Moody's cuts Dynegy

Moody's Investors Service downgraded Dynegy Inc. and its subsidiaries including cutting Dynegy Holdings Inc.'s senior unsecured debt to Caa2 from B3 and subordinated trust preferred securities to Ca from Caa2, Illinova Corp.'s senior unsecured debt to Caa2 from B3, Illinois Power's senior secured debt to B3 from B1, senior unsecured debt to Caa1 from B2 and preferred stock at Ca from Caa2 and Roseton-Danskammer's passthrough certificates to Caa2 from B3. A total of $4.9 billion of debt is affected. The outlook is negative.

Moody's said the action is in response to ongoing concerns about the level of cashflow that the restructured company will be able to generate relative to its high financial leverage, which will likely result in minimal amounts of free cashflow available for further debt reduction, and continuing uncertainty related to the ultimate resolution of the company's debt obligations coming due over the next several years, including $1.6 billion of bank credit facilities in the second quarter of 2003.

The negative outlook reflects a continuing lack of investor and counterparty confidence that has limited access to public debt markets and negatively impacted the company's remaining businesses; uncertainty surrounding the FERC and SEC investigations and; uncertainty relating to ongoing re-audits and reviews of the company's financial statements from 1999 through 2001.

Dynegy's total on and off balance sheet debt currently stands at $9.3 billion and consists of $6.2 billion at Dynegy Holdings Inc. (including outstanding L/C's), $100 million at Illinova, $2.0 billion at Illinois Power (including $540 million of transition funding notes), $360 million of DGC leases, and approximately $600 million of unconsolidated subsidiary debt, Moody's noted. These amounts do not include $1.5 billion of CVX preferred securities that are scheduled to mature in November 2003 and it remains unclear how this maturity will be dealt with.

Given the insufficient level of operating cashflow and the lack of significant additional assets available for sale, debt protection measures are likely to remain very weak, Moody's said.

S&P cuts Navistar

Standard & Poor's downgraded Navistar International Corp. and Navistar Financial Corp. including cutting Navistar International's $100 million 7% senior notes due 2003 and $400 million 9.375% senior notes due 2006 to BB- from BB and $250 million 8% senior subordinated notes due 2008 to B from B+ and Navistar Financial Corp.'s $200 million 4.75% subordinated exchangeable notes due 2009 to B from B+. The ratings were removed from CreditWatch with negative implications and a stable outlook assigned.

S&P said the downgrade reflects concerns about the magnitude of restructuring costs and necessary pension fund contributions, and the strategic setback represented by a recent engine supply contract cancellation.

Moreover, S&P said it now expects weak truck demand to persist for longer than previously assumed, putting pressure on the company's financial performance and liquidity.

Navistar recently announced a $404 million restructuring charge that relates to the closing of the company's Chatham, Ont., heavy-duty truck facility; the exiting of the Brazilian truck market; the ceasing of operations at the company's Springfield, Ohio, body plant; and asset write-downs related to the company's V6 diesel engine program, S&P noted. The cash outlay associated with this charge during the next 12 months is expected to be a substantial $149 million, which does not include amounts related to previously announced charges. The fixed cost reductions resulting from the restructuring and discontinued operations, coupled with the company's ongoing program of continuous cost improvements, should ultimately improve the company's operating efficiency. However, given the large and complex nature of the restructuring effort, the benefits over the near term are uncertain.

Engines have accounted for an increasing share of the company's earnings over the past several years and increased shipments to Ford were expected in the future, S&P said. The recent postponement of the V6 diesel engine program is viewed as a significant setback for the company. Navistar built its Huntsville, Ala., facility to specifically service this program and as a result of Ford's decision to postpone the program, Navistar now has underused capacity and the future growth strategy of its engine business is uncertain.

Due to lower interest rates and declining equity markets, Navistar's unfunded pension liability totaled more than $1 billion as of Oct. 31, 2002, compared with about $550 million at the end of October 2001, S&P said. Over the next several years the cash contributions to the pension plan are quite substantial, totaling more than $450 million ($150 million per year on average for the next three years). Additionally, the company has retiree medical obligation of more than $1.5 billion. Although the company's new UAW contract will help contain benefit costs over time, as new hires will no longer participate in the current pension plan, this obligation will continue to affect the company's cash flow.

