Moody's puts Qwest on review

Moody's Investors Service put Qwest Communications International on review for possible downgrade, affecting $26 billion of debt. Ratings affected include Qwest Communications International's senior unsecured debt at Ba2, Qwest Capital Funding's senior unsecured debt at Ba2, Qwest Corp.'s senior unsecured debt at Baa3, LCI International Inc.'s senior unsecured debt at Ba2 and the senior unsecured debt of Pacific Northwest Bell Telephone Co., Northwestern Bell Telephone Co. and Mountain States Telephone and Telegraph Co. at Baa3.

Moody's said it began the review because it is concerned about Qwest's market access and its consequent reliance on asset sales and accounts receivable securitizations for liquidity, as well as the potential negative effects of the SEC investigation into the company's past accounting practices on revenues.

The review will focus on: Qwest's ability to sell DEX in the near-term for reasonable cash proceeds; an analysis of the effects of the SEC investigation on Qwest's ability to retain and grow customers and suppliers; Qwest's ability to complete a proposed $300 million asset securitization program; Qwest's operating performance in light of uncertain industry trends; some resolution or clear direction resulting from the SEC investigation into the company's accounting practices; and Qwest's ability to repay or extend its $3.4 billion May 2003 bank facilities.

Moody's added that a successful sale of DEX would reduce the debt load at Qwest Capital Funding and would somewhat relieve refinancing pressure but would not alter Qwest Communications' performance challenges.

Fitch cuts Solutia

Fitch Ratings downgraded Solutia Inc. including lowering its senior secured bank facility to B from BB and its senior unsecured debt including the newly priced notes to CCC+ from B+. The ratings remain on Rating Watch Negative.

Fitch said it lowered Solutia because of near-term liquidity issues, compounded by delays in refinancing debt, and difficulties faced in completing the refinancing at the terms and amounts originally anticipated.

Solutia recently priced $223 million senior secured notes due 2009 and warrants to purchase Solutia's common stock. The downgrade also incorporates the fact that the bond deal raised less than the desired amount. Gross proceeds are expected to be approximately $200 million.

Although the private placement issuance has priced and is scheduled to close by July 9, continued refinancing risk exists with respect to the $150 million bond maturity due October 2002 and the $800 million credit facility that is up for renewal in August 2002, Fitch said.

The $200 million proceeds from the new issuance will primarily be used to repay the $150 million bond maturity and will be placed in escrow, pending an extension of the current bank agreement.

The Rating Watch Negative status reflects continuing concerns surrounding the company's ability to refinance its bank debt. The risk related to the polychlorinated biphenyls (PCBs) contamination litigation in Anniston, Ala. may continue to hinder Solutia's refinancing efforts, Fitch added.

Fitch lowers Xerox notes, convertibles

Fitch Ratings downgraded the senior unsecured debt of Xerox Corp. and its subsidiaries to BB- from BB and the convertible trust preferred to B from B+. The outlook remains negative.

Fitch said the action reflects the structural subordination due to the security granted under Xerox's new $4.2 billion amended and restated credit agreement dated June 21 as well as the level of increased senior secured debt in the company's capital structure which incorporates off-balance sheet loans secured by finance and trade receivables.

With a $2.8 billion paydown of the $7 billion that would have expired in October 2002, Xerox has arranged a new 3-year credit facility expiring on April 30, 2005, Fitch noted. The covenants for the facility are more strict and diverse than previously but have not yet been reset due to the company's restatement of its historical financial statements for the 1997-2001 period.

The outlook remains negative reflecting Xerox's weakened credit protection measures, significant debt maturities for the next three years, and Xerox's impaired financial flexibility and reduced access to the capital markets, Fitch said.

The ratings also incorporate the competitive nature of the printing industry, the necessity for constant new product introductions, and overall weak economic conditions, Fitch added.

Fitch said it continues to recognize Xerox's improving operational performance, strong, technologically competitive product line and business position, and execution of the cost restructuring program. In addition Fitch recognizes the progress Xerox has made in exiting the financing business with GECC eventually being the primary source of customer financing in the U.S., Canada, Germany, and France, and De Lage Landen International BV managing equipment financing for Xerox customers in the Netherlands. Xerox has also made arrangements for third-party financings in Nordic Region, Italy, Mexico, and Brazil.

