S&P cuts Georgia-Pacific to junk

Standard & Poor's downgraded Georgia-Pacific Corp. to junk. Ratings lowered include the senior unsecured debt of Georgia-Pacific, Fort James Corp., James River Corp. of Virginia, Great Northern Nekoosa Corp. and G-P Canada Finance Co., all cut to BB+ from BBB-. The ratings were removed from CreditWatch with negative implications and the outlook is now negative.

S&P said it lowered Georgia-Pacific because the company is unlikely to be able to meet its debt reduction targets on the timetable it established when it acquired tissue maker Fort James Corp. two years ago.

Although debt has been reduced by nearly $4 billion (primarily through asset sales), further significant near-term debt reduction will be difficult due to continued weak market conditions for some of Georgia-Pacific's products and the delay the company is experiencing in raising equity in connection its planned separation into two public companies, S&P said.

During the next two years, and on average over an industry cycle, Georgia-Pacific on a consolidated basis will need to achieve funds from operations to debt of 20% to 25%, EBITDA interest coverage of about 4 times, and total debt to EBITDA of 2.5x to 3.0x in order to maintain its BB+ long-term corporate credit rating, S&P said. This is compared with the last 12 months' funds from operations to debt of 9.8%, EBITDA interest coverage of 2.9x, and total debt to EBITDA of 4.6x.

S&P warned the ratings could be lowered again if the company fails to complete the Unisource sale and related debt reduction or if the financial profile does not strengthen to appropriate levels during the next two years.

Moody's cuts Allmerica to junk

Moody's Investors Service downgraded Allmerica Financial Corp. to junk, affecting $700 million of debt, and kept it on review with direction uncertain. Ratings lowered include Allmerica's senior unsecured debt, cut to Ba1 from Baa2, AFC Capital Trust I's preferred stock, cut to Ba2 from Baa3, and Premium Asset Trust Series 2002-3 senior debt and Premium Asset Trust Series 1999-1 senior debt cut to Ba1 from A3.

Moody's said it lowered Allmerica's ratings because of concerns about declining statutory capital at its life insurance subsidiaries and the likelihood that the continuing decline in equity markets and credit problems in the capital markets will continue to pressure the companies' statutory capital positions.

Moody's said it expects a further significant decline in statutory capital for the life subsidiaries from their June 30, 2002 levels given the drop in equity market values since the end of the second quarter, driven by the requirement for the company to increase statutory reserves related to its guaranteed minimum death benefits for its variable annuities in the falling equity markets.

Allmerica has limited access to new capital, Moody's added.

Fitch cuts Allmerica

Fitch Ratings downgraded Allmerica Financial Corp. including cutting its senior debt to BB+ from BBB and put it on Rating Watch Negative.

Fitch said its action follows the announcement by Allmerica that it is considering strategic options to fund capital requirements associated with its variable annuity operation. Raising external capital, reinsuring various lines of business, and selling certain lines of business are included among these strategic options.

Fitch' said it believes there are significant execution risks associated with the broad strategic options being considered by Allmerica.

While Allmerica continues to deploy a moderate amount of financial leverage, Fitch said it believes current capital market conditions could make raising external capital difficult.

Further, Fitch believes that current conditions in the life insurance and annuity industry may make it difficult for Allmerica to reinsure or sell lines of business on favorable terms. Fitch believes that the prolonged equity market downturn has significantly reduced variable annuity writer's attractiveness in the near term, while simultaneously increasing the number of variable annuity writers that are seeking some form of capital relief.

S&P cuts Allmerica

Standard & Poor's downgraded Allmerica Financial Corp. to junk and put it on CreditWatch with negative implications.

Ratings lowered include Allmerica's $200 million 7.625% senior debentures due 2025, cut to BB from BBB, AFC Capital Trust I's $300 million 8.207% capital securities, cut to B- from BB+, and Premium Asset Trust Certificates's $100 million floating-rate passthrough certificates series 1999-1 due 2006 and $100 million passthrough certificates series 2002-3 due 2004, cut to BB from A.