Fitch cuts Navistar

Fitch Ratings downgraded Navistar International Corp. and Navistar Financial Corp., cutting their senior unsecured debt to BB from BB+ and senior subordinated debt to B+ from BB-. The outlook remains negative.

Fitch noted that it downgrade Navistar Financial because of the close link between it and its parent. Although the trends in capitalization and asset quality over the past six to nine months have improved, the longer term trends still result in Navistar Financial's financial strength being closely aligned with parent Navistar's debt rating.

Fitch said it lowered Navistar because of the continuing weak industry environment in Navistar's core medium and heavy-duty truck markets in North America, recent occurrences in Navistar's joint efforts with Ford, continued headwinds in certain cost areas such as employee and retiree healthcare costs, and concerns over the impacts of substantial cash calls associated with scheduled pension contributions and restructuring charges.

Positive factors include the completion of Navistar's major capital expenditure program, Navistar's overall product competitiveness, Navistar's restructuring efforts that have positioned them for the future, and the recent conclusion of contract negotiations with the UAW, Fitch said.

After hitting a peak in CY 1999 at 431.8 thousand units in Class 5-8 trucks, industry U.S. shipments fell a precipitous 43% over the next two years to 246.2 thousand units in CY 2001, Fitch said. Going into fiscal 2002, Navistar was positioned for continued short-term weakness with a manufacturing cash balance of $806 million at the end of fiscal 2001. Continued industry weakness, reflected in the year-to-date 10% decline in industry volumes, has resulted in a larger cash drain and a more extended timetable for recovery.

The cash balance has been depleted from $806 million to $549 million at fiscal year end (not factoring in a $50 million increase in the receivable due from Navistar Financial to the parent). This decrease in cash is after a sale leaseback transaction that generated $164 million in cash, Fitch noted. The overall effect is a substantial decrease in cash coinciding with a substantial increase in manufacturing adjusted debt levels.

Although Fitch said it feels Navistar has the liquidity to manage through some continued industry weakness, the overall level of financial flexibility has decreased. This decrease in financial flexibility happens at a time when Navistar faces additional costs from its employee medical and post-retirement programs.

Although Navistar has taken actions with its recent UAW contract and through other means, it will be several years before much of the positive impact will be felt. In the meantime, Navistar must contend with the indefinite delay of the Ford V-6 diesel engine program and with significant cash claims from the pension plan ($150-175 million in 2003 and $440-$490 million over the next three years) and from previous restructuring announcements ($149 million in 2003 and $298 million over the next three years).

When combined with the normal working capital trends, it is probable that these factors will result in a significant cash outflow in the first half of fiscal 2003, Fitch said. Only a substantial recovery in the second half the fiscal 2003 would reverse this trend for the entire fiscal year.

