S&P upgrades Big 5

Standard & Poor's upgraded Big 5 Corp. including raising its $131 million 10.875% senior notes due 2007 to B from B- and its $125 million secured revolving credit facility due 2007 to B+ from B. The outlook is stable.

S&P said it raised Big 5 in response to the company's consistent operating performance and its expectations that Big 5's solid operating performance will be sustained.

Big 5 has a record of consistent sales and earnings growth, reflecting good execution of its operating strategies, S&P noted. Same-store sales have increased for each of the past 26 quarters. Despite the challenging retail environment, same-store sales increased 4.3% in the second quarter ended June 30, 2002, following a 6.6% increase in the first quarter. As the company expanded its store base and leveraged operating expenses, margins improved to about 14% in 2001 from 13% in 1998.

The company's financial profile has strengthened as cash flow increased while debt levels declined modestly. Following a leveraged recapitalization in 1997, EBITDA coverage of interest increased to 2.5 times for the 12 months ended June 30, 2002, from 1.6x in 1998, and total debt to EBITDA declined to 4.2x from 6.1x over the same period, S&P said. Proceeds from Big 5's recent IPO of common equity were used to retire non-cash paying holding company debt and preferred stock, improving its capital structure and alleviating future refinancing needs.

S&P cuts Asarco

Standard & Poor's downgraded Asarco Inc. and kept the company on CreditWatch with negative implications.

Ratings lowered include Asarco's $100 million 7.375% notes due 2003, $100 million 7.875% debentures due 2013 and $150 million 8.5% debentures due 2025, all cut to C from CCC, and its $450 million revolver, cut to CC from CCC+.

Fitch upgrades AES Drax notes

Fitch Ratings upgraded the senior notes of AES Drax Energy Ltd. to CCC from C and left unchanged AES Drax Holdings Ltd.'s senior secured bond at BB and Inpower Ltd.'s senior secured bank loan, also at BB. All ratings remain on negative watch.

Fitch said the upgrade is in response to AES Corp.'s announcement that it will inject enough cash to allow the upcoming Aug. 30 coupon payment to be made. Under Fitch's system, C indicates imminent default while CCC indicates that capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments.

Fitch noted that further payments on the notes will depend on either more favorable cash-flow projections, allowing the release of the substantial amount of cash trapped at Drax Holdings, or further support from AES, of which there can be no assurance.

S&P puts Orbital Sciences on positive watch

Standard & Poor's revised its CreditWatch on Orbital Sciences Corp. to positive from developing. Ratings affected include Orbital Sciences' $100 million 5% convertible subordinated notes due 2002 at CCC-. S&P also assigned a CCC+ rating to the company's its $135 million 12% second priority secured notes due 2006.

S&P said the action follows Orbital Sciences' closing of its sale of $135 million in notes, proceeds of which are to be used to repay the $100 million convertibles when they mature on Oct. 1. Remaining proceeds will be used to repay a $25 million term loan.

S&P said Orbital Sciences' ratings will likely be raised after the rating agency meets with company management in the next few weeks to discuss the firm's future prospects and strategy now that the immediate liquidity concerns have been addressed.

S&P takes Sports Authority off positive watch

Standard & Poor's removed The Sports Authority Inc. from CreditWatch with positive implications. The outlook is now positive. Ratings affected include the company's $335 million revolving credit facility due 2003 at B.

S&P said the action follows The Sports Authority's announcement that it withdrew its proposed public offering of $90 million in common stock.

The outlook reflects continued improvement in operating performance and modest debt reduction, resulting in stronger credit protection measures, S&P said.

S&P raises Shopko outlook

Standard & Poor's raised its outlook on Shopko Stores Inc. to stable from negative and confirmed its ratings including its senior unsecured debt at B+.

S&P said the action reflects Shopko's continued positive operating and financial trends and adequate financial flexibility.

The company has improved operations and cash flow protection in 2002, following two years of declines, S&P noted. Management has taken steps to aggressively control inventories, reduce costs, and pare capital spending. These efforts led to operating margin expansion of 50 basis points and more than $60 million of debt reduction for the first half of 2002. This follows $200 million of debt reduction in 2001.

Sales growth remains challenging, with flat company-wide same-store sales year-to-date, primarily reflecting weakness at the small-format Pamida division, S&P added. Pamida is performing well below historical profitability, although declines appear to have bottomed out and its operating profit contribution represents only 15% of consolidated profit. The Shopko division's same-store sales rose 2% for the first half of 2002, demonstrating some success with its strategy of offering select merchandise in a somewhat upscale setting.

The rating is supported by management's intention to continue focusing on cash flow and deleveraging the balance sheet, S&P commented. The company reduced debt by about $200 million in 2001 and repaid a $70 million bond issue in March 2002. For 2002, a continued focus on working capital and a capital spending program of only $25 million to $35 million is expected to result in further debt reduction of at least $100 million. The expanded capital spending program of $80 million for 2003 should be funded internally. EBITDA coverage is expected to improve modestly over time from about 3 times in 2001.

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