Fitch cuts Dynegy to junk

Fitch Ratings downgraded Dynegy Holdings Inc. to junk and kept it on Rating Watch Negative. Ratings lowered include Dynegy Holdings' senior unsecured debt, cut to BB+ from BBB, Dynegy Inc.'s indicative senior unsecured debt to BB+ from BBB-, Dynegy Capital Trust I trust preferred, cut to B+ from BBB-, Illinois Power Co.'s senior secured debt and pollution control bonds, cut to BBB from BBB+, senior unsecured debt, cut to BBB- from BBB, and preferred stock and trust preferred, cut to BB from BBB-, and Illinova Corp.'s senior unsecured debt, cut to BB+ from BBB-.

Fitch said the downgrade is in response to Dynegy's restructuring plan.

While elements of the plan reduce consolidated debt and improve liquidity, the ratings downgrades are appropriate for Dynegy's expected financial position and are reflective of a moderate degree of execution risk and the continued negative overhang from the SEC's investigation of accounting and trading issues, ongoing FERC inquiries, and potential litigation exposure, Fitch said.

The rating agency added that Dynegy will remain on watch until key elements of the plan have been executed.

A combination of asset sales and financings could generate liquidity additions exceeding $2 billion for the remainder of 2002, Fitch said. Proposed operating actions include manpower reductions, lowering expenses, trimming capital spending, a common stock dividend reduction, and limiting working capital use.

However, for unsecured lenders the benefits are mixed, Fitch said. In the case of Catlin Associates, LLC, Dynegy is securing the third party's $850 million interest with its midwestern generation assets valued at $3 billion, limiting the company's ability to use the assets to provide additional financial flexibility.

Additional concerns include the expected ongoing cash burn from telecom operations, uncertainties as to the future performance of energy marketing and trading, the need to resolve the $1.5 billion of Dynegy preferred stock held by ChevronTexaco Corp. that matures in November 2003, and the financial and operating pressures caused by a difficult business and capital market environment, Fitch added.

S&P rates Sinclair loan BB

Standard & Poor's assigned a BB rating to Sinclair Broadcast Group Inc.'s proposed $600 million senior secured credit facilities and confirmed its existing ratings. The outlook remains negative.

Borrowings of $474 million under the new facility will be used to repay the existing credit facilities.

The new credit facilities extend Sinclair's required loan amortization, delay covenant step-downs, and modestly reduce interest expense, S&P said.

The pending $125 million sale of a TV station to Tribune Co. also helps the company's financial profile without meaningfully affecting its overall business position, S&P continued. A brightening outlook for TV advertising and political ad spending could provide important revenue support to Sinclair in the second half of 2002.

However, some ad market uncertainty still exists, S&P said. In addition, Sinclair is realigning its station portfolio and could consider further station purchases, which may restrain improvement in the financial profile, depending on debt use.

Discretionary cash flow will also be limited this year and in 2003 by digital TV conversion spending, S&P added.

Moody's rates Lyondell notes Ba3

Moody's Investors Service assigned a Ba3 rating to Lyondell Chemical Co.'s planned $275 million senior secured notes and confirmed its existing ratings including its senior secured debt and secured credit facility rating at Ba3.

Lyondell's ratings are supported by the company's position as a leading global supplier of propylene oxide and certain derivatives, as well as a leading North American supplier of commodity petrochemicals and substantial back-integration through majority owned joint ventures, Moody's said.

Despite the length and depth of the current trough in commodity petrochemicals and plastics, Lyondell's Ba3 ratings have been maintained due to the consistency of management's financial policies (i.e. constant focus on debt reduction), sizable cash balances, and their ability to maintain free-cash flow breakeven, Moody's added. These actions have prevented any significant increase in debt over the past two years, unlike many other commodity producers.

Lyondell is seeking relief from the existing financial covenants in its bank facility, which were set to increase in the third quarter of 2002, Moody's said.

The banks have granted covenant relief through 2004, which should provide ample time for the company to return debt protection measurements to reasonable levels. However, they are also reducing the facility size to $350 million from $500 million. In addition, the size of the term loan E facility is being reduced to roughly $420 million from $620 million.

Lyondell's banks have continued to support the company, but have also significantly reducing their exposure from roughly $1.5 billion in 2000 to $770 million after these transactions, Moody's noted.

Lyondell is also seeking relief from bondholders on certain covenants; these changes will allow the company to pay the current $0.90 dividend on any additional stock issued, and allow the company to repay debt of businesses to be sold prior to repaying secured debtholders. Lyondell has stated that this change will allow Equistar, in the event it becomes a subsidiary of Lyondell, to repay Equistar debt ahead of Lyondell debt, Moody's said. However, this will also minimize the reduction in the company's available liquidity, if additional assets within Lyondell's current subsidiaries are sold.

