S&P cuts Solutia, on watch

Standard & Poor's downgraded Solutia Inc. and put it on CreditWatch with negative implications. Ratings lowered include Solutia's $150 million 6.72% debentures due 2037, $300 million 7.375% debentures due 2027, SOI Funding Corp.'s $250 million 11.25% senior secured notes due 2009 and Solutia Europe SA/NV's €200 million 6.25% notes due 2005, cut to B+ from BB- and Solutia's $300 million credit agreement due 2004, cut to BB from BB+.

S&P said the downgrade and CreditWatch placement reflect weakness in Solutia's operating results and concerns that challenging business conditions and contingent obligations will further delay the expected improvement in the company's financial profile.

In addition, the rating actions recognize that Solutia's credit quality has come under additional pressure due to growing unfunded pension obligations.

Profitability and cash flow have been constrained by high raw material and energy costs, and generally sluggish global economic conditions, S&P noted. Operating margins (before depreciation and amortization) have averaged about 11% in the past three years (compared with 19% for the previous three-year period), and declined to less than 5% in the first quarter of 2003.

A series of debt-financed acquisitions in 1999 and 2000 stretched the balance sheet during a downturn in the chemicals sector, S&P noted. In addition, the company has significant postretirement benefit liabilities, which increased in 2002. Liabilities and expenditures related to the company's PCB exposure remain a draw on cash flow. Although the company is confident of its legal positions, credit risks remain, including the possibility of a settlement.

S&P puts Triton PCS on watch

Standard & Poor's put Triton PCS Inc. on CreditWatch with negative implications including its $300 million 11% senior subordinated discount notes due 2008, $350 million 9.375% notes due 2011 and $400 million 8.75% senior subordinated notes due 2011 at B- and $550 million credit facility at BB-.

S&P said the watch placement is due to the decline in Triton's fourth quarter 2002 revenues resulting from a new pricing plan and lower roaming yield. Standard & Poor's expects industry pricing pressures to increase with the required implementation of number portability in November 2003.

In the fourth quarter of 2002, Triton PCS' total revenues declined 6% from the third quarter, primarily because of the higher than anticipated number of existing high average revenue per user (ARPU) subscribers that switched to the new SunCom UnPlan and lower roaming revenues, S&P noted. Consequently, ARPU declined to $52.55 from $58.02. The UnPlan provides unlimited calling from a subscriber's local calling area for $49.99 per month. One of the purposes of this plan is to improve customer retention. Due to the conversion to a new billing system, churn rate increased to 2.45% in the fourth quarter of 2002.

S&P said it expects increased competition in Triton PCS' geographically attractive service area, especially with the FCC required implementation of number portability in November 2003.

Although debt leverage has been declining with the increase in cash flow, total debt to EBITDA was still high in the 8.5x area in 2002, S&P notes.

Resolution of the CreditWatch will depend on S&P's assessment of the company's ability to materially grow cash flow in light of increasing competitive pressures and its ability to reduce debt leverage.

S&P cuts Standard Parking

Standard & Poor's downgraded Standard Parking Corp. and put it on CreditWatch with developing implications. Ratings lowered include Standard Parking's $140 million 9.25% senior subordinated notes due 2008, cut to CC from CCC, $40 million senior secured revolving credit facility due 2004, cut to CCC+ from B, and $59.285 million 14% notes due 2006, cut to CCC- from CCC+.

S&P said the action reflects its increasing concerns about Standard Parking's limited liquidity position, including its ability to make its upcoming term loan principal payment of $5 million, which is due on April 30, 2003.

Standard Parking also has to make a $3 million interest payment on its senior subordinated notes on June 1.

Although Standard Parking had about $6.2 million of cash and about $3.7 million available on its $25 million revolving credit facility at Dec. 31, 2002, if the company were to use its existing cash or borrowings under the revolving credit facility to make the term loan payment, there would be limited liquidity for ongoing operations, S&P said.

While the company has taken steps to improve its poor financial performance, largely a result of the lingering effects of the terrorist attacks on Sept. 11, 2001, as well as the sluggish economy, S&P said it believes that management will remain challenged to further improve its operating performance and reduce its heavy debt burden. Lease-adjusted EBITDA coverage of interest expense was about 1.4x, and lease-adjusted total debt to EBITDA was about 7x for the fiscal year ended Dec. 31, 2002.

However, these measures are even weaker when taking into consideration $100 million of preferred stock and related payment-in-kind dividends.

