Moody's puts International Game on upgrade review

Moody's Investors Service put International Game Technology on review for upgrade, affecting $900 million of debt including its senior unsecured securities at Ba1.

Moody's said it began the review in response to International Game Technology's increasing internal cash flow generation and improved credit statistics.

The company's sales and margins have increased due to the positive momentum provided by the acceptance of its coinless technology, the rating agency noted.

Moody's review will focus on future demand drivers such as International Game Technology's EZ Pay coin-less technology, proliferation of gaming within existing and possible new jurisdictions, and International Game Technology's ability to continue to introduce new games.

Additionally, Moody's said its review will analyze the competitive landscape and the company's ability to sustain its improved credit profile, as well as International Game Technology'a strategic and financial policy objectives.

Moody's confirms Volume Services

Moody's Investors Service confirmed Volume Services America, Inc.'s ratings and maintained its stable outlook. Ratings confirmed include Volume Services' $187 million senior secured credit facility at B1 and $100 million 11.25% senior subordinated notes at B3.

Moody's said it confirmed Volume Services despite its small size relative to actual and potential competitors because of its record of steady operating performance and ability to win new food concession contracts.

The ratings reflect the company's moderate size and financial flexibility relative to its primary competitors, its leveraged financial condition (especially adjusted for minimum rental & concession payments), and the significant concentration of revenue and profitability (10 largest contracts account for 38% of revenue and 50% of cash flow), Moody's said.

The seasonal nature of the company's revenue stream (due to a lull between the time the professional football season ends and the professional baseball season begins), the unpredictability of sporting event attendance, and the normal practice of making a substantial payment to the venue owner at the beginning of a new contract also restrain ratings at the current level, Moody's added.

However, the ratings recognize the company's position as a leading provider of concession services at professional football and baseball stadiums, the diversity provided by the company's status as a concession provider to convention centers and other professional sports, and the consistent year-over-year pattern of modestly increasing operating margins, the rating agency said. The long average remaining contract life of 6 years, the renewal rate of 82% for expiring contracts, and the ability to win incremental new contracts also benefit the company.

For the most recent twelve months, cash flow (as measured by EBITDAR) covered interest expense, maintenance capital expenditures, and minimum rents & concession payments by about 1.5 times, Moody's said. However, after substantial up-front payments for several new concession contracts, the company's cash balance fell $7 million to $10 million. Adjusted debt to EBITDAR decreased to 4.8 times over the last 12 months compared to 5.6 times for fiscal 2001 largely due to better leveraging of fixed costs from an increased number of events at the company's sporting and non-sporting venues.

Fitch cuts Focal

Fitch Ratings downgraded Focal Communications' senior unsecured debt rating to D from C and the senior secured rating to D from C.

Fitch said the action follows Focal's announcement that it has filed a voluntary Chapter 11 bankruptcy petition in order to facilitate a financial restructuring.

At the end of the third quarter of 2002, Focal had approximately $65 million in cash on its balance sheet and $93 million outstanding on the credit facility, Fitch noted. In addition to the senior secured convertible notes, the company also had approximately $240 million in senior unsecured notes outstanding and $18 million outstanding under its secured equipment term loan.

Moody's cuts General Cable

Moody's Investors Service downgraded General Cable including cutting its $200 million senior secured revolving credit facilities due 2005, $63 million senior secured term loan facility A due 2005 and $277 million senior secured term loan facility B due 2007 to B1 from Ba3. The outlook is stable.

Moody's said the action is in response to the difficult business environment for all three of General Cable's product segments, and in particular, its telecommunications products.

Moody's believes that General Cable's business environment will remain challenging given weak demand for the company's copper based cable products and believes General Cable's products will be slow to recover and may even experience weak demand beyond 2003.

Moody's notes that the company's industry diversification has not been sufficient to prevent an erosion of the company's credit quality.

The ratings also take into account the company's liquidity position. The company's revolver availability is currently limited by the leverage ratio covenant. Moody's notes that while the company's financial flexibility has improved as a result of a recent relaxation of its financial covenants, the size of its revolving credit facility was reduced to $200 million from $250 million.