Moody's rates Berry notes B3, loan B1, raises outlook

Moody's Investors Service assigned a B3 rating to Berry Plastics Corp.'s planned $275 million senior subordinated notes due 2012 and a B1 to its proposed $455 million secured credit facility and raised the outlook to stable from negative.

Moody's said the ratings reflect cumulative improvement in Berry's financial profile, although remaining constrained by high pro-forma financial leverage, moderate coverage of interest expense, and modest free cash flow as a percentage of total debt.

Moody's said it remains concerned about Berry's pro-forma debt exceeding revenues and about the company's weak balance sheet notably given that the sizable level of intangibles of approximately $620 million (62% of pro-forma total assets) well exceeds pro-forma equity of approximately $269 million.

In Moody's opinion, liquidity pro-forma for the proposed transactions appears to be adequate considering the level of Berry's net cash generated by operations and the full availability under the proposed $100 million revolver with likely cushion under proposed covenants at closing, Moody's said.

The rating agency also noted Berry's leading position throughout its markets as well as its established and diversified customer base. In our opinion, the breadth of product mix serves to mitigate the potential cyclicality and/or seasonality of its end markets.

Berry also shows solid operating performance, indicated by the relative stability in EBIT margins in the mid to low teens through pro-forma LTM02, Moody's said.

Moody's upgrades Partner Communications ratings

Moody's Investors Service upgraded Partner Communications Co. Ltd.'s senior implied rating to Ba3 from B1, issuer rating to B2 from B3, $175 million senior subordinated global notes due 2010 to B2 from B3 and $750 million bank credit facilities due 2008 to Ba3 from B1. The outlook is stable.

The upgrade reflects solid operational and financial progress, sustained reduction in leverage and improvement in key credit metrics, improvement in market share, positive resolution to the Bank Hapolim bank participation repayment and successful acquisition of a UMTS/GSM 1800 license at the minimum offer price, Moody's said.

Ratings continue to reflect high leverage, reliance on bank financing and high levels of penetration in the Israeli mobile market.

At the end of March, the company had annualized revenues of $796 million, EBIDTA of $194 million, financial leverage of 3.8 times and EBIDTA/interest of 2.9 times, Moody's said.

Moody's raises PacifiCare outlook

Moody's Investors Service raised its outlook on PacifiCare Health Systems to positive from stable. The company's senior implied rating is B2.

Moody's said it took the action in response to PacifiCare's improved liquidity following its recent $500 million bond offering.

Moody's said it believes the success of the financing, which was originally planned to be $200 million, allows the company to meet repayment requirements under its newly extended bank agreement.

In addition, in conjunction with the financing, funds have been put aside in a collateral account for the benefit of FHP noteholders (due September 15, 2003) assuming the company is not in default on payments on its bank debt and Moody's said it understands PacifiCare is contemplating additional steps to refinance its bank debt and further improve liquidity.

S&P keeps United on watch

Standard & Poor's said UAL Corp. and its subsidiary United Air Lines Inc. remain on CreditWatch with negative implications. Ratings affected include UAL's preferred stock at CCC+ and United Air Lines's senior secured debt at B+, senior unsecured debt at B- and equipment trust certificates at BB.

The announcement follows United's application to the Air Transportation Stabilization Board for a $1.8 billion federal loan guaranty. That move in turn followed a tentative agreement with the airline's pilots union on concessions that the company says would save $520 million over three years, and a $430 million package of concessions to be applied to non-contract employees and management.

United continues to seek concessions from its mechanics, ground service employees, and flight attendants unions, with prospects that vary from union to union, S&P noted.

The likelihood of approval of a federal loan guaranty is less clear than for another major airline applicant, US Airways Inc. (CCC+/Watch Negative), because United still has reasonable liquidity ($2.9 billion at March 31, 2002) and about $3 billion of unencumbered aircraft available for collateral, S&P said. Accordingly, the most likely credit risk is continued erosion of financial strength due to a weak airline industry revenue environment, United's high operating costs, and its heavy burden of debt and leases, rather than a near-term liquidity crisis, S&P added.

Fitch cuts Pecom to C

Fitch Ratings downgraded Pecom Energia's senior unsecured foreign and local currency ratings to C from CCC. The ratings remain on Rating Watch Negative.

Fitch said the action reflects Pecom's announcement of a $997.5 million distressed debt exchange offer.

The proposal seeks to refinance $97.5 million of 7 7/8% notes due August 2002; $300.0 million of 9.0% notes due January 2004; $200.0 million of 9.0% notes due May 2006; and $400.0 million of 8 1/8% notes due July 2007. The company is offering four series of new notes carrying the same interest rate of each series of existing notes but extending their corresponding maturity by three years.

Depending on the final terms and conditions of the exchange offer, Fitch said it will view the exchange as an event of default to the extent that the replacement issue generates a loss to the original holders of the notes.

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