Moody's cuts Southwestern Energy to junk

Moody's Investors Service downgraded Southwestern Energy Co. to junk including lowering its senior unsecured debt to Ba2 from Baa3. The outlook is stable.

Moody's said the action reflects the increasingly prominent role exploration and production plays in generating the firm's consolidated operating income (84% in 2001), cash flow (86%) and consuming its capital investments (93%) coupled with substantial leverage and the inherent risks and challenges associated with growing an E&P company at competitive full-cycle costs in very mature Lower 48 hydrocarbon basins.

It also recognizes the evolution in recent years of E&P as the company's growth vehicle with the gas utility playing a less significant, supporting role and factors in the allocation of debt among the two major business segments while taking into account the cash flows contribution from the gas utility, Moody's commented.

The new rating should also allow Southwestern the necessary flexibility to achieve its growth without the more stringent protective measures inherent in investment grade ratings, Moody's said.

While management has made progress in restoring profitability following the Hales judgment, E&P remains an extremely capital intensive and depleting asset business, Moody's said. As Southwestern's capital spending and cash flow associated with E&P continue to rise relative to gas distribution, it will increasingly contend with volatile E&P drilling and oilfield services cost cycles; inevitable periods of higher reserve replacement costs due to drilling and services cost pressures, less productive drilling, and/or increasingly expensive acquisitions; geological learning curves as it enters new basins; and sharp, ever-more rapid price cycles.

Moody's rates Antargaz notes B2

Moody's Investors Service assigned a B2 rating to the €150 million senior notes due 2011 to be issued by AGZ Holding SA through its AGZ Finance SA financing vehicle. The outlook is stable.

The notes will be guaranteed on a senior subordinated basis by AGZ Holding SA, the parent company of Antargaz SA, which has a senior implied rating of Ba3.

Antargaz's Ba3 senior implied rating reflects the stagnating, mature French liquefied petroleum gas market, which offers few significant growth opportunities, the cyclicality in propane and butane raw material commodity prices, temperature fluctuations which create volatility in cash-flow generation, competition from piped natural gas, which offers a cheaper energy alternative, the company's larger and better capitalized competitors, its modest size, its high leverage and modest cash-flow coverages and the uncertainty of ownership in the medium term, Moody's said.

However, the rating is supported by the stable and favorable French LPG market environment, historically relatively stable margins, cash-flow stability offered by high barriers to entry and low customer churn rates, Antargaz's near-leading market shares in its core business of small bulk and cylinders and its extensive and fully integrated storage, logistics and distribution network necessary for successful market participation, Moody's said.

S&P upgrades Senior Housing

Standard & Poor's upgraded Senior Housing Properties Trust's $245 million 8.625% senior unsecured notes due2012 to BB+ from BB.

Moody's puts Bowater on review for downgrade to junk

Moody's Investors Service put Bowater Inc. and its subsidiaries under review for downgrade to junk, affecting $2.1 billion of debt. Ratings covered by the review include Bowater's senior unsecured notes, debentures, revolving credit facility, industrial revenue bonds and pollution control bonds at Baa3 and Bowater Pulp and Paper Canada's senior unsecured notes and debentures at Ba1.

Moody's said Bowater's financial flexibility has been stressed by an aggressive acquisition program and a difficult operating environment for newsprint and pulp producers. Its acquisition program over the past three years totaled about $1.1 billion, and has pushed the company's debt to capital ratio to around 50%, well above management's target of 40%.

In 2001, the acquisition of Alliance contributed to a $312 million increased in debt, and increased Bowater's exposure to newsprint, pulp and paper during a time when markets were weakening, Moody's noted. Although there are currently some positive trends in the pricing environment, free cash flow is likely to remain negative over the near term, which may result in a further increase in debt.

The review will look at the company's ability to reduce debt in the near-term through operating cash flow, sales of timberland and other assets, and other means, Moody's said. The rating agency will also consider the prospects for a sustained recovery in the newsprint and market pulp markets, both of which are critical to Bowater's ability to generate sustained profitability. The review will also consider the impact of the acquisition and integration of Alliance on Bowater and its Canadian subsidiary, Bowater Pulp and Paper Canada, which is currently rated a notch lower than Bowater.

