S&P rates Lyondell notes BB

Standard & Poor's assigned a BB rating to Lyondell Chemical Worldwide, Inc.'s planned offering of $275 million senior secured notes due 2012 and confirmed Lyondell Chemical Co.'s other ratings including its senior secured debt at BB and subordinated debt at B+. The outlook is stable.

Proceeds of the new notes will be used to prepay $200 million of an existing term loan. The balance of the net proceeds (approximately $50 million), together with approximately $100 million from a new equity issue, will be retained on the balance sheet.

A new $350 million committed revolving credit facility, together with Lyondell Chemical's plans to retain additional cash on its balance sheet, will provide ample liquidity through the bottom of the current trough in the petrochemical cycle, S&P said.

In addition, following the proposed transactions, Lyondell will have substantially relieved concerns related to restrictive financial covenants and will benefit from the extension of the debt maturity profile, the rating agency added.

The ratings for Lyondell Chemical reflect its high debt levels from the 1998 acquisition of ARCO Chemical Co., which continue to overshadow the firm's average business profile as a leading North American petrochemical producer, S&P said.

S&P said its ratings on Lyondell incorporate expectations that a gradual recovery in business conditions and moderate capital spending will lead to strengthened credit protection measures. EBITDA interest coverage and debt to EBITDA should improve from currently weak levels to about 2.5 times and 3.0x, respectively, within several years.

S&P keeps CMS on watch

Standard & Poor's said CMS Energy Corp. and its subsidiaries Consumers Energy Co. and CMS Panhandle Pipeline Cos. remain on CreditWatch with negative implications. Ratings affected include CMS' senior unsecured debt at BB, Consumers Energy's senior secured debt at BBB+ and senior unsecured debt at BB+, and CMS Panhandle's senior unsecured debt at BBB-.

S&P said there is no immediate impact on CMS Energy's credit quality from the extension of its $450 million revolving credit facility to July 12, 2002 from June 15, 2002.

At issue will be what type of longer-term financing CMS Energy puts in place to repay about $300 million of the borrowings under the facility, S&P said.

CMS credit quality has become increasingly uncertain since the discovery of "round-trip" electricity trades conducted by its subsidiary, CMS Marketing Services & Trading Co., S&P added.

The round-trip trades resulted in the resignation of Bill McCormick, long-time chairman and CEO of CMS Energy, and have further eroded the firm's standing in the capital markets, S&P said.

There is also uncertainty because of an SEC inquiry into the round-trip trades, plans to restate 2000 and 2001 financial statements, Arthur Andersen LLP's announcement that it will not comment on the company's restated financial statements, the establishment of a committee by CMS' board of directors to investigate matters surrounding the trades, and shareholder class-action lawsuits.

Moody's rates United Defense Industries' loan Ba3

Moody's Investors Service assigned a Ba3 rating to United Defense Industries Inc.'s proposed $300 million add-on to its senior secured term loan facilities. In addition, Moody's confirmed UDI's $200 million senior secured revolver due 2007 at Ba3, $423 million senior secured term A due 2007 and term B due 2009 at Ba3, senior implied at Ba3 and issuer rating at B1. The outlook is stable.

The Ba3 rating on the senior secured credit facility, the same level as the senior implied, reflects the lack of support from a junior level of debt and weak tangible asset coverage, Moody's said. The loans are secured by all stock and a first priority interest in basically all assets.

Ratings reflect the expectation of continued strong free cash-flow generation and significant debt reduction within the next 18 months, Moody's said. Offsetting this is UDI's dependence on a few key programs, vulnerability to DoD strategic redirection, negative book capital of $140 million at the end of March 2002 and the $120 million of goodwill and intangibles, or 13% of total assets, on the company's balance sheet.

Moody's raises Sports Authority's outlook

Moody's Investors Service confirmed The Sports Authority Inc.'s ratings and changed the rating outlook to positive from stable. Ratings affected include its $335 million senior secured credit facility due 2003 at B2, senior implied at B2 and senior unsecured at B3.

Moody's said it raised the outlook because it believes the Sports Authority is positioned to accelerate its store reconfiguration program as a result of current levels of store performance and improving financial flexibility. Consumers have responded very positively to remodeled and test stores over the past two years.

Moody's added that operating improvements implemented in 2000 and 2001 helped the Sports Authority maintain operating profitability over the past year despite challenging competition, the lack of new product to replace scooter sales, and poor winter weather in the Northeast.

Ratings reflect high leverage, fashion risks for apparel and hard goods, weak operating margins, modest cash flow generation, challenges with merchandising and store layouts and high level of competition, Moody's said.

