Moody's upgrades PacifiCare

Moody's Investors Service upgraded PacifiCare Health System including lifting its senior unsecured notes to B2 from B3 and FHP International Corp.'s senior unsecured notes to B1 from B2 and assigned a B3 rating to its subordinated convertible notes issued in November 2002. The outlook is stable.

Moody's said the upgrade was in response to the improved performance of some of PacifiCare's regulated and non-regulated subsidiaries, which has resulted in stronger dividends to the parent and improved capital adequacy.

Also playing into the upgrade is the beneficial impact on the company's liquidity position of the $135 million subordinated convertible notes.

Performance at several key regulated subsidiaries, including California, Arizona and Colorado, as well as at PacifiCare's non-regulated prescription benefit manager, are allowing for better upstream dividend capability to the parent, Moody's said. Improvements in dividend capability and non-regulated cash flow have helped to improve PacifiCare's capital adequacy, raising the company's excess regulated capital - based on current state requirements - to $340 million.

Even assuming risk-based capital adoption, the company expects to meet capital requirements in all states, including California.

Moody's noted that the parent's year-end cash forecast improved by almost $100 million (from $50 to $150 million), with the majority of this increase coming from the proceeds of the convertible financing.

Moody's rates American Media notes B2, loan Ba3

Moody's Investors Service assigned a B2 rating to American Media Operations, Inc.'s new $150 million senior subordinated notes and a Ba3 rating to its $140 million term loan C and confirmed the company's existing ratings including its $390 million of senior secured facilities at Ba3 and $400 million senior subordinated notes at B2. The outlook is negative.

Moody's said the ratings incorporate both the benefits and challenges associated with American Media's acquisition of Weider Publications for $350 million.

Although the purchase price is high at 13 times EBITDA, Moody's said it believes that debt measures can improve meaningfully over time due to a number of opportunities including: the $60 million tax asset associated with the purchase; paper price, distribution and other operational synergies, and potential growth within the fitness segment of magazine publishing.

However, this transaction increases the company's overall leverage at inception from 5.4 times to 6.3 times (debt to EBITDA before adjustments).

The ratings continue to reflect American Media's moderate cash flow coverage of interest after capital expenditures; the likelihood that the company will continue to pursue debt financed acquisitions; the mature stage of American Media's existing properties, the continued deterioration in circulation and challenges associated with incorporating a new acquisition.

Further, the ratings consider the company's increasing vulnerability to the advertising cycle, the very competitive operating environment and exposure to paper price volatility, Moody's said.

Positive include the company's prominent position in its each of its niches (circulation-based tabloids and advertising and subscription-based fitness magazines), the increase in diversity as a result of the Weider acquisition, as well as the significant brand recognition, high margins and still low exposure to the cyclicality of the advertising industry relative to its comparable industry peer group, Moody's added.

The negative outlook incorporates the challenges associated with integrating a large acquisition, particularly given the different operating and revenue dynamics of Weider versus American Media's existing portfolio.

S&P takes WestPoint Stevens off watch

Standard & Poor's confirmed WestPoint Stevens Inc.'s ratings including its $475 million 7.875% senior notes due 2008 and $525 million 7.875% senior notes due 2005 at CCC+ and removed it from CreditWatch with negative implications. The outlook is negative.

S&P said it confirmed WestPoint Stevens following a review of the company's operations and reflects the expectation that financial results will remain weak in the near term.

Fiscal 2002 was another difficult year for WestPoint Stevens as the economy weakened, consumer confidence deteriorated, and the company faced a highly promotional retail environment as retailers continued to maintain lean inventories, S&P said.

Although the company completed its multiyear "Eight Point" restructuring program with expected annual savings of about $38 million, margins were still hurt, S&P added. In September 2002, the company announced additional restructuring initiatives and its downward adjustment of revenues for 2002, due to a softer than expected retail environment and weaker than expected K-Mart Corp. sales. Furthermore, expected lower asset use in the third and fourth quarters will result in additional pressure on margins.

The ratings reflect WestPoint Stevens Inc.'s substantial debt burden and limited financial resources as well as very competitive and cyclical industry conditions. These factors are somewhat mitigated by the company's leading positions in the U.S. bed-linen and bath-towel market and its broad product line across multiple-price points and distribution channels, S&P said.

Historically, WestPoint Stevens has maintained relatively strong operating margins (before D&A) in the 17%-19% range as a result of cost reductions from its past modernization and expansion programs, S&P noted. However, during recent periods, the EBITDA margin declined to about 13% because of difficult industry conditions, which led to higher promotional activity and the under-absorption of fixed costs that compressed margins.

The company's overall financial profile remains highly leveraged and credit-protection measures continue to be weak, with total debt (including trade-receivable securitization) to EBITDA of about 7.2x for the 12 months ended Sept. 30, 2002, an EBITDA margin of 13.5%, and EBITDA to interest of 1.6x, S&P said.

S&P puts National Wine on watch

Standard & Poor's put National Wine & Spirits, Inc. on CreditWatch negative implications including its $60 million revolving credit facility due 2003 at BB- and $100 million 10.125% notes due 2009 at B.

S&P said the watch listing follows National Wine's recent announcement that it has not been chosen by Diageo plc to be the exclusive distributor of Diageo brands in Illinois.

