Moody's rates American Media new notes B2, outlook negative

Moody's Investors Service assigned a B2 rating to American Media Operations Inc.'s new offering of $150 million senior subordinated notes due 2009, confirmed its existing ratings and revised the outlook to negative from positive. Ratings affected include: American Media's $479 million of senior secured credit facilities due 2006 to 2007 at Ba3 and its $250 million 10.25% senior subordinated notes due 2009 at B2.

Moody's said the outlook revision reflects a perceived change in management's risk tolerance level evident in the proposed re-leveraging of American Media's balance sheet by using the new debt to redeem equity, operating performance that has been below Moody's original expectations and as revised when the outlook was changed to positive, and continued economic uncertainty.

Proceeds of the new issue are expected to be used to reduce the company's senior secured bank loan by approximately $68 million and to repurchase $75 million of shareholder equity.

The subordinated debt class is increasing substantially, while the equity class, which would absorb a portion of any potential credit loss, is shrinking substantially, Moody's noted, adding: "This transaction subsequently serves to weaken the consolidated credit profile of the company, and particularly the position of existing subordinated noteholders, which may now have to absorb a larger share of the consolidated expected credit loss for the entity overall."

Operating results have lagged as circulation has continued to decline and is expected to do so for the foreseeable future, Moody's said. Price increases at the Star and National Enquirer are likely to make staving off circulation declines challenging in a weak economic environment, the rating agency added.

S&P rates new American Media notes B-

Standard & Poor's assigned a B- rating to American Media Operations Inc.'s new offering of $150 million 10¼% senior subordinated notes due 2009 and affirmed the company's existing ratings. The outlook is stable.

S&P said use of the notes to redeem stock from EMP Group LLC will result in a modest increase in financial risk at a time when circulation and profitability are under pressure. However the rating agency expects free cash flow to be adequate because of low working capital and capital expenditure requirements.

American Media's rating reflect its solid competitive position in the tabloid publishing market niche, offset by a small subscriber base and limited operational diversity, S&P added.

Moody's downgrades Ifco Systems

Moody's Investors Service downgraded Ifco Systems NV and put negative outlook on the new ratings. Ratings affected include Ifco's $148.0 million senior secured credit facilities due 2003, lowered to Caa1 from B2 and €200 million 10.625% senior subordinated notes due 2010, lowered to Caa3 from Caa1.

Moody's said it lowered the rating after Ifco announced it had encountered delays in completing the previously announced sale of its drum reconditioning business, due to environmental issues at a reconditioning facility in Chicago.

Ifco requested a covenant waiver and amendment from its bank group during the fourth quarter but the rating agency said it believes the delay will require Ifco to enter into renewed negotiations with its banks and will further delay the company's debt reduction and cash flow improvement efforts.

Ifco's third quarter performance was well below Moody's expectations, a shortfall recognized, along with the tightness of the amended covenants, in a one-notch downgrade on Dec. 3, Moody's said. The rating agency at that point said there was also potential upside from management initiatives such as cost reductions, price increases and purchasing arrangement negotiations.

"In Moody's opinion, the delay in the drum reconditioning divestiture and the expected subsequent covenant waiver request will place significant additional pressure on management to improve Ifco's operating performance and liquidity profile, at a time when the company's operating performance is likely to remain weak due to continued unfavourable market conditions," Moody's said.

Moody's downgrades Wolverine Tube

Moody's Investors Service downgraded Wolverine Tube, Inc. including cutting its $150 million of 7.375% guaranteed senior notes due 2008 and $200 million senior unsecured revolving credit facility to B1 from Ba2.

Moody's said it lowered the rating because of Wolverine's "greatly reduced liquidity" as a result of the limited waiver that runs through April 16, 2002 on its revolving credit facility lenders. The waiver was needed to address potential financial covenant violations but limits borrowings under the $200 million facility to $130 million, grants a security interest in U.S. receivables and inventory to secure all new borrowings after Feb. 4, and raises the base interest rate, Moody's noted.

While Wolverine is working with its bank group and financial advisors on a long-term solution to its liquidity needs, Moody's said "Wolverine's reduced financial flexibility at a time of depressed profitability is especially troublesome."

Moody's confirms Cole National

Moody's Investors Service confirmed the ratings of Cole National Group, affecting $350 million of debt, ending the review for possible downgrade started in October 2001. The outlook is stable. Ratings covered by the action include Cole National's senior secured revolving credit facility at Ba2 and its senior subordinated notes rating at B2.

Moody's said Cole National's ratings remain weak in their category but the company has stable business trends, which leads to little expected variance to its leverage measures.

Sales at Things Remembered, Cole's most discretionary retail segment, exceeded Moody's expectations since Sept. 11 and should benefit from ongoing improvements to its merchandising and marketing strategies, the rating agency said.

Moody's said the ratings also reflect its expectation that performance of Cole's Target store locations can be turned around in the near term.

Moody's downgrades ProSiebenSat.1

Moody's Investors Service downgraded ProSiebenSat.1 Media AG, affecting €400 million of debt. Ratings lowered include the senior debt, cut to Ba3 from Ba1. The outlook is negative.

Moody's noted the downgrade follows a previous reduction to Ba1 in December and concludes the review process begun in September 2001.

The further downgrade reflects deepened concerns about the potentially negative implications for ProSiebenSat.1 from the increased financial stress at KirchMedia GmbH & Co. as well as the level of debt and contingent financial obligation in the wider Kirch group, Moody's said. KirchMedia is ProSiebenSat.1's majority shareholder.