The company's debt to EBITDA and debt to free cash flow, both after taking into account the $89 million of off-balance sheet debt, are likely to be in the area of 6.3x and 8.9x, respectively for 2002, Moody's said.

Moody's cuts O'Sullivan

Moody's Investors Service downgraded O'Sullivan Industries, Inc. and its parent company O'Sullivan Industries Holdings, Inc. Ratings lowered include O'Sullivan's $40 million senior secured revolving credit facility due 2005, $21.5 million senior secured term loan A due 2005 and $86 million senior secured term loan B due 2007, to B2 from B1, and $100 million 13.375% senior subordinated notes due 2009, to Caa1 from B3, and O'Sullivan Industries Holdings' $19.8 million senior discount note due 2009 to Caa2 from Caa1. The outlook is stable.

Moody's said the downgrade reflects O'Sullivan's limited debt repayment capacity, which is restricted by ongoing weak demand in the ready-to-assemble furniture industry and cash flow pressure caused by an unfavorable arbitration settlement, which relates to a 1994 tax sharing agreement with RadioShack.

Reduced customer demand challenges the company's ability to improve its earnings and cash flows, given little potential for profit improvement from particleboard prices (now near historical lows), and increasing competition from international and domestic sources, the rating agency noted. These pressures on operating cash flows are occurring at a time when O'Sullivan's fixed charges have been increased for the foreseeable future by around $10-12 million per annum, due to the tax sharing settlement.

From current EBITDA levels of around $55 million, O'Sullivan must service $24 million in interest, $11 million in RadioShack payments, and $9 million in capital expenditures, Moody's said. The resulting $11 million in cash flow, before working capital changes, is less than 5% of total funded debt, indicating a 20-year repayment profile.

S&P raises William Carter

Standard & Poor's upgraded The William Carter Co. including raising its $125 million term loan due 2008 and $60 million revolving credit facility due 2006 to BB from BB- and its $175 million 10.875% notes due 2011 to B from B-. The outlook is stable.

S&P said the upgrade reflects William Carter's improving financial results and related credit measures, which are a result of stronger margins, increased outsourcing, and better cost controls.

William Carter's sales volumes and margins have increased each year, driven by increased consumer spending on the infant and children's apparel categories and favorable demographic trends, S&P noted. This top-line improvement has translated into higher operating results as the company continues to outsource its production to lower cost, non-U.S. facilities.

The ratings incorporate Carter's leveraged financial profile, which is partially offset by the company's leading positions in the competitive infant and children's apparel industry, as well as its distribution channel diversity, S&P added.

For 2002, S&P said it expects operating margins (before D&A) to improve significantly, as William Carter continues to shift production to non-U.S. sources. For the 12 months ended Sept. 28, 2002, operating lease-adjusted total debt to EBITDA was about 3.2x while EBITDA coverage of interest expense was about 3.3x. Credit measures are expected to improve modestly as free cash flow is used primarily for debt reduction.

S&P puts Weight Watchers on positive watch

Standard & Poor's put Weight Watchers International Inc. on CreditWatch with positive implications including its $172 million term B loan due 2007, $45 million revolving credit facility due 2005 and $64 million term A loan due 2005 at BB- and its $250 million subordinated notes due 2009 at B.

S&P said the watch placement reflects the company's improving financial profile and better-than-expected operating performance, driven by increased classroom attendance and product sales across most of its geographic segments.

Fitch cuts PolyOne to junk

Fitch Ratings downgraded PolyOne Corp. to junk including cutting its senior unsecured debt to BB from BBB- and its senior secured credit facility to BB from BBB-. The outlook remains negative.

Fitch said it cut PolyOne because of weaker than expected financial performance. The company recently announced an expected net loss for the fourth quarter of 2002.