S&P keeps American Airlines on developing watch

Standard & Poor's said AMR Corp. and subsidiary American Airlines remain on CreditWatch with developing implications. Both have a CCC corporate credit rating.

Although flight attendants approved revised contract terms, averting a Chapter 11 bankruptcy filing, S&P said American continues to face a weak revenue environment and AMR carries a consolidated total of $22 billion of debt and leases, leaving the companies' financial condition improved but still fragile.

Moody's cuts Northwestern to junk

Moody's Investors Service downgraded NorthWestern Corp. to junk including cutting its senior secured debt to B2 from Baa3, senior unsecured debt to Caa1 from Ba1 and trust preferred securities to Caa3 from Ba2. The outlook is negative.

Moody's said the downgrade reflects: concerns about NorthWestern's high total adjusted debt load and poor coverage ratios; expectations that operating cash flow will continue to be very low relative to the company's high debt level; Moody's view that it will be difficult for NorthWestern to materially reduce its debt burden over time; negative net worth following approximately $878 million of charges taken in conjunction with reporting 2002 year-end results, a process which was delayed and was associated with the restatement of results for prior periods; admissions by NorthWestern's management that there are weaknesses in financial reporting and controls; and uncertainties surrounding potential regulatory investigations, as well as current and potential shareholder lawsuits.

The negative outlook reflects Moody's concerns about the significant execution risks associated with management's strategy to return NorthWestern's focus to its core regulated electric and gas utility businesses. The outlook also reflects Moody's view that after elimination of non-core businesses the remaining debt level will be a very heavy burden relative to the cash flow generating capacity of the utility operations.

In addition to expecting that funds from operations will continue to be meager in relation to total debt, Moody's said it does not see a likelihood of substantial reduction of the company's heavy debt burden in the near term, either by the sale of non-utility assets or through the issuance of equity. The non-utility assets have exhibited very poor returns and NorthWestern's market capitalization is under $100 million while its adjusted debt exceeds $2 billion.

S&P rates HMP notes B-, revises Huntsman outlook

Standard & Poor's assigned a B- rating to HMP Equity Holdings Corp.'s proposed senior secured discount notes due 2008, confirmed its affiliates including Huntsman International Holdings LLC's senior unsecured debt at B-, Huntsman International LLC's senior secured debt at B+, senior unsecured debt at B and subordinated debt at B- and Huntsman LLC's senior secured debt at B+ and lowered the outlook on Huntsman LLC to stable from positive and revised the outlook on Huntsman International to stable from developing. The outlook for HMP is stable.

HMP is a wholly owned subsidiary of Huntsman Holdings LLC, a newly established holding company with chemical operations conducted through two primary subsidiaries, Huntsman LLC (formerly Huntsman Corp.) and Huntsman International Holdings LLC.

S&P said the rating actions follow Huntsman's indication that the proceeds of approximately $320 million from the sale of the proposed notes and related warrants will be used to complete the purchase of Imperial Chemical Industries plc's 30% interest in Huntsman International Holdings and its outstanding senior subordinated discount notes. These actions complete a series of transactions announced last year and will effectively consolidate the ownership of the two primary entities under common ownership, controlled by Jon Huntsman and family, MatlinPatterson Global Opportunities Partners, LP, other investors and management.

From a credit perspective, these actions are significant and will more closely align the default risk of the primary entities, HMP Holdings, Huntsman International Holdings and Huntsman LLC, due to the shared control and common interests of the owners, S&P said.

S&P also noted that the risk of a change of control event stemming from a previous pledge of Huntsman LLC's shares in Huntsman International is now expected to be eliminated as the completion of the MatlinPatterson and ICI transaction will release ICI's lien on the pledged shares.

Pro forma for the completion of the proposed financing plan, credit statistics reflect a very aggressive financial position, with total adjusted debt to total capitalization near 95%; total adjusted debt to EBITDA above 7x (including payment-in-kind notes issued by Huntsman International Holdings and adjustments to include A/R securitizations and to capitalize operating leases) and EBITDA interest coverage below 2x, S&P said. These levels should improve somewhat as management follows through on plans to gradually deleverage its businesses. Accordingly, the current ratings incorporate expectations that key credit ratios will exhibit gradual improvement - EBITDA interest coverage and debt to EBITDA should strengthen to about 2.5x and 5.0x, respectively, during the next one to two years.

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