S&P puts TFM on developing watch

Standard & Poor's put TFM SA de CV on CreditWatch with developing implications including its $150 million 10.25% notes due 2007 and $443.5 million 11.75% senior unsecured debentures due 2009 at B+.

S&P said the action follows the announcement by Kansas City Southern and Grupo TMM SA that a series of agreements have been approved by their respective boards of directors to place the Kansas City Southern Railway Co., the Texas Mexican Railway Company, and TFM under the common control of KCS.

Kansas City Southern's ratings remain on CreditWatch with negative implications, where they were placed on April 1, 2003. TMM's corporate credit and senior unsecured ratings remain at CC.

S&P said the rating action reflects uncertainty regarding the closing of the transaction, which is subject to shareholder, bondholder, and regulatory approval.

Although it appears unlikely, failure to complete the transaction could complicate TMM's debt restructuring process and in turn could have a negative impact on TFM's credit profile, which could lead to a negative rating action for the company, S&P said.

The ratings could be affirmed or a positive rating action could follow the completion of the transaction, subject to S&P's view of KCS' creditworthiness, the relationship between TFM and its new parent company, and the outlook for TFM's operations.

S&P puts Varsity Brands on watch

Standard & Poor's put Varsity Brands Inc. on CreditWatch with negative implications including its $115 million 10.5% senior notes due 2007 at B-.

S&P said the watch placement is in response to Varsity's announcement that it has agreed to be acquired by its senior management and a unit of an affiliate of Leonard Green & Partners LP in a deal valued at about $130.9 million, including repayment of debt.

The closing of the transaction is subject to certain terms and conditions, including anti-trust clearance and the successful completion of a tender offer for Varsity's outstanding 10.5% senior notes due 2007. The transaction is expected to close in the 2003 third quarter.

Resolution of the CreditWatch listing will ultimately be determined by the capital structure of the surviving company or new entity, as well as an assessment of management's strategic focus, financial policies, and near-term operating outlook, S&P said. Increasing debt levels or a combination with a more heavily debt-burdened company could pressure the ratings. The senior debt rating will be withdrawn if a large amount of senior subordinated notes is tendered.

Moody's rates Americo Life notes Ba1

Moody's Investors Service assigned a Ba1 rating to Americo Life, Inc.'s senior notes due 2013. The outlook is stable.

Moody's said the ratings are based on Americo's profitable block of seasoned traditional life insurance business, improving sales and reduced cost structure, as well as its good investment portfolio and efficient, technologically advanced operating platform.

In addition, the company continues to execute initiatives including a more focused branding strategy, which, along with efforts to control costs, could translate into improved earnings at Americo over time, the rating agency said.

Moody's added that it believes that Americo's strengths are mitigated by the company's moderate financial leverage, high level of intangibles and double leverage. The company's strengths are further offset by the group's below average consolidated statutory capitalization.

Moody's confirms Yukos, keeps Sibneft on review

Moody's Investors Service confirmed Yukos Oil's Ba1 senior implied rating and kept Sibneft on review for downgrade including its senior unsecured notes at Ba3.

Moody's comments follow the announcement that the two companies have agreed in principle to merge.

The intended merger of Yukos and Sibneft will create a very substantial oil company both within Russia, where it will account for almost a third of total domestic production, and by international standards, Moody's noted.

Moody's said it sees significant benefits of the transaction in terms of scale, the limited cash financing of the merger and the good underlying reserve quality and operational efficiency of the two companies. Moreover, the agency also notes that it is the enlarged group's intention to maintain a "moderate level of leverage and a strong working capital position".

The Ba1 senior implied rating of currently cash-rich Yukos encompasses a degree of leverage which is commensurate with the parameters that Moody's understands will be pursued by the enlarged entity. While maintaining a stable outlook at this stage, Moody's believes that the potential merger benefits could result in a positive rating outlook for YukosSibneft as the merger progresses.

At the same time, Moody's notes that the new entity's activities will remain wholly concentrated in Russia at least in the near term, which will continue to limit rating upside. This will also constrain any improvement in the issuer rating above Ba2, although any specific senior unsecured eurobonds could be rated higher.

Moody's said it is keeping Sibneft's Ba2 senior implied and Ba3 note ratings under review for possible downgrade for the time being. This reflects the ongoing discussions with TNK regarding the split of the assets of Slavneft acquired in late 2002 by the two companies and Sibneft's practice of making high dividend payments. Unless guaranteed by YukosSibneft, Sibneft's ratings will continue to be based on its fundamentals, so there may be little rating upside for Sibneft's bonds from the proposed merger with Yukos.

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