Moody's rates FMC loan Ba1, notes Ba2, lowers existing unsecured debt

Moody's Investors Service assigned a Ba2 rating to FMC Corp.'s planned new second-priority secured bonds and a Ba1 rating to its planned second-priority secured credit facilities. Moody's also confirmed FMC's senior implied rating at Ba1 and downgraded its existing unsecured debt including cutting its debentures, medium-term notes and notes to Ba2 from Ba1 and its industrial revenue bonds to Ba3 from Ba1. The ratings remain on review for downgrade.

Moody's said the existing unsecured debt is being downgraded because of the security being added to FMC's financial structure.

On completion of the financing plan, FMC will have substantially improved its overall financial liquidity profile, Moody's said. Its financial liquidity will consist primarily of its new, mostly undrawn, $250 million bank credit facility, a $40 million facility specifically for letters of credit, and a $135 million cash account that will be available to cash collateralize letters of credit and similar obligations.

The review for downgrade continues pending a review of final documentation as well as FMC's successful completion of the new credit facilities and bond offering. Once the financing has been completed, on terms and conditions generally consistent with the proposals contemplated by FMC, Moody's said it anticipates that the ratings will be confirmed.

Moody's expects the outlook on the debt ratings of FMC to be negative, reflecting continued concerns about weak operating performance in the current economic environment and FMC's limited ability to accomplish meaningful debt reduction in the 2002-3 time frame due to several one-time expenditures.

Moody's rates Brake Bros. notes B3

Moody's Investors Service assigned a B3 rating to Brake Bros Finance plc's planned £175 million senior unsecured bonds due 2012. The outlook is stable.

The ratings reflect Brake Bros' high debt leverage and related debt service costs; the company's currently limited pro forma free-cash flow generation; the competitive marketplace in which the company operates; meaningful exposure to the tourism and leisure industries; on-going acquisition risk combined with meaningful unused debt capacity under the company's bond indentures (which is tempered somewhat by the relatively more restrictive covenants which currently exist under the company's bank facility); and subordination issues with respect to the company's consolidated capital structure, Moody's said.

Positively, the ratings reflect Brake Bros' market leading position in the U.K. food distribution market and the company's growing presence in the more fragmented French market; the competitive advantages afforded by the company's extensive distribution network and strong brand leadership and market-share positions; a broad customer and supplier base with limited concentration risk; sizeable junior capital contributions from reputable shareholders (Clayton Dubilier & Rice) with strong experience in the food distribution industry; and the potential for meaningful cost reductions and revenue growth resulting from the integration of the company's previous acquisitions, Moody's added.

Going forward, meaningful cost and revenue growth benefits should result from the company's restructuring initiatives which include the consolidation of existing depots and the integration of sales and other staff responsibilities across the company's different businesses, Moody's said.

Pro forma for the proposed transaction as of June 30, 2002, the company will exhibit last-12-month net debt/EBITDA of 4.9x, EBITDA/net cash interest expense of approximately 2.2x, and (EBITDA - capex)/net cash interest expense of approximately 1.3x, Moody's said.

S&P rates Brake Bros. notes B-

Standard & Poor's assigned a B- rating to Brake Bros. plc's planned £175 million bonds due 2012. The outlook is stable.

S&P says Solectron unchanged

Standard & Poor's said Solectron Corp.'s ratings including its corporate credit at BB and negative outlook are unchanged after the company announced it had taken $2.8 billion in pretax charges.

S&P noted that Solectron remains in compliance with its credit facility covenants.

Ratings incorporate concerns associated with credit measures that are very weak for the current rating with total debt to EBITDA for fiscal 2002, ended Aug. 31, of more than 6 times, S&P said.

This is only somewhat offset by solid cash flow generation of more than $2.1 billion over fiscal 2002, which was partially used to reduce debt levels by 20%, and a cash and short-term-investment balance exceeding $2 billion, S&P added.

Moody's raises outlook on Pioneer Natural Resources

Moody's Investors Service raised its outlook on Pioneer Natural Resources Co. to positive from stable, affecting $1.6 billion of securities.

Moody's said the outlook revision reflects the potential for a significant increase in the company's production volumes over the next 12 months, an improving financial leverage profile, and increased financial flexibility.