Because the challenges faced by the Kirch Group remain to be resolved, ProSiebenSat.1 is on negative outlook.

However Moody's noted ProSiebenSat.1 has a significant cushion from its good business fundamentals thanks to a leading position in the German free-to-air broadcasting market and its sound operating profile.

Moody's confirms Quest, outlook still positive

Moody's Investors Service confirmed the ratings of Quest Diagnostics, Inc. and kept the company on positive outlook. Ratings affected include Quest's $325 million bank credit facilities due 2006, $275 million 6.75% senior notes due 2006, $275 million 7.50% senior notes due 2011 and $225 million contingent convertible debentures due 2021, all rated Ba1.

Moody's said its confirmation follows Quest's announcement that it has signed a definitive agreement to acquire American Medical Laboratories, Inc.

The acquisition will strengthen Quest's leading position in esoteric testing, with labs on the east and west coasts and will enhance its geographic coverage and service offerings, Moody's said.

The rating agency is continuing the positive outlook because of favorable operating trends and credit metrics, including strong cash flow, as well as an expectation that Quest will reduce leverage following the close of the American Medical acquisition.

Moody's downgrades Neenah Foundry

Moody's Investors Service downgraded Neenah Foundry Co. and gave the company a negative outlook. Ratings lowered include its $287 million of 11.125% guaranteed senior subordinated notes series B, D and F, due May 2007, cut to Caa3 from B3, and its $245 million of guaranteed senior secured bank credit facilities, cut to Caa1 from B1.

Moody's said its action is in response "to very soft conditions within most of the company's primary end markets; rising leverage; declining operating margins; and concerns about near-term liquidity pressures."

Operating performance and debt protection measures have shown a "material decline" since early 2001, Moody's said.

"Over the course of the past year, Neenah has reported steadily rising leverage; insufficient EBITA interest coverage; operating cash flows below levels necessary to cover investment and debt requirements; weakening returns on total assets; and a ratio of debt-to-revenues exceeding 90%," Moody's said.

The rating agency said it is also concerned that Neenah has an increased likelihood of facing near-term liquidity issues. Neenah said that although it complied with bank covenants through Sept. 30, 2001 it must attain profitable operations in order to remain in compliance at subsequent dates.

Neenah will in any case have to negotiate new terms with its lenders or refinance with a new bank group when its existing $50 million revolving credit facility expires on April 30, 2002, Moody's said.

S&P cuts Sola outlook to negative

Standard & Poor's lowered its outlook on Sola International Inc. to negative from stable, and confirmed the company's ratings, affecting $280 million of debt.

S&P said it lowered Sola's outlook because of continued weak performance stemming from unfavorable market conditions.

Although restructuring efforts have enabled the company to reduce receivable days outstanding and achieve lower inventory levels, S&P said continued weakness in business performance over the next one to two years or longer may result in a ratings downgrade.

Moody's puts Oxford Health on upgrade review

Moody's Investors Service put Oxford Health Plans, Inc. under review for possible upgrade. Ratings affected include Oxford Health's senior secured bank facility at Ba3.

Moody's said it began the review because of Oxford Health's "favorable financial performance and upstream dividend capabilities, primarily from the company's New York subsidiary."

Growth in membership reported as of Jan. 1, 2002, exceeding earlier expectations, the rating agency added.

During the past 12 months, Oxford received dividends of $408 million from its regulated subsidiaries, which has provided improved financial flexibility at the parent company, Moody's said. Debt levels are currently low and dividend capability relative to parent company debt is favorable.

Moody's raises Petsmart outlook to stable

Moody's Investors Service raised the outlook on Petsmart, Inc. to stable from negative and confirmed the company's ratings, including its $188.75 million subordinated convertible notes due 2004 at B3.

Moody's said its action follows Petsmart's announcement that it intends to redeem $75 million of its convertible subordinated notes.

"This is a meaningful reduction in debt," Moody's said although it noted Petsmart's effective leverage will remain high as result of modest profitability and relatively high rents that run around 8% of sales.

Moody's expects the company to generate more than $50 million in net free cash flow for the year ended January 2002, which will provide a substantial financial cushion above its $250 million revolving credit facility.

S&P rates Banknorth trust preferreds BB+

Standard & Poor's assigned a BB+ rating to Banknorth Capital Trust II's $125 million of trust preferred securities.

S&P downgrades Superior Telecom

Standard & Poor's downgraded Superior Telecom Inc. and removed the company from CreditWatch with negative implications. The outlook is negative.

Ratings affected include Superior's $500 million term loan A due 2004, $425 million term loan B due 2005 and $225 million revolving credit facility due 2004, all cut to B- from B+, and its $200 million 8.5% convertible subordinated notes due 2014, lowered to CCC from B-.

S&P lowers US Unwired outlook

Standard & Poor's lowered its outlook on US Unwired Inc. to stable from positive. The company's corporate credit rating is B.

S&P puts Mikohn on developing watch

Standard & Poor's put Mikohn Gaming Corp. on CreditWatch with developing implications. Ratings affected include Mikohn's $105 million 11.875% senior notes due 2008 rated B.

S&P puts Navistar on negative watch

Standard & Poor's put Navistar International Corp. on CreditWatch with negative implications.

Ratings affected include Navistar International Corp.'s $100 million 7% senior notes due 2003 and $400 million 9.375% senior notes due 2006, both rated BBB-, and its $250 million 8% senior subordinated notes due 2008, rated BB+, and Navistar Financial Corp.'s $100 million 9% senior subordinated notes due 2002, rated BB+.

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