S&P says IFCO exchange positive for bank debt

Standard & Poor's said the exchange offer announced by IFCO Systems NV with over 70% of its senior subordinated note holders has positive implications for the company's corporate credit and senior secured bank debt ratings, both at CC.

However S& noted it is likely that following the exchange offer IFCO and its bank credit facility will no longer be rated.

S&P raises Venture notes

Standard & Poor's upgraded Venture Holdings Co. LLC's notes, including raising its $125 million 11% senior notes due 2007 to CCC- from D and its $125 million 12% senior subordinated notes due 2009 to CC from D. They were also put on CreditWatch with negative implications. The company's senior secured credit facility remains at CCC and continues on CreditWatch with negative implications and the $205 million 9.5% senior notes due 2005 remain at D.

S&P said the upgrade to the notes follows Venture's payment on July 3 of the semi-annual coupon payments due June 3.

Restrictive agreements with its bank group prevented the company from making the coupon payments on their due date, S&P noted. However, the indentures governing each of the bonds provided for 30-day grace periods, and Venture made the required payments within the grace periods.

Venture failed to make the July 1 coupon payment on its $205 million senior notes and Venture has agreed with its bank group that it will not make the payment prior to the expiration of a 30-day grace period. Should the company make the coupon payment within the grace period, the rating on the notes will be raised to CCC-, S&P said.

S&P upgrades American Safety Razor

Standard & Poor's upgraded American Safety Razor Co. including raising its $69.3 million 9.875% notes due 2005, $25 million revolving credit facility due 2005 and $112.5 million term loan due 2005 to B- from CCC. The outlook is negative.

S&P said it raised American Safety Razor after it secured an amendment from its bank group that loosened financial covenants and waived covenant violations for the fourth quarter 2001 and first quarter 2002.

American Safety Razor's weak financial performance last year, due to tough industry conditions and internal issues, led to covenant defaults under its credit agreement.

S&P said it believes the company's near-term financial performance will improve to meet expectations for the current rating given the divestiture of the lower-margin cotton and footcare business and anticipated improvements in working capital management.

However over the intermediate term S&P expects American Safety Razor will continue to be challenged by the highly competitive environment in which it operates, given the maturity of the U.S. consumer products market.

S&P puts Applied Extrusion on watch developoing

Standard & Poor's put Applied Extrusion Technologies Inc. on CreditWatch with developing implications including its $275 million 10.75% notes due 2011 rated B.

S&P said its action follows the company's announcement it has hired a financial advisor to evaluate options to maximize shareholder value, including recent expressions of interest made by a number of parties to acquire the company.

Moody's keeps Vivendi on review for possible downgrade

Moody's noted Vivendi Universal confirmed it has a short term liquidity issue and is in discussions with its main credit banks for new credit facilities soon. After downgrading the long-term senior debt ratings to Ba1 from Baa3 on July 1, Moody's noted that the credit remains on review for possible further downgrade.

The downgrade reflected growing doubts about Vivendi Universal's ability to achieve the level of debt reduction factored into the previous rating and arrange refinancings of debt coming due over the next 12 months despite its broad and deep asset base.

It also factored in Moody's expectation that Vivendi Universal's banks would provide continued support for the company and would assist it in the orderly implementation of its financing and asset disposal plans.

Moody's said the current rating assumes Vivendi Universal succeeds in addressing its short term liquidity problem comprehensively in the very near term so that liquidity is assured while new management completes additional asset sales for debt reduction and to restructure liabilities.

The agency added that in this process the company is becoming increasingly dependent on the support of its credit banks.

In Moody's opinion, time is of the essence, and while Moody's acknowledges steps new management has already taken, the longer it takes to arrange additional committed funding, the more strained its financial condition is likely to become.

In the absence of a resolution to Vivendi Universal's liquidity issue in the very near term it faces a worsening situation that could result in further severe downward migration of the ratings, Moody's said.

The agency also reiterated its expectation that should an adequate refinancing be achieved, terms and conditions of the new financing will likely be more onerous than existing borrowing and added that this could well lead to selected downward ratings adjustments in its own right.

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