S&P cuts some United Airlines ratings

Standard & Poor's downgraded some ratings of UAL Corp. and United Airlines Inc. Ratings lowered include United Airlines' $382.5 million 10.67% debentures series A due 2004, $382.5 million 11.21% debentures series B due 2014, $200 million 9.125% debentures due 2012, $250 million 9.75% debentures due 2021, $300 million 10.25% debentures due 2021 and $150 million 9% notes due 2003, cut to D from C, $102 million equipment trust certificates series 1991A due 2014, cut to CCC- from CCC+, $105.575 million 7.83% Jet Equipment Trust class B mezzanine notes series 1995B due 2012, cut to CCC from CCC+, $109.512 million 7.27% passthrough certificates series 1996-A1 due 2013, cut to CCC from CCC+, $118 million 9.06% passthrough certificates series 1993B and 1993C due 2015, cut to CCC from CCC+, $121.5 million 9.08% passthrough certificates series 1992-B2 due 2015, cut to CCC- from CCC+, $130.5 million 9.35% passthrough certificates series 1992A2 due 2016, cut to CCC from CCC+, $137.268 million 7.371% Class D passthrough certificates series 2001-1 due 2006, cut to CCC from CCC+, $151.439 million 7.762% passthrough certificates class C ser 2000-2 due 2007, cut to B- from B, $175.9 million 9.21% series 1993A passthrough certificates due 2017, cut to CCC from CCC+, $180 million 10.36% equipment trust certificates series 1991C to series 1991E due 2012, cut to CCC from CCC+, $22.7 million 11.79% Jet Equipment Trust certificates series 1994 A due 2014, cut to CC from CCC-, $246.302 million passthrough certificates series 1995A due 2018, cut to CCC from CCC+, $251.885 million 6.831% Class C passthrough certificates series 2001-1 due 2008, cut to B- from B, $331.285 million 7.63% Jet Equipment Trust class A senior notes series 1995 B due 2012, cut to B from B+, $360.8 million passthrough certificates series 1991A due 2008, cut to CCC- from CCC+, $42.153 million 11.44% Jet Equipment Trust class D series 1995A due 2014, cut to CC from CCC-, $43.656 million 10.91% Jet Equipment Trust class D series 1995 B due 2014, cut to CC from CCC-, $445.8 million passthrough certificates series 1997-1A due 2004, cut to BB from BB+, $55.188 million 7.87% passthrough certificates series 1996-A2 due 2019, cut to CCC from CCC+, $65.18 million 9.71% Jet Equipment Trust class C subordinated notes series 1995 B due 2013, cut to CCC- from CCC, $65.5 million Jet Equipment Trust series 1994A notes series B-1, cut to CCC- from CCC, $68 million 10.69% Jet Equipment Trust class C series 1995A due 2013, cut to CCC- from CCC, $82.5 million 8¼% passthrough certificates series 1992-B1 due 2008, cut to CCC- from CCC+, $95.9 million 8.70% passthrough certificates series 1992A1 due 2008, cut to CCC from CCC+, and $98.351 million equipment trust certificates series 1991B due 2015, cut to CCC- from CCC+.

All ratings not cut to D remain on CreditWatch with negative implications.

S&P said the action follows United's bankruptcy filing, reduced collateral coverage, the risk that United may reject or seek to renegotiate financings on certain models of aircraft, and the differential effect on various classes of EETCs of such potential actions by the airline. The downgraded ETCs are undercollateralized, and some are backed by planes at risk of being turned back to creditors by United in bankruptcy; the downgraded EETCs were mostly junior classes of certificates that would suffer disproportionately if United selectively rejects or renegotiates some of the debt and lease financings underlying the EETCs, S&P said.

Moody's cuts AmeriCredit

Moody's Investors Service downgraded AmeriCredit Corp.'s senior debt to Ba2 from Ba1, affecting $375 million of securities. The outlook is stable.

Moody's said it lowered AmeriCredit because it believes the company's intrinsic credit risk has increased as a result of continued stress in the firm's operating environment leading to deterioration and heightened volatility in the firm's asset quality.

AmeriCredit has, however, taken steps to improve asset quality over time and recently strengthened its liquidity and balance sheet - moves reflected in the stable outlook.

Management has taken the important step of tightening credit standards given the uncertainty in the economy, which will lower its growth rate, Moody's noted. The slower growth rate should allow the company to handily manage its financial leverage profile with capital formation exceeding the firm's asset growth.

Given Moody's expectation that this relationship should hold into the future, this should eliminate the need for further equity issues in the medium-term.

Despite the positive initiatives, Moody's said the downgrade was necessary to reflect the risk inherent in AmeriCredit's business that has further come to light with the current economic climate. The company's heightened asset quality issues and the potential volatility in the firm's portfolio performance make its future profitability somewhat vulnerable.

Moody's upgrades Portola Packaging

Moody's Investors Service upgraded Portola Packaging, Inc. including raising its $110 million 10.75% senior unsecured notes due 2005 raised to B2 from B3. The outlook is positive.

Moody's said it raised Portola because of the cumulative effects of improved operating and financial performance.

Throughout fiscal 2002, Portola has demonstrated a sustained ability to generate free cash flow and profitability, to improve its margins through cost containment, to manage raw material costs, and to reduce leverage, Moody's said.

