S&P cuts Six Flags outlook

Standard & Poor's revised the outlook for Six Flags Inc. to negative from stable following weak second-quarter operating performance and management's revision of EBITDA guidance for the full year 2002. S&P also confirmed the company's ratings, including the convertible preferreds at B-. Total debt and preferreds at June 30 was $2.6 billion.

Six Flags' parks are generally the largest and most extensive in their regions and benefit from significant barriers to entry, S&P said.

Management has successfully pursued a strategy of acquiring underperforming parks and improving their profitability through aggressive capital spending on new rides and attractions, as well as enhanced marketing, the rating agency added.

However, EBITDA declined 10% in second quarter as a sharp 11% drop in attendance was not offset by a 10% increase in per capita spending. Group attendance has been hurt in certain markets where local businesses have been particularly hard hit by the weak economy.

In addition, the integration of the 2001 acquisition of Sea World into its existing Cleveland facility has been a problem, while competition is intensifying in that market, S&P noted. Overall attendance continued to modestly decline in July, although the company expects that full-year EBITDA will be flat compared with 2001.

Six Flags' previous 2002 EBITDA guidance envisioned 7% to 8% growth.

Pro forma adjusted EBITDA coverage of total interest and debt-like preferred dividends is adequate for the rating at 1.7 times for the 12 months ended June 30.

Discretionary cash flow is expected to be positive in 2002, a result of reduced capital spending requirements after the company finished rebranding nearly all of its largest parks.

Fitch lowers revises AOL outlook

Fitch Ratings lowered the outlook on AOL Time Warner Inc. to negative from stable, but affirmed the ratings (BBB+ senior unsecured).

The revision reflects weaker credit protection measures that have resulted from declines in EBITDA primarily at the AOL business unit along with increased debt from the acquisitions of the 49.5% interest in AOL Europe and IPC.

In addition, the potential for increased leverage in conjunction with a restructuring of the Time Warner Entertainment partnership, as well as the potential for a negative outcome from the SEC and DOJ are also factored into the outlook change, Fitch said.

Fitch expects debt-to-trailing 12 month EBITDA to be slightly above 3.0 times, but believes there is potential for further credit erosion.

AOL needs continued strong operating and financial performance from its traditional Time Warner businesses and/or reduce its debts levels to offset its moderately strained capital structure and credit protection measures, which are weak for the current rating, Fitch added.

Despite the outlook change, Fitch said it continues to recognize AOL's significant subscription based revenue, its leading market positions in core businesses, unparalleled brands, content and distribution network, in addition to its strong liquidity position.

It also reflects the company's exposure to advertising, albeit less significant, relative to industry peers as advertising and commerce represents less than 25% of total revenue.

Moody's cuts PerkinElmer

Moody's downgraded PerkinElmer Inc.'s ratings, including its senior unsecured debt to Baa3 from Baa1, and kept the ratings on review for possible further downgrade.

The downgrade reflects concern that softness in end markets will continue to put pressure on earnings and cash flow over the near- to- intermediate-term, Moody's said. The rating agency noted that although sequential improvement in the second quarter was achieved, the timing of the recovery in these end markets remains uncertain.

Also, PerkinElmer is likely to continue to earn low returns on assets, which have expanded due to recent acquisition activity. In addition, the planned sale of Fluid Sciences has not yet occurred, thus reduction of elevated debt levels has been stretched-out.

Moody's said that due to PerkinElmer's depressed earnings over the past several quarters, cash flow generation has weakened and credit metrics have deteriorated.

As a result, the company is at risk of violating the fixed charge covenant in its revolving credit facilities at the end of third quarter, Moody's said.

Moreover, as a result of its lower earnings, the company is at risk of violating the interest coverage covenant at the end of third quarter, which requires a minimum coverage of 5.0 times. As of June 30, the company was in compliance with all financial covenants.

Despite weaker cash flow generation, Moody's noted that PerkinElmer's near-term liquidity is sound.

Earlier in the year, the company twice announced reductions in its earnings guidance mainly due to the unexpected falloff in demand. Moody's is concerned this softness may continue longer than originally anticipated, and result in a delay in PerkinElmer's operating and cash flow improvement plan.

PerkinElmer's return on assets before charges was 4.0% at the end of 2001, and 1.8% for the 12 months ending June 30. Longer-term success of the company's reconfigured business lines will require significant improvement in asset returns.

Moody's noted, however, that the company has initiated a series of restructuring programs and cash flow improvement initiatives aimed at improving overall earnings and cash flow generation on a sustained basis.

These initiatives have resulted in sequential improvement in earnings during the second quarter. The company has also identified as part of its strategy to focus on its core businesses, the sale of its Fluid Sciences business. However, the completion of this divestiture has yet to occur.

S&P keeps Avaya on watch

Standard & Poor's said Avaya Inc. remains on CreditWatch with negative implications after receiving consents to amend covenants on its five-year $561 million credit facility. S&P assigns Avaya a BB+ corporate credit rating.

The covenant amendments lower minimum EBITDA thresholds as well as EBITDA to interest ratios. Avaya also indicated it will not renew its 364-day $264 million facility, which expires this month.

Access to credit lines was one of several factors that S&P identified as concerns about Avaya's financial position. S&P said it will meet with Avaya management to discuss other factors affecting the rating, including industry conditions, operating cost containment, assets disposals, and cash-based special charges for restructuring. A review will follow.

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