However, ratings are supported by the company's market position and name recognition, evidence of improvements in operations, a trend of same store sales improvements and a return to positive operating cash flow, Moody's added.

In 2001, EBITDA margins were 4.6%, EBIDTAR to interest plus rents was 1.5 times and EBIDTAR less capex to fixed costs was 1.3 times.

Moody's withdraws Wyndham's ratings

Moody's Investors Service withdrew the ratings on Wyndham International Inc. due to the company's announcement that it would not proceed with the proposed refinancing. Furthermore, the stable outlook was withdrawn as well.

Ratings withdrawn include, $750 million senior secured notes due 2008 at Caa1, $278 million senior secured revolver due 2006 at Caa1, $1.084 billion senior secured term loan B due 2006 at Caa1, $181 million senior secured term loan B2 due 2006 at Caa1, senior implied at Caa1 and senior unsecured long-term issuer rating at Caa3.

Moody's rates PCA notes B3

Moody's Investors Service assigned a B3 rating to the planned $160 million senior unsecured notes due 2009 to be issued by PCA International Inc.'s PCA International LLC subsidiary. The outlook is stable.

Moody's said the ratings reflect PCA's very high leverage relative to operating cash flow, which will make it challenging for PCA to meaningfully reduce debt at current operating levels; a need to invest cash in growth for the medium to long term; insufficient tangible asset coverage, indicating high potential for loss of principal in case of default; high fourth-quarter seasonality, which could cause bank borrowings and vendor financing to increase during the first part of the year; and historical operating losses from the institutional business which PCA hopes to turn around in order to help achieve its financial objectives.

Positives include PCA's position as sole provider of in-store photography services to Wal-Mart, backed up by history of operations as well as a long term license agreement; a pricing strategy which allows for satisfactory operating profitability while reducing the likelihood of a competitive threat; the improving profitability of the Wal-Mart business; and the expectation of growth related to Wal-Mart's own expansion and store renewal programs, Moody's added.

Moody's said it expects PCA will continue to operate at current levels and should be able to finance its growth through operating cash flow. However, the need to fund growth could leave very little cash from operations available for debt reduction, limiting the opportunity to reduce leverage significantly in the near term.

PCA's leverage is high from both balance sheet and operating perspectives. Total debt at closing will be just under one-times the prior year revenue, Moody's said. The rating agency expects total debt will continue to exceed total assets, and notes that approximately 35% of total assets consist of intangibles. PCA has been unable to cover its interest payments with EBIT and has had negative net income for the last four years as a result of the interest burden from its high debt level. Moody's expects EBITDAR to total fixed costs (including non-cash interest) to remain thin at about 1.3 times, and expects total debt to normalized EBITDA to remain somewhat below to the 2001 levels of 5.3 times.

S&P says AES unchanged

Standard & Poor's said AES Corp.'s ratings are unaffected by the retirement of Dennis Bakke as chief executive officer.

His successor Paul Hanrahan outlined a number of priorities in a conference call Wednesday that are credit-focused, including increasing liquidity, deleveraging the company through asset sales and equity issuances, and possibly selling or spinning off businesses in Latin America that are currently detracting from shareholder value.

"While the increased credit focus is encouraging, the future of the credit is dependent less upon plans and goals and more upon execution," S&P commented.

S&P rates Berry Plastics loan B+, notes B-

Standard & Poor's assigned a B+ rating to Berry Plastics Corp. proposed $455 million senior secured credit facilities and a B- rating to its planned $275 million senior subordinated notes due 2012. Both ratings were placed on CreditWatch with developing implications, joining the company's existing ratings which have similar status.

Proceeds will be used to refinance existing debt.

In May, Berry announced that GS Capital Partners 2000 LP, a private equity investment fund managed by Goldman, Sachs & Co., had agreed to acquire Berry for about $869 million, including repayment of existing debt. If completed as proposed, the financing plan will include a $269 million equity contribution (including $175 million from Goldman Sachs, $81 million from J.P. Morgan Partners, and a $13 million management rollover equity), a $305 million term loan (under the new $455 million credit facilities), and proposed $275 million senior subordinated notes due 2012, S&P said.

Pro forma for the transaction, which is expected to be completed in July 2002, Berry is expected to remain very aggressively leveraged with total debt (adjusted for operating leases) to EBITDA of about 5.5 times, S&P said.

Upon successful completion of the transaction, S&P said it will likely affirm its ratings on Berry with a positive outlook.