In addition, Fitch said Xerox has made significant progress with its turnaround strategy as the previously announced $1 billion cost cutting program was achieved ahead of schedule and larger than anticipated, including a more than 10% headcount reduction from year-end 2000. Asset sales have totaled more than $2 billion, including an agreement to outsource approximately half of its manufacturing, the common stock dividend has been eliminated, and Xerox exited the ink-jet market, which was a significant cash drain.

S&P cuts Key3Media

Standard & Poor's downgraded Key3Media Group Inc. and removed it from CreditWatch with negative implications. The outlook is negative. Ratings affected include Key3Media's $300 million 11.25% notes due 2011, cut to CC from CCC- and its $150 million revolving credit facility due 2004, cut to CCC+ from B-.

S&P said the action reflects its concern that Key3Media's earnings decline may be worse and more protracted than previously expected.

Key3Media's already sharply curtailed profits are expected to be further strained by the significant and growing problems in the domestic telecommunications sector served by its key N+I trade shows, S&P said. These problems have forced the company to further amend its bank loan covenants following a revision in late 2001. It is uncertain when Key3Media's earnings prospects will improve given the ongoing weakness in its information technology end markets and the growing problems in the telecommunications sector in the U.S.

The amended bank agreement replaces the company's existing 1.1 times fixed-charge covenant with minimum quarterly EBITDA hurdles until March 31, 2003, S&P noted.

While these requirements are less restrictive, they underscore the magnitude of the drop in Key3Media's profitability, S&P said. The company's ability to comply with the revised covenants is uncertain given the lingering softness in business travel and the significant decline in advance bookings for trade shows.

Amid these pressures, discretionary cash flow in 2002 is expected to be negative despite cost reductions and favorable fourth quarter results (compared with the previous year) due to the company's important COMDEX Fall event, S&P added.

Moody's puts Rotech on downgrade review

Moody's Investors Service placed Rotech Healthcare Inc. on review for possible downgrade due to news that the company "uncovered fraudulent activities related to an independent contractor fabricating documentation for nonexistent sales of medical equipment in bulk to the Department of Veterans Affairs."

Ratings affected include Rotech's $300 million senior subordinated notes due 2012 at B2, $275 million senior secured credit facilities due 2008 at Ba2, senior implied at Ba3 and senior unsecured at B1.

Although the financial impact from this disclosure may not by itself result in a downgrade, Moody's said it must observe the investigation process to be conducted by several parties to assure that the problem is confined to this one area and that the company has adequate internal controls.

"As such, our review will focus on the outcome of the company's independent consultants and will further focus on the potential impact this issue might have with the VA going forward," Moody's commented.

Moody's lowers Philippine Long Distance outlook

Moody's Investors Service lowered its outlook on Philippine Long Distance Telephone Co. to negative from stable and confirmed its senior unsecured rating of Ba3 and preferred stock rating of B2, affecting $1.83 billion of debt.

Moody's said it lowered the outlook because of delays in finalizing near-term refinancing initiatives, which may impact Philippine Long Distance's ability to cover debt maturing in the next 12 months.

Philippine Long Distance intends to retire over half of its debt maturing in 2003 from free cash flows, while relying on new financings to cover part of the balance, Moody's noted.

Philippine Long Distance's planned increase in free cash flow represents a significant improvement on the past and is subject to favourable market conditions continuing, with a material reduction in capex, Moody's added. There is a heightened degree of refinancing risk given delays in finalizing finance and the reliance on improved cash flows.

Moody's raises Scientific Games

Moody's Investors Service upgraded Scientific Games Corp. including lifting its $65 million senior secured revolver due 2006, $100 million senior secured term loan A due 2006 and $220 million senior secured term loan B due 2007 to Ba3 from B1 and its $150 million 12½% senior subordinated notes due 2010 to B2 from B3. The outlook is stable.