The ratings continue to reflect constrained liquidity, high financial leverage - albeit improved - and moderate coverage of interest expense after capital expenditures.

Moody's said it considers the company's liquidity is weak given modest cushion under existing bank covenants (Moody's does not rate the existing bank facility). Effective availability under the $50 million revolver is limited to between $20 million and $30 million given the close proximity to the leverage covenant despite borrowing base availability of approximately $42 million at the end of fiscal 2002.

Liquidity is further constrained by minimal cash on hand and fully encumbered assets, Moody's added.

Fitch cuts Calpine

Fitch Ratings downgraded Calpine Corp. including cutting its senior unsecured debt to B+ from BB and convertible trust preferred securities and High TIDES to B- from B. The outlook is stable.

Fitch said the action follows a review of Calpine's recently reported financial results and Fitch's revised view of power market prices across various U.S. regional markets.

The downgrades reflect Calpine's high debt leverage and the expectation that leverage and credit measures will remain under pressure due to continued weakness in the U.S. wholesale power market, Fitch said.

The revised rating levels also reflect a lower assessment of the residual value of assets available to unsecured creditors after giving affect to the senior secured liens for the benefit of banks participating in Calpine's $2 billion secured credit facilities and lenders under Calpine's $3.5 billion non-recourse secured construction financings.

The stable outlook incorporates Fitch's expectation that Calpine will be able to restructure or extend its various secured bank debt maturities totaling $5.5 billion through November 2004. Also, Calpine bolstered its near-term liquidity position in 2002 through asset sales and the issuance of $734 million of new common equity in April. Moreover, the terms of Calpine's $1 billion revolver enable the company to extend $600 million of letters of credit for an additional 364 days thus providing some liquidity cushion in a downside scenario.

While these factors bode well for near-term liquidity, there is little opportunity for Calpine to reduce leverage or materially improve credit measures in the near-term, Fitch said.

Moody's cuts Net Serviços

Moody's Investors Service downgraded Net Serviços de Comunicação SA including cutting its $97.7 million 12.625% guaranteed senior notes due 2004 to Ca from B3. The outlook is stable. The downgrade concludes a review begun on Oct. 31.

Moody's said the downgrade is in response to the ongoing and significantly heightened liquidity crisis at Net Serviços, specifically as highlighted by management's unanticipated election to not make the requisite interest payment on certain of its local currency debt obligations as scheduled on Dec. 2.

On the same date, the company announced that it expects to present a new debt restructuring proposal to creditors during the second half of January 2003, replacing the prior plan that had largely been negotiated already.

Moody's said its revised ratings reflect ultimate anticipated recovery levels for the company's creditors, given the current event of default scenario, which is expected to remain uncured.

Moody's expects senior unsecured claims will suffer losses of 30% or greater.

S&P keeps Sports Club on watch

Standard & Poor's said The Sports Club Co. Inc. remains on CreditWatch with negative implications including its CCC corporate credit rating.

Sports Club is forming a special committee of independent directors to explore alternative financing or ownership structures, including the possibility of going private, S&P noted.

The company's contemplation of alternative financing plans, especially the possibility of going private, could potentially increase its debt leverage and intensify the pressure on its extremely strained liquidity, S&P said. The company has not announced the details of its plans and therefore, the potential effect is difficult to gauge.

S&P rates K&F notes B

Standard & Poor's assigned a B rating to K & F Industries Inc.'s proposed $250 million senior subordinated notes due 2010 and a BBB- rating to its new $30 million senior secured revolving credit facility maturing 4.5 years from closing. Existing ratings, including K&F's corporate credit at BB-, were confirmed. The outlook is stable.

The ratings confirmation is based on an expectation that K&F will employ its sizable free cash flow to reduce significantly higher debt levels incurred from the $200 million dividend, S&P said.

Proceeds of the notes and a part of the revolver will be used to fund a $200 million redemption of equity interests (dividend) and repay borrowings ($53 million at Sept. 30, 2002) under an existing senior credit facility, the rating on which is being withdrawn.

The credit facility is rated BBB-, three notches above K & F's corporate credit rating, with S&P using its enterprise value methodology to reach that determination. The value of K & F's business is evidenced by its ability to recapitalize for the second time in five years.