The first of Pioneer's "Big Four" development projects, Canyon Express, recently achieved first production, with a ramp up to peak production expected to occur over the next one to two months, Moody's said. Once peak production is achieved, the company anticipates that its share of peak natural gas production from the Canyon Express fields (about 115 million cubic feet per day) will increase its worldwide production by approximately 17% from second quarter 2002 levels.

Production from the three remaining projects (Sable, Falcon, and Devil's Tower) is expected to come on stream starting late this year through 2003, Moody's added.

Once all four projects achieve peak production, Pioneer's daily worldwide production is expected to reach approximately 185,000 barrels of oil equivalent, approximately 60% above second quarter 2002 levels, the rating agency said.

Pioneer's financial leverage is likely to improve over the next two years as its production rises, in light of an active hedging program, which has locked in prices for a major share of the company's oil and gas production, and reasonably low minimum capital spending requirements, Moody's said.

Fitch cuts British Energy

Fitch Ratings downgraded British Energy plc's senior unsecured debt to B- from B+. It remains on Rating Watch Evolving.

Fitch said its action follows clarification of the structure of the short-term funding which is being provided for a further two months until Nov. 29 by the U.K. government.

The new facility is cross-guaranteed by all material operating subsidiaries which represents a superior package to that granted to existing senior unsecured creditors, Fitch said. Further, the provision of the government facility includes a requirement to provide a first fixed and floating charge over certain group assets on request.

The new government facility of £650 million is larger than the £410 million facility it supercedes and as such would allow the secured debt to comprise a higher proportion of overall debt in the group, Fitch noted. Further, the superior security package and the ability to create material security severely weakens the position of unsecured creditors under an insolvency scenario.

S&P cuts British Energy

Standard & Poor's downgraded British Energy plc and kept it on CreditWatch with developing implications.

Ratings lowered include British Energy's £134.59 million 6.202% bonds due 2016, £163.44 million 6.077% bonds due 2006 and £109.86 million 5.949% bonds due 2003, all lowered to CCC+ from B.

S&P lowers Nash Finch outlook

Standard & Poor's lowered its outlook on Nash Finch Co. to negative from stable. Ratings affected include Nash Finch's senior secured bank loan at BB and subordinated debt at B+.

S&P said the revision reflects negative sales trends in Nash Finch's retail operations due to the weakened economy and aggressive promotional pricing by competitors. These trends led Nash Finch to revise its earnings guidance for the third and fourth quarters of 2002.

S&P said that if current industry trends persist credit protection measures could be negatively impacted and result in a ratings downgrade.

Nash Finch is involved in the highly competitive food wholesaling and supermarket industries in which it competes with much larger operators, S&P noted. Because of this, Nash Finch must continue to improve operating efficiencies and service levels, as it is very difficult to compete on price.

Aggressive promotional pricing and more selective consumer spending patterns contributed to negative 2.2% same-store sales for the first half of 2002 and negative 1% in 2001, S&P said. However, improved service and operating efficiencies in recent years have contributed to more stable operations in the company's food distribution segment.

Moody's raises Steel Dynamics outlook

Moody's Investors Service raised its outlook on Steel Dynamics, Inc. to positive, concluding a review for possible upgrade begun on June 17. Ratings affected include Steel Dynamics' $200 million 9.5% senior unsecured notes due 2009 at B2 and $350 million senior secured credit facility at Ba3.

Moody's said the positive outlook is supported by Steel Dynamics' improved cash flow and debt protection measures and the encouraging start-up thus far at its new Columbia City structural steel and rail mill.

Between the first and third quarters of 2002, Steel Dynamics' average selling price increased about $100 per ton, as flat-rolled steel prices benefited from the effects of idled industry capacity and reduced imports of low-priced foreign steel following the imposition of Section 201 tariffs in March 2002, Moody's added.

The company's Columbia City mill is still in the commissioning stage but the mill's performance to date indicates that it is not likely to experience protracted mechanical problems or cost overruns.

Despite these positive developments, Moody's said the steel industry remains vulnerable to a torpid U.S. economy, the restart of idled steelmaking capacity, and an easing of import tariffs.