Moody's said the action follows Scientific Games' successful completion of its equity offering with proceeds going to reduce debt, a move that should improve leverage, and continued operating cash flow improvement.

Moody's said it expects EBITDA for fiscal year 2002 will be near $120 million, or about 14% higher than fiscal-year 2001 EBITDA. Latest 12-month pro forma debt/EBITDA is about 3.2x and is expected to drop further by the end of 2002.

The rating also considers the company's success at obtaining and retaining lottery contracts, Moody's said. The company recently announced the extension of its contracts with both the Florida Lottery and the Delaware Lottery. The company was also chosen to be the primary supplier for instant tickets by the Illinois Lottery.

Moody's rates Carmike senior implied Caa1

Moody's Investors Service assigned a Caa1 senior implied rating to Carmike Cinemas, Inc. and a Caa3 senior unsecured issuer rating. The outlook is positive. Moody's does not currently rate Carmike's existing debt, including its senior secured bank debt and senior subordinated notes.

Moody's said the ratings reflect Carmike's "very high" financial leverage on a lease adjusted basis, even after accounting for a proposed secondary equity offering which is tentatively scheduled for later this quarter.

The rating also reflects the company's current bank financing, which remains from the pre-bankruptcy period and contains a fairly rapid amortization schedule and a relatively high interest rate floor, as well as comparatively very weak financial covenant protection for investors given the substantial cushion to violation levels, Moody's said.

Box office risk related to the ability of the studios to produce quality product is also a continuing concern, especially in light of Carmike's reliance on "blockbuster" films to drive its results and its need to be "smarter" at picking films due to lower average screen counts in its theatres, Moody's added.

The ratings also reflect the company's relatively older theatre circuit and very limited alternative use thereof, although this is offset somewhat by the fact that Carmike operates principally in smaller, less competitive rural and suburban markets with less competition, Moody's said.

More broadly Moody's said it continues to be concerned about the theatrical exhibition industry as a whole, which continues to suffer from persistent over capacity issues that are not expected to abate for several years.

Positives include the smaller markets which Carmike operates in, resulting in a relatively small number of alternative forms of entertainment, as well as lower operating costs related to rent and labor in particular, Moody's said.

The company has also benefited from its ability during bankruptcy to exit leases on under-performing theatres, thereby boosting overall cash flow and allowing the company to leave markets where it faced excessive competition, Moody's said. In addition, the closure of over 130 theatres in bankruptcy has resulted in a sizable inventory of theatre equipment which should offset some maintenance capital expenditures going forward.

Moody's said it assigned a positive outlook because it expects balance sheet strengthening in light of the company's planned equity issuance and other extraordinary cash flow producing events and asset monetization activities, the continuation of strong box office results over the balance of the year, and the anticipation of a newly structured bank credit facility which should contain more favorable amortization and interest rate terms but also stronger covenant protection for investors.

Fitch rates Americo notes BB

Fitch Ratings assigned a BB+ long-term issuer rating to Americo Life, Inc. and a BB subordinated debt rating to its $100 million 9.25% senior subordinated notes due 2005. The outlook is stable.

Fitch said the ratings reflect the high credit quality and liquidity of Americo Life's fixed-income portfolio, the relatively high financial leverage at the holding company and the insurance companies and the low level of consolidated capital at the insurance companies.

Beginning in 2001, Americo Life focused all of its marketing efforts on Americo Financial Life and Annuity Insurance Co., which was formerly known as The College Life Insurance Co.

Fitch said it believes the company will be challenged with this growth strategy because this market is a crowded one.

GAAP revenue for Americo Life decreased by 6% during 2001 to approximately $207 million, Fitch noted. This was due in part to a decrease in premiums from closed blocks of traditional life insurance and lower surrender charges from annuities, offset by an increase in premiums from pre-need insurance.

Americo Life carries approximately $28 million of unaffiliated assets at the holding company. This compares to total debt obligations of $100 million, $8 million of which are owned by life insurance subsidiaries, Fitch said. The holding company assets are primarily equity investments. Fitch believes that maintaining assets at the holding company is prudent given the restrictive dividend limitations for insurance companies.