PolyOne's financial weakness is also evident in its credit statistics. For the 12 months ended Sept. 30, 2002, EBITDA-to-interest was 2.3 times and total debt (including the A/R program balance)-to-EBITDA was 6.6x, Fitch noted. EBITDA for the 12 months ended Sept. 30, 2002 has not improved over EBITDA of $134.0 million for the same period in 2001 or the year-end 2001 level of $127.6 million.

Operating income for the business segments has shown some improvement in the first nine months of 2002 versus the same period in 2001. However, the improvement is not readily apparent in EBITDA due to a decline in depreciation and amortization expense over the comparable periods, Fitch said.

Debt (including the A/R program balance) has increased to $801.1 million from $663.6 million at year-end 2001, Fitch added. PolyOne did issue $200 million in senior unsecured debt earlier in 2002; however, the proceeds from the issuance went to refinance existing debt. Debt is expected to decline slightly in the fourth quarter due to seasonal changes in working capital that can be applied to debt reduction and the potential impact of the previously announced So.F.teR S.p.A. divestiture. Greater progress in debt reduction may result from future asset sales.

Moody's puts DynCorp on upgrade review

Moody's Investors Service put DynCorp on review for possible upgrade including its $90 million revolving credit facility due 2004, $56 million senior secured term loan A due 2004 and $74 million senior secured term loan B due 2006 at Ba3 and $100 million 9.5% senior subordinated notes due 2007 at B3.

Moody's said the review follows the announcement that Computer Sciences Corp. will acquire DynCorp.

Moody's said its review of DynCorp will focus on the consummation of the proposed merger as well as the legal structure of the combined entity, including the assumptions or guarantees of existing DynCorp debt by Computer Sciences.

While the benefit of greater size is difficult to quantify, Moody's believes that DynCorp bond holders will benefit from DynCorp's merger with a large investment grade company (A2 senior unsecured rating) particularly one where operational and financial synergies seem evident.

S&P may raise Hexcel's outlook

Standard & Poor's said it may raised its outlook on Hexcel Corp. to stable from negative when the recently announced agreement to sell $125 million of convertible mandatorily redeemable preferred stock to three financial investors closes along with the associated refinancing of its $321 million secured credit facility. The rating is unchanged at B.

Proceeds from the sale will be used to pay down bank borrowings and to provide for the repayment of $47 million in subordinated notes due in August 2003, S&P noted.

The preferred stock sale and debt repayment would improve Hexcel's capital structure and remove near-term liquidity concerns, but revenues and earnings will remain under pressure due to the weak commercial aerospace market, S&P added.

Moody's cuts Dyckerhoff, Lonestar to junk

Moody's Investors Service downgraded the senior debt of Dyckerhoff AG and Lonestar Inc. to Ba1 from Baa3. The outlook is negative. The action concludes a review begun on Aug. 26.

Moody's said the downgrade is in response to Dyckerhoff's weakened financial profile and its reduced financial flexibility resulting from a depressed cash flow due to the group's large exposure to the troubled German market, which is delaying debt reduction.

Moody's said it also considered the recent announcement that Buzzi Unicem and the Dyckerhoff family have entered into an agreement that significantly modifies Dyckerhoff 's shareholder structure and adds an element of strength to the company's bondholders.

The weakened financial profile reflects the company's worsening operating performance amidst a continuously depressed environment in its key market of Germany as well as its reduced ability to balance fluctuations in performance among its operations, due to a less geographically diversified business franchise than those of its peers, Moody's said.

The proposed restructuring measures and the €95 million cartel fine, which will be accounted for in fiscal 2002, also weigh negatively on the financial profile.

S&P rates Sinclair notes B, loan BB-

Standard & Poor's assigned a B rating to Sinclair Broadcast Group Inc.'s new $150 million senior subordinated notes and a BB- rating to its $150 million incremental senior secured term loan facility due 2009 and confirmed its existing ratings including its senior secured bank loan at BB, subordinated debt at B and preferred stock at B- and Sinclair Capital's preferred stock at B-. The outlook is negative.