The available collateral exceeds several times the fully drawn revolver, thus providing a comfortable cushion for the lenders, S&P noted. Furthermore, the lenders' position is enhanced by a very sizable ($435 million, pro forma for the notes) subordinated debt outstanding. Therefore, there is a very strong likelihood that the collateral will retain sufficient value to assure not only full recovery of principal, but provide a so-called "equity cushion" sufficient to support entitlement to post-petition interest.

K&F's ratings reflect defensible positions in niche commercial and military aerospace markets, and high financial risk, S&P added. The ratings also incorporate an expectation that the firm will employ its sizable free cash flow to debt reduction.

As a result of the $200 million dividend, K&F's debt will increase significantly, which will weaken materially currently better than average for the rating credit protection measures, S&P said. However, the company's credit profile is likely to recover to a level consistent with current ratings in the intermediate term, if management devotes excess cash flow to debt reduction, like it did in recent years.

Thus, debt to EBITDA and EBITDA cash interest coverage should improve to about 3.5x and 2.75x-3.0x, respectively, from 4.2x and 2.3x, pro forma at Sept 30, S&P said. Under this scenario, financial flexibility should be restored.

S&P cuts Res-Care

Standard & Poor's downgraded Res-Care Inc. including cutting its $109.36 million 6% convertible subordinated notes due 2004 to CCC+ from B-, $150 million 10.625% senior notes due 2008 to B- from B and $80 million senior secured revolving credit facility due 2004 to B+ from BB-. The ratings were removed from CreditWatch with negative implications and assigned a negative outlook.

Although Res-Care has successfully expanded its core operations and garnered top standing in its unique market, revenue pressures stemming from overburdened government budgets, together with rising insurance and litigation expenses and sustained high debt levels, have gradually eroded the company's financial performance, S&P said.

S&P added that the negative outlook reflects its concerns about external pressures on the company's cash flow. Even though Res-Care had a well-supported liquidity position as of Sept. 30, 2002, these external pressures could hinder Res-Care's efforts to manage the late-2004 maturities of its bank line, which provides important insurance-related credit support, and its $90 million subordinated notes.

Moody's cuts Northland

Moody's Investors Service downgraded Northland Cable Television, Inc. including cutting its $100 million 10.25% senior subordinated notes due 2007 to Caa3 from Caa1. The outlook remains negative.

Moody's said the downgrade principally reflects the growing probability of default over the extended rating horizon and Moody's heightened expectation that Northland may ultimately have to restructure its balance sheet, with corresponding expectations of greater loss severity for subordinated noteholders in particular under the potential default scenario.

The negative rating outlook continues to reflect the risk of further potential downward rating migration given Moody's perception that the company has limited ability to organically grow operations to acceptable levels sufficient to more comfortably service all of its debt obligations.

This risk would be further heightened in the event that the company's bank group was unwilling to waive and/or modify its financial maintenance covenants as necessary to cure any potential non-compliant periods, particularly as they begin to more aggressively step down at the end of 2003 and again at the end of 2004, Moody's added.

Moody's said it continues to have real concerns about Northland's ability to merely sustain, let alone improve its operating performance, particularly in the context of the scaled back capital spending during recent periods and as expected. Improvements will be necessary, nonetheless, in order to remain compliant with bank financial maintenance covenants.

Fitch rates IMC Global notes BB, lowers outlook

Fitch Ratings assigned a BB rating to IMC Global Inc.'s new 11.25% senior unsecured notes due June 1, 2011, confirmed its existing ratings including its senior secured credit facility at BB+, senior unsecured notes with subsidiary guarantees at BB and senior unsecured notes with no subsidiary guarantees at B+. Fitch also lowered the outlook to negative from stable.

The negative outlook reflects slower-than-anticipated earnings recovery to date and in the near-term, Fitch said.

The previous stable outlook considered a greater improvement in the size and pace of earnings recovery, Fitch noted. Although incentives for higher fertilizer use during the spring planting season exist, earnings remain susceptible to risks from weather, raw material costs, export demand and competition. Moreover, IMC disclosed weaker projected earnings for the fourth quarter due to margin pressure and current negotiations with lenders to amend financial covenants for 2003 in a recent 8K filing.