The company's leading shares in niche markets, low-cost position, and consistent free cash generation are expected to support a gradual improvement to financial profile in the intermediate term, S&P added. The ratings would also incorporate the expected improvement in financial flexibility through enhanced liquidity under the proposed $100 million revolving credit facility (undrawn at closing), and a light debt amortization schedule until 2008.

S&P rates Six Flags' loan BB-

Standard & Poor's rated Six Flags Theme Parks Inc.'s new $1.05 billion senior secured credit facilities, which reduce near-term amortization requirements and extend bank maturities to 2008 and 2009, at BB-. In addition, the BB- corporate credit and senior secured debt ratings were affirmed and the BB- rating on the previous credit facilities were withdrawn.

The bank facility consists of a $300 million working capital revolver due 2008, a $150 million multi-currency revolver due 2008 and a $600 million term loan B due 2009. Security is a perfected first priority interest tangible and intangible assets, real property and capital stock.

Ratings reflect good geographic and cash flow diversity, relatively stable operating performance and the expectation that interest coverage will improve despite the company's acquisition orientation, S&P said.

However, financial risk is relatively high with pro forma adjusted EBIDTA coverage of total interest and debt-like preferred dividends of 1.7 times at March 31, S&P added.

The stable outlook reflects the expectation that operating performance will remain relatively stable in 2002 because of the shift in consumer preferences for close-to-home entertainment alternatives, S&P said.

Moody's cuts BGF

Moody's Investors Service downgraded BGF Industries, Inc.'s outstanding debt including $100 million 10¼% senior subordinated notes due 2009 to Caa3 from B3 and $50 million guaranteed senior secured revolving credit facility due 2003 to B3 from B1. The outlook remains negative.

Moody's said it lowered BGF because of concern over BGF's ability to comply with the revised financial covenants governing its amended senior secured revolving credit facility; the company's limited liquidity, with modest cash and $9 million available under the borrowing base governing the revolving credit facility as of March 31, 2002, the FY2002Q1 end; and Moody's expectation that a recovery in the company's electronic and composite markets, which accounted for 70% of FY2001 revenues, would be delayed longer than was previously estimated.

BGF is highly leveraged with debt to capitalization of 110.4% as of the end of the first quarter of fiscal 2002, Moody's said. Based on last-12-month EBITDA of $11.4 million, debt to EBITDA was 11.4 times.

However BGF benefits from its strategic position as a leading innovator and manufacturer of woven and non-woven glass fiber fabrics, composite fabrics and insulating felts; the company's impressive North American market share in glass fiber fabrics; the stabilization of the filtration business; and the company's reputable financial representation, Moody's said.

The negative outlook takes into account the prevailing belief that a recovery in telecommunications service provider spending now would not occur prior to 2003, and perhaps as late as 2004-2005, which would weaken demand in BGF Industries' electronic fabrics market, Moody's said.

Moody's lowers Solutia notes, rates new notes Ba2

Moody's Investors Service assigned a (P)Ba2 to the $250 million senior secured notes of Solutia Inc. and downgraded its senior unsecured notes and debentures to Ba3 from Ba2. The senior secured credit facility was kept at Ba1. All ratings remain under review for potential downgrade.

The new notes have a prospective (P) rating because proceeds will be held in escrow pending resolution of the credit facility refinancing.

Moody's said the continuing review for downgrade is because of its increasing concern over Solutia's liquidity due to the approaching maturity of its $800 million bank credit facility.

The (P)Ba2 rating on the senior secured notes reflects the weaker security package, which includes secondary liens, versus the existing bank facility, Moody's said. In addition, this rating reflects the likelihood that the already secured lenders will have an improved position relative to Solutia's other debt.

However both the secured bank facility and the secured notes have guarantees from certain operating subsidiaries, as well as a first and second lien, respectively, on certain assets and intra-company loans, from Solutia Inc. to the non-guarantor subsidiaries, Moody's noted. These non-guarantor subsidiaries generated nearly 60% of Solutia's consolidated EBITDA and account for the vast majority of Solutia's intra-company debt.

Hence, Moody's believes that the secured notes have significantly better security package than the existing unsecured notes and debentures. In addition, the modest level of debt in the near- to intermediate-term anticipated under the secured credit facility should further enhance the position of the secured notes in a distressed situation.

The downgrade of the existing senior unsecured bondholders to Ba3 reflects the company's weak liquidity position, as well as meaningful subordination to secured debt at Solutia Inc. and unsecured creditors at Solutia's non-guarantor subsidiaries, Moody's said.

Nonetheless, Moody's said it anticipates that the value of the company's assets should allow all bondholders to recover their principal.

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