S&P said Sinclair's ratings reflect its large television audience reach, cash flow diversity, and strong margin and discretionary cash flow potential. Offsetting factors include the company's high financial risk from aggressive, debt-financed TV station acquisitions, and mature long-term growth prospects for the TV station business. About one-third of Sinclair's total revenue is derived from generally lower-ranked stations affiliated with the still-developing WB and UPN TV networks.

Sinclair is enjoying good year-over-year revenue and EBITDA growth from stronger overall advertising, bolstered by political spending, S&P noted. In the 2002 third quarter, net broadcast revenue and EBITDA before corporate expenses increased 10% and 24%, respectively. Local revenue, excluding political advertising, increased 10% compared with the year-ago quarter. All of Sinclair's stations experienced revenue growth in the quarter, with double-digit gains at the company's NBC and CBS affiliates. Positive momentum is expected to continue in the 2002 fourth quarter.

Still, the economic outlook remains soft and the advertising climate beyond the immediate term is uncertain, S&P said. Without the benefit of political spending in 2003, TV operators will be more dependent on general advertising. In addition, Sinclair's mostly lower-ranked stations could be harder hit by any advertising weakness in the competitive environment.

Stronger revenue boosted Sinclair's EBITDA margins, but they remain below the roughly 40% level achieved in 2000, S&P said. Pro forma EBITDA to interest plus debt-like preferred dividends is around times 1.5x for the 12 months ended Sept. 30, 2002. Pro forma EBITDA to interest is around 2.0x, compared with a 1.6x bank covenant. This covenant tightens to 1.7x in 2003, decreasing the cushion for softer revenue performance. Pro forma total debt plus debt-like preferred stock divided by EBITDA is in the mid-7x area at Sept. 30, 2002. Pro forma total debt to EBITDA is around 5.8x for the same period, compared with the 7x covenant through 2003. Debt maturities are minimal for the next five years.

S&P puts Fisher Scientific on positive watch

Standard & Poor's put Fisher Scientific International Inc. on CreditWatch with positive implications including its $175 million revolving credit facility due 2004 and $150 million 7.125% senior notes due 2005 at BB- and $150 million 8.125% senior subordinated notes due 2012, $200 million 9% senior subordinated notes due 2008 and $400 million 9% senior subordinated notes due 2008 at B.

S&P said the watch placement reflects Fisher's strong performance in a difficult market environment and the expected benefits of a planned refinancing.

Although the company continues to operate with a heavy debt burden, with total debt to capital in excess of 95%, other credit measures are strengthening, reflecting ongoing operating improvements. Funds from operations to lease-adjusted debt and EBITDA interest coverage have increased to more than 20% and 3.5x, respectively, S&P said.

S&P added that it estimates a proposed refinancing of high-cost debt issued to finance the company's 1998 leveraged buyout should save at least $10 million of interest expense annually.

If the refinancing is completed as anticipated in early 2003, S&P expects to raise the corporate credit and senior debt ratings to BB from BB- and subordinated debt ratings to B+ from B.

S&P cuts Alamosa, still on watch

Standard & Poor's downgraded Alamosa Holdings Inc. and kept it on CreditWatch with negative implications. Ratings lowered include Alamosa Holdings LLC's $333 million senior secured credit facility, cut to CCC+ from B-, and Alamosa Delaware Inc.'s $150 million notes due 2011, $250 million 12.5% senior unsecured notes due 2011 and $350 million senior discount notes due 2010, cut to CCC- from CCC.

S&P said it lowered Alamosa because it is concerned the company faces increased risk of deteriorating liquidity in 2003.

The company had about $116 million in total liquidity at the end of September 2002, comprised of about $56 million of cash, $34 million of restricted cash that could only be used to service certain debt, and $25 million in availability under its bank revolver, S&P noted. Given that its recently amended bank credit agreement stipulates that $10 million has to be maintained on the balance sheet at all times and that $15 million under the bank revolver could not be used until the leverage ratio falls below 5.5x, Alamosa could effectively access only about $56 million of that total liquidity at the end of Septemeber 2002 to meet future cash requirements from operations.