Moody's puts PDVSA, related companies on review

Moody's Investors Service put Petroleos de Venezuela SA (PDVSA) and related companies on review for possible downgrade. Ratings affected include PDVSA's Baa1 local currency and Ba1 foreign currency ratings; PDVSA Finance Ltd. at Baa2; PDV America, Inc. at Ba1; and the four heavy oil projects Petrozuata, Cerro Negro, Sincor, and Hamaca, all at Ba1. CITGO Petroleum Co.'s senior debt was confirmed at Baa2 with a negative outlook.

Moody's said it started the review in response to quickly evolving developments in order to assess further impairments to the company's operations and debt servicing capabilities relative to the strike and upheaval in Venezuela. PDVSA declared force majeure under its supply contracts last week.

Moody's noted that the strikes by unions and most of the direct employees of PDVSA have spread to operations throughout the country, that most of the crude oil and product exports have ceased, and that production and refining are running at much reduced rates. As inventories build and storage capacity becomes full, the various production and refining operations will have to be shut in, including the four heavy oil projects, which have been functioning at near normal rates for the past week.

PDVSA Finance Ltd. has sufficient funds in a liquidity account in New York to meet the next debt service payment due Feb. 14, 2003.

All of the heavy oil projects operate separately from PDVSA, including their treasury functions. Petrozuata and Cerro Negro, both of which are operating as completed standalone projects, have fully funded reserve accounts to meet their next debt service payments on April 1, 2003 and on June 1, 2003, respectively. Sincor and Hamaca have not achieved financial completion and are still operating under sponsor guarantees. Both have fully funded reserve accounts sufficient to meet their next debt service payments on Feb. 14, 2003.

Moody's lowers Koppers outlook

Moody's Investors Service lowered its outlook on Koppers Industries, Inc. to negative from stable. Ratings affected include Koppers' $100 million revolving credit facility, $9.7 million term loan A due November 2003 and $43 million term loan B due November 2004 at Ba2 and $175 million 9.875% guaranteed senior subordinated notes due 2007 at B2.

Moody's said the outlook change reflects earnings and cash flow pressure confronting Koppers due to the extended downturn of North American aluminum and steel markets, the imminent expiration of Section 29 tax credits, and the uncertainty surrounding the recently announced investigation led by the

European Commission and the US Department of Justice related to industry competitive practices for certain of its products.

Over the past two years, operating income at Koppers' Carbon Materials and Chemicals division has been pressured by lower shipments and prices for many of the products sold to North American aluminum and steel industry customers. However, sales of Railroad and Utility Products, primarily for railroad crossties, rebounded in 2002, increasing this segment's operating income compared to the last two years'. In total, Koppers had $33.8 million of operating income for the first nine months of 2002, only slightly below the $35.2 million earned in the same period 2001, Moody's said.

Nevertheless, without improvements in aluminum and steel industry conditions it will be difficult for Koppers to offset the approximately $9 million of annual cash flow that will be lost due to the expiration of coke-related Section 29 tax credits, which expire at the end of the year. Cash flow could be further pressured by $5.9 million in payments, payable over three years, to settle environmental matters with the government and the prospect that Koppers may have to make additional contributions to its underfunded defined benefit pension plan in 2003.

Moody's notes C&W triggers

Moody's Investors Service said its downgrade of Cable & Wireless plc rating factored in the ratings trigger noted by C&W.

At present, Moody's said it would not expect to take further rating action specifically related to the trigger as the rating agency is not aware of any other material cost, liability or contingent liability that C&W has not made public.

On Friday, Moody's downgraded Cable & Wireless plc ratings with a negative outlook.

As a consequence, C&W will now have to either procure a guarantee in the sum of £1.5 billion from an A-rated bank or place the sum of £1.5 billion into escrow.

Moody's noted that C&W expects its Cable & Wireless Global business will become free cash flow positive by fourth quarter of its 2003/04 financial year. The negative outlook reflects the potential for further rating deterioration if this does not occur.

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