Steel Dynamics must establish a market for its new structural steel and rail products in what are very competitive commercial markets, Moody's said. In addition, the company's growth strategy constrains its ratings, especially in light of its decision two weeks ago to defer a planned equity offering.

S&P says Gemstar-TV Guide unchanged

Standard & Poor's said Gemstar-TV Guide International Inc.'s remain unchanged including its corporate credit at BB and the company remains on CreditWatch with negative implications after it said it would take a $1.3 billion impairment charge associated with its TV Guide magazine for the second quarter of 2002.

The CreditWatch continues because of concerns about legal setbacks and escalating financial risk, S&P said. Owing to remaining uncertainties, the extent of a potential downgrade is still unclear.

The $1.3 billion non-cash charge, which does not affect cash flow, is in addition to a previously announced $5 billion write-down during the first quarter, S&P noted.

S&P said the write-downs underscore its concerns about legal setbacks and declining cash flow.

TV Guide magazine, which generates a large portion of the company's EBITDA, continues to experience circulation and cash flow erosion, S&P added. Although the profitability of the interactive guide is growing, it will not offset the decline at the magazine in the near term.

Fitch confirms AmeriCredit, off watch

Fitch Ratings confirmed AmeriCredit Corp. including its senior unsecured debt at BB and removed it from Rating Watch Negative. The outlook is stable.

Fitch said the action follows AmeriCredit's completion of a $502 million equity offering.

Fitch said the offering enhances liquidity for AmeriCredit to complete new securitization transactions and endure any withholding of cash from previously issued securitization transactions.

Fitch added that it expects that cash raised through the equity offering will be used to increase the amount of initial cash in securitization transactions, which should ultimately lead to an earlier release of any residual cash flows back to AmeriCredit.

S&P sees AmeriCredit equity sale as positive

Standard & Poor's said AmeriCredit Corp.'s issuance of $500 million of equity is a "positive development." The rating agency assesses AmeriCredit's corporate credit at BB- with a stable outlook.

Proceeds from the common stock offering will be used to provide a greater portion of the up-front credit enhancement required on future securitizations, and could increase to as high as 12%, S&P noted. By making a larger up-front deposit on a transaction, the company would shorten the time until it would begin receiving cash from the deals.

By slowing its current $2.4 billion rate of originations growth per quarter, AmeriCredit will be able to preserve cash and enhance its liquidity position.

However S&P said it remains concerned about potential deterioration in asset-quality metrics in this weak economic environment. Should the company experience further asset quality deterioration over and above its expected delinquency and annualized net losses in the 5.0%-5.4% range, ratings would likely be negatively affected.

S&P cuts Orion Power

Standard & Poor's downgraded Orion Power Holdings Inc.'s senior unsecured debt including cutting its $375 million 12% senior notes due 2010 and $200 million 4.5% convertible senior notes due 2008 to BB- from BB+. The ratings remain on CreditWatch with negative implications.

S&P said it lowered the notes to reflect their subordinated nature. Orion Power's corporate credit rating was confirmed at BB+.

S&P said it had expected the existing debt at Orion Power New York and Orion Power MidWest would be refinanced at the corporate Reliant Resources level. If that had occurred, the Orion Power Holdings senior unsecured notes would bear a rating of BB+.

However, due to a series of events that has seriously eroded the credit environment for Reliant Resources and for many other industry participants, this plan was never executed.

As a result, Reliant Resources will need to refinance the Orion companies' debt separately from the subsequent planned refinancing at Reliant Resources, S&P said.

The CreditWatch listing reflects the refinancing risk associated with the holding company debt and credit facilities ($5.9 billion, including a $1.4 billion synthetic lease) at parent Reliant Resources, debt at Orion Power Holdings, and its respective subsidiaries ($1.3 billion net of cash).

S&P says Resource America unchanged

Standard & Poor's said Resource America Inc.'s ratings, including the corporate credit at B, and stable outlook remain unchanged after the company cancelled its proposed $125 million note offering due to unfavorable market conditions.

S&P said Resource America has adequate liquidity provided by cash on hand, bank debt, and marketable securities, to offset the loss of increased capacity on its credit facilities that would have resulted from the new notes.

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