans; the relative newness of the business model; and strong competition from various retail formats."

The rating agency said Petco is dependent on sales of high-end consumables to drive store traffic but is challenged to maintain customer loyalty by the similarity of products and services offered by competitors.

But Moody's also said the ratings are supported by Petco's favorable market position, its consistent working capital management despite rapid growth, successful integration of several sizable acquisitions, potential for improved profitability from increased service offerings which bring more traffic to stores and the potential to use its reconfigured e-commerce channel to increase business.

S&P cuts Vail Resorts outlook to negative

Standard & Poor's cut its outlook on Vail Resorts Inc.'s BB- rating to negative from stable citing a "weaker-than-expected operating environment and the increasingly challenging business fundamentals the company faces for the remainder of this year as well as into 2002."

S&P said: "Material declines in leisure travel combined with economic uncertainty following the Sept. 11, 2001, attacks in the U.S., are expected to negatively affect financial performance in the near term."

Longer term, it warned that visits by skiers could be pressured by the slowing economy, softening demand for discretionary leisure activities and travel security issues.

S&P rates Insight Health's planned notes B-

Standard & Poor's rated Insight Health Services Corp.'s planned $200 million senior subordinated notes due 2011 at B- and its $275 million senior credit facilities due 2008 at B+. The outlook is stable.

S&P said the ratings reflect the company's "leading position in the mobile- and fixed-site imaging services field, offset by concerns regarding its niche position in a narrow field and heavy debt burden."

S&P noted that InSight's 40% operating margins appear high but said it "remains concerned with the pressures to contain health care spending as this business is highly dependent on third-party reimbursement from the government and managed care firms."

S&P cuts NCI Building Systems outlook to stable

Standard & Poor's cut its outlook on NCI Building Systems Inc. to stable from positive. S&P rates NCI's senior secured bank loan at BB- and its subordinated debt B.

S&P said the revision reflects its expectation that "the continuing downturn in industrial construction and softening in commercial construction will prevent NCI's credit measures from strengthening over the intermediate term to levels supportive of a higher rating."

Nonetheless, it added, "NCI's ongoing efforts to reduce costs and improve operating efficiency should allow it to maintain a financial profile appropriate for the current ratings."

S&P puts Comstock Resources on negative watch

Standard & Poor's said it put Comstock Resources Inc.'s ratings on CreditWatch negative.

S&P rates Comstock's $150 million of 11¼% notes due 2007 at B and its $250 million senior secured credit facility due 2002 at BB.

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