Americo Life's financial leverage is fairly high, with debt representing 32% of total capital at year-end 2001, Fitch added. This measure has been trending downward during the last few years and the company expects that it will decrease below 30% by the end of 2002. Fixed charge coverage was somewhat low at 2.9 times at the end of 2001 and 3.9x at the end of 2000. Factoring out restructuring charges incurred in 2001 would have resulted in the fixed charge coverage equaling 3.9x for the year.

Fitch calls Imagen Satelital exchange distressed

Fitch Ratings said it considers the exchange offer recently announced by Imagen Satelital SA's parent company Claxson Interactive Group for Imagen's 11% $80 million notes due 2005 to be a distressed exchange. The exchange offer's lower interest rate and lengthened maturity would result in a loss of present value.

S&P cuts Votorantim

Standard & Poor's downgraded Votorantim Group including lowering Voto-Votorantim Overseas Trading Operations NV's $400 million 8.5% notes due 2005 to B+ from BB-. The outlook remains negative.

S&P lowers Banco Itau

Standard & Poor's downgraded Banco Itau SA including lowering its $100 million 6.75% notes due 2005 to B+ from BB-. The outlook remains negative.

S&P lowers Edenor

Standard & Poor's downgraded Empresa Distribuidora Y Comercializadora Norte SA (EDENOR) including cutting its $250 million floating-rate notes due 2003 to D from CC.

Moody's puts Mission Energy on review

Moody's Investors Service put Mission Energy Holdings Co. (senior secured at Ba2), Edison Mission Energy (senior unsecured at Baa3), Edison Mission Midwest Holdings, Co. (bank facility at Baa2) and Midwest Generation, LLC (bank facility at Baa2) on review for possible downgrade.

Moody's said the action follows the announcement that Exelon Generation has informed Midwest Generation, the guarantor of Edison Mission Midwest's debt, that it would exercise its option under a purchase power agreement to release 2,684 megawatts of coal fired generating capacity which had previously been under contract.

This development, which becomes effective Jan. 1, 2003, will cause Midwest Gen and parent company Edison Mission Energy to become more dependent upon the merchant electric marketplace for replacement revenues and cash flows, a marketplace that has seen significant capacity additions.

S&P lowers HSBC Bank Brasil

Standard & Poor's downgraded HSBC Bank Brasil SA including lowering its $50 million 10.375% euro medium-term notes due 2005 and $50 million 8.75% euro medium-term notes due 2002 to B+ from BB-.

S&P lowers Unibanco

Standard & Poor's downgraded Unibanco - Uniao de Bancos Brasileiros, SA including cutting its €90.38 million 10% medium-term notes due 2003 to B+ from BB-.

S&P lowers Anthony Crane, still on watch

Standard & Poor's downgraded Anthony Crane Rental LP and kept the company on CreditWatch with negative implications. Ratings lowered include Anthony Crane Capital Corp.'s $155 million 10.375% senior notes due 2008, cut to CCC- from CCC+, Anthony Crane Rental Holdings LP's $48 million 13.375% senior discount debentures due 2009 to CCC- from CCC+ and Anthony Crane Rental LP's $50 million second priority lien term loan due 2006 to CCC from B- and $200 million term B bank loan due 2006 and $475 million revolver due 2004 to CCC+ from B.

S&P said the action is in response to very tight liquidity conditions and near-term payment risks.

Anthony Crane depends on favorable business and financial conditions to maintain adequate liquidity over the near term, S&P said. It had cash of about $2.8 million as of June 17, its borrowing base is expected to be reduced on Jan. 1, 2003 (expected decrease of $30 million - $37 million), and must make an $8 million semi-annual interest payment in February 2003.

As part of the amended credit facility, Bain Capital contributed $8 million, which is in a restricted account earmarked for the August 2002 interest payment, S&P noted.

The company's weakened operating performance is due to the overall weak U.S. economy, increased competition, and slower growth in the equipment rental industry, resulting in lower utilization rates on equipment and soft pricing for equipment sales, S&P said.