With free cash flow prospects likely to be weak in 2003 after factoring in about $45 million in projected capital expenditures, significant cash interest expense, and uncertain level of EBITDA due to such factors as competition, over 30% of its subscribers being sub-prime in credit quality, and the weak economy, Alamosa's limited liquidity may not adequately fund operations and leave sufficient cushion against execution risks in 2003, S&P said.

Alamosa also needs to avoid significant execution missteps ahead in order to meet senior leverage and total leverage covenants as they become effective in the second quarter of 2003, S&P added. Assuming senior debt of $200 million and total debt of about $870 million at the end of second quarter 2003, the company needs to generate at least $19 million of EBITDA in the first and second quarter of 2003 combined in order to meet the maximum senior leverage test of 5.25x and maximum total leverage test of 23x. However, given the challenging operating environment and large mix of sub-prime customers, the risk of covenant violation significantly increases in third quarter 2003 when the senior leverage covenant tightens to 2.75x and the total leverage covenant tightens to 12x.

S&P cuts Dole Food, on watch

Standard & Poor's downgraded Dole Food Co. Inc. and kept it on CreditWatch with negative implications. Ratings lowered include Dole Food's $400 million 7.25% notes due 2009 and $175 million 7.875% debentures due 2013, cut to B+ from BBB-. Dole's $300 million 7% notes due 2003 and $300 million 6.375% notes due 2005 remain at BBB- because the notes are expected to be retired; they will not be downgraded if they are redeemed.

S&P said the downgrade follows Dole's announcement that it has signed a definitive merger agreement with David Murdock, who will acquire the approximately 76% of Dole's outstanding common stock that he or his family does not currently own for $33.50 per share. The total enterprise value of the transaction, including the assumption of debt, is approximately $2.5 billion.

The ratings action reflects a significant increase in financial risk related to the leveraged buyout, S&P said. Under the proposed transaction, the company's 4x total debt to EBITDA would be well beyond levels consistent with an investment-grade rating for Dole's business profile.

S&P said the rating will remain on CreditWatch with negative implications until final details of the proposed financing are reviewed and it assesses the long-term financial structure.

The downgrade of the notes to two notches below the corporate credit rating reflects the proposed large amount of secured debt needed to complete the transaction. The transaction would essentially subordinate the position of these notes within the capital structure.

S&P keeps OM Group on watch

Standard & Poor's said OM Group Inc. remains on CreditWatch with negative implications including its senior secured bank loan at B+ and subordinated debt at B-.

S&P said its announcement follows management's announcement of details of its restructuring program.

The sale of non-core assets and planned reductions in work force expenses and in manufacturing and administrative costs will benefit weak earnings and cash flow measures, S&P said but added that resolution of the CreditWatch listing awaits in part the outcome of management's review of strategic alternatives, including seeking a financial partner, for its precious metals business.

The recent amendment of debt covenants provides OM Group with time to implement its restructuring program, and the opportunity to pursue the reinstatement of metal lease facilities to a normal level, S&P said. The company will record a restructuring charge in the fourth quarter of 2002 of up to $335 million, of which the cash portion (principally for severance costs) is expected to be approximately $38 million - $43 million.

The sale of non-core assets (including the SCM-powdered metals activity, tungsten carbide technology and assets, and the PVC heat stabilizer product line) and potential proceeds of up to $100 million would enhance prospects that OM Group will be cash flow positive in coming quarters as it attempts to reduce its heavy debt load substantially, S&P said. Total debt to EBITDA is expected to remain aggressive in the 5x-6x range in the near term.

S&P puts Maxxim Medical on watch

Standard & Poor's put Maxxim Medical Group Inc. on CreditWatch with negative implications. Ratings affected include Maxxim Medical's $131.4 million senior subordinated discount notes due 2009 at CCC, $50 million senior secured revolving bank loan due 2005, $80 million senior secured term loan A due 2005, $90 million senior secured term loan B due 2007 and $90 million senior secured term loan C due 2008 at B-.