S&P says no change to Rotech

Standard & Poor's said it is making no change to Rotech Healthcare Inc.'s BB corporate credit rating or stable outlook in response to the announcement that an independent contractor falsified bulk medical equipment sales related to the Department of Veterans Affairs.

While the incident reduces Rotech's 2001 revenues by 3% (about $30 million) and could result in an upward revision to its bad debt reserves of up to $6 million, the overall financial impact is relatively small, S&P said. Furthermore, the affected contract area factors only minimally into expectations for future financial performance.

Moody's cuts Prime Retail

Moody's Investors Service downgraded Prime Retail, Inc.'s series A senior preferred stock to Ca from Caa3 and its series B convertible preferred stock to C from Caa3.

Moody's said it lowered the ratings because of Prime Retail's substantial accrual of unpaid preferred stock dividends, the likely restructuring of the REIT's highly leveraged and complex capital structure, pressing liquidity challenges, as well as deteriorating operating performance of its portfolio of outlet centers.

Reflecting its liquidity constraints, Prime Retail has not paid dividends on its series A or series B preferred stock since the beginning of 2000, and it is unlikely to be in a position to pay dividends for the foreseeable future, Moody's said.

Prime Retail also faces substantial refinancing needs throughout the remainder of 2002, and in 2003, when over $500 million in property-level debt comes due, the rating agency noted.

Covenant compliance challenges with regards to tax exempt bond ($18 million) and bridge facility ($111 million) indebtedness create additional potential for default and refinancing challenges, Moody's said. The REIT has been selling assets to reduce its indebtedness; however these assets have been among the better performing properties in the portfolio, with higher average occupancy levels and productivity.

S&P lowers BNDES

Standard & Poor's downgraded Banco Nacional de Desenvolvimento Economico e Social. The outlook is negative.

Ratings lowered include BNDES' SFR200 million 6.5% bonds due 2005, $250 million 9% notes due 2007, €204.517 million 9% bonds due 2017, €154.937 million 11% notes due 2010, €300 million 9% bonds due 2005, $1 billion variable-rate notes due 2008, €200 million 9.5% notes due 2002, €250 million 10% bonds due 2005, ¥40 billion 4.75% bonds series 3 due 2004, $400 million 11.25% notes due 2005 and $250 million 6.5% notes due 2006, all cut to B+ from BB-.

S&P lowers BNB

Standard & Poor's downgraded Banco do Nordeste do Brasil SA. The outlook is negative.

Ratings lowered include BNB's ¥6 billion 7.7% notes due 2002, $150 million 11.375% notes series 1 due 2004, $50 million 9.625% notes series 3 due 2005 and $100 million 10% notes series 2 due 2004, all cut to B+ from BB-.

S&P rates Alpharma notes B

Standard & Poor's assigned a B rating to the $200 million senior subordinated notes due 2009 of Alpharma Operating Corp., which were sold in December. Also, S&P affirmed Alpharma's other ratings, including 5.75% convertible subordinated notes due 2005 and 3% convertible subordinated notes due 2006 at B.

The ratings reflect an established position in the human and animal-health pharmaceutical industries and geographic and product diversity, offset by aggressive financial leverage related to acquisition activity.

Difficult conditions in the generic drug and animal-health businesses have led to a deterioration of Alpharma's performance over the past three quarters.

Specifically, the generic drug business was hurt by two product recalls and resultant slowdown at its Baltimore facility, as well as by mandated price decreases that went into effect in some major European markets.

The deterioration in financial performance also comes at a time when the company is more highly levered, having completed the $660 million debt-funded purchase of Faulding in December.

Although Alpharma has successfully delivered after each past acquisition and has retired over $245 million of debt in the past two quarters, EBITDA interest coverage of 1.9 times is weak for its rating category.

However, given adjustments for one-time charges and writeoffs, the company remained in compliance with its bank covenants as of March 31 and currently has $285 million available under its credit facility.

Prolonged weakness in the generic drug or animal-health business could result in a ratings downgrade.

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