S&P said the action reflects the possibility that Maxxim may have difficulties complying with its covenant package if performance does not improve in the next few months.

Maxxim Medical is an important supplier of custom-procedure trays, nonlatex examination gloves and other single-use products. However, the company's new management faces an ongoing challenge to improve the profitability of the operations that it has acquired through the aggressive use of debt, S&P said.

Cash flow shortfalls have required financial restructuring. Yet, even though the issuance of new equity and a revision in the terms of its credit facilities provided Maxxim with financial flexibility to meet its principal and interest obligations during 2002, the company has not yet been able to improve its operating performance, S&P said.

Maxxim was able to sell its bio-safety business in October of 2002 for approximately $23 million, which provided additional funds for debt repayment. However, both revenue and operating margins have been lower than expected, S&P added. Unless operations improve significantly during the next few months, Maxxim is in danger of violating its bank covenants, which include interest coverage, total leverage, and senior leverage ratios.

Moody's confirms Revlon, outlook still negative

Moody's Investors Service confirmed Revlon Consumer Products Corp. and maintained its negative outlook. Ratings affected include Revlon's $117.9 million senior secured term loan due 2005 and $132.1 million senior secured revolving credit facility due 2005 at B3, $363 million 12% senior secured notes due 2005 at Caa1, $250 million 9.0% senior notes due 2006 and $250 million 8.125% senior notes due 2006 at Ca, $650 million 8.625% senior subordinated notes due 2008 at C and speculative-grade liquidity rating at SGL-4.

Moody's action comes after Revlon's announcement of a proposed $150 million cash infusion by MacAndrews & Forbes, wholly-owned by Ronald O. Perelman.

The confirmation reflects the company's potentially improved near-term liquidity position, as well as the anticipation of increased and accelerated cash outlays as the company moves forward with an aggressive growth plan, Moody's said.

Moody's said its action recognizes that the proposed investments could give the company improved flexibility to execute its turnaround strategy. However, expected spending to implement these plans presents additional cash burn to a company that is already significantly cash flow negative.

Moody's noted that Revlon has experienced improved market share results in recent months, but remains concerned that increased sales and gross profits will not be meaningful enough to cover higher levels of advertising and marketing expenditures or the company's ongoing cash shortfall caused by debt service and capital spending needs.

Near-term liquidity also remains under pressure pending the approval of the investment proposal by the board (which could further weaken certain investor classes), the required amendment from the bank group, and an analysis of the financial condition of credit line-provider, MacAndrews and Forbes, Mooyd's said. The ratings will respond to Revlon's ability to effect sustainable positive free cash flow generation and maintain adequate levels of reliable, supplemental sources of liquidity.

Moody's raises Crown Castle liquidity

Moody's Investors Service upgraded its speculative-grade liquidity rating on Crown Castle International Corp. to SGL-2 from SGL-3.

Moody's said the upgrade reflects the company's success in amending its revolving credit facility for its U.K. operations that had been in technical default at the time of assignment of the original SGL rating.

The SGL-2 rating considers Crown Castle's ample cash position and comfortable covenant cushion on all three of its credit facilities. However, the liquidity rating is constrained by the currently cash consuming state of the company's operations, as well as recent results that have fallen short of Moody's expectations.

Moody's puts Teekay on review

Moody's Investors Service put Teekay Shipping Corp. on review for downgrade including its $167 million 8.32% senior secured notes due 2008, $460 million guaranteed senior secured revolving credit facilities due 2006 and 2008 and $44 million guaranteed senior secured term loan due 2005 at Ba1 and $350 million 8.875% senior unsecured notes due 2011 at Ba2.

Moody's said the review follows the announcement that Teekay is planning to buy Navion ASA from Statoil ASA for $800 million in cash.

Moody's said its review will focus on the impact of the proposed financing to the capital structure and credit statistics of the company post-acquisition.

Moody's notes that the acquisition will be funded entirely by debt financing.

As such, the ability of the Company to quickly reduce debt levels will be critical to the maintenance of current ratings.

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