The current distribution rights will terminate effective Feb. 3, 2003. Revenue for the affected Diageo brands was about $79 million for the 12 months ended Nov. 30, 2002, which represents more than 11% of National Wine's total revenues for fiscal 2002, S&P said.

S&P said it is concerned about the financial impact of this lost revenue and profitability and about the ability of the company to replace this with other suppliers' brands. Diageo's decisions for distribution rights in Indiana and Michigan have not been announced yet.

S&P rates Tyco convertibles BBB-

Standard & Poor's assigned a BBB- rating to Tyco International Group SA's planned $3.25 billion convertible senior debentures. S&P also put them on CreditWatch with negative implications, matching Tyco's existing debt.

But S&P said that if the financing is executed as proposed and various conditions are met it will remove its ratings on Tyco and subsidiaries from CreditWatch and affirm them with a stable outlook.

S&P's conditions are that Tyco executes a new $1.5 billion senior unsecured revolving credit facility with financial covenants set at a level that provides sufficient financial flexibility and that Tyco implement proposed guarantees by material operating subsidiaries of their pro rata share of finance subsidiary inter-company debt to Tyco International Group SA and that Tyco International Group SA will guarantee Tyco's outstanding zero coupon senior Liquid Yield Option Notes due 2020.

S&P noted that Tyco's recent 8-K report outlining the results of Phase Two of its internal accounting investigation and its annual report filed on Form 10-K, which included an unqualified opinion from its external auditors, are expected to ease investor concerns and facilitate refinancing.

Also encouraging are new management's actions to strengthen corporate governance and internal controls, as well as its stated near-term focus on internal growth as opposed to acquisitions, S&P said. In addition, all members of the board of directors whose service predates existing management are expected to be replaced at the next annual shareholders' meeting.

However, if the financing is not executed as proposed or the other conditions not met, ratings will be lowered, S&P warned. Moreover, if the inter-company company debt is not guaranteed, the senior unsecured rating on holding company debt would be lowered to one notch below the corporate credit rating if the corporate credit rating remains investment-grade and two notches below the corporate credit rating if the corporate credit rating is below investment-grade.

S&P said its primary concern remains Tyco's substantial debt maturities in calendar 2003. Maturing debt totals $11.3 billion, compared to estimated current cash balances of $6.0 billion and management's free cash flow estimate of $2.5 billion to $3.0 billion. Considering management's projection of current-year acquisitions and spending associated with past acquisitions totaling $1.1 billion, a gap of $3.4 billion to $3.9 billion will need to be financed. The proposed note issue and new credit facility, which could be augmented with asset sale proceeds, should provide sufficient flexibility to refinance upcoming maturities and address important contingencies.

S&P says Spanish Broadcasting unchanged

Standard & Poor's said its ratings on Spanish Broadcasting System Inc. are unchanged including the corporate credit rating at B+ with a negative outlook following the company's agreement to acquire three radio stations in the greater Chicago area for $22 million in cash.

Spanish Broadcasting has adequate liquidity for the rating level, with cash balances of more than $80 million at Sept. 30, 2002, and modestly positive discretionary cash flow, S&P said.

Expansion within the Chicago FM radio market adds to the company's existing position, providing potential geographic diversification and clustering efficiencies, tempered by the risks associated with transitioning stations to a new Spanish format, S&P added.

The negative outlook already reflects the possibility of future station purchases and credit measures that could remain stretched in the near term, S&P said. Financing plans for the startup Los Angeles station and operating performance in that very competitive market remain important ratings considerations.

S&P withdraws Midway Airlines ratings

Standard & Poor's withdrew its ratings on Midway Airlines Corp. including its $58.426 million 7.14% passthrough certificates series 1998-1A due 2015, previously at BBB+, $25.266 million 8.14% passthrough certificates series 1998-1B due 2013, previously at BB, and $20.528 million 8.92% passthrough certificates series 1998-1C due 2008, previously at D.

S&P said the withdrawal follows the purchase of the certificates by a third party in late 2002. The holders of the series A and B certificates were paid in full, while the holders of the series C certificates received less than the full amount outstanding.

S&P keeps U.S. Airways on developing watch

Standard & Poor's said rating on US Airways Inc. obligations that have not defaulted remain on CreditWatch with developing implications.

S&P's comment comes after the announcement that US Airways Group Inc. unit US Airways Inc. reached a global settlement with General Electric Capital Corp. to obtain a $120 million of debtor-in-possession credit facility, $360 million of financing to be available upon emergence from bankruptcy, and $350 million of commitments to provide equity investments for future leveraged leases of regional jets.

US Airways' planned $120 million DIP facility from General Electric Capital Corp., supplementing an existing $500 million facility provided by the Retirement System of Alabama, advances the airline's efforts to emerge from bankruptcy, despite a difficult revenue environment, S&P said.

US Airways also received commitments for postbankruptcy financings, in return for warrants (for 5% of common shares) and preferred stock in the airline, and agreement to maintain intact and cure any defaults on numerous aircraft leases provided by GECC.

The settlement increases GECC's exposure to bankrupt US Airways, but reduces the risk of an early return of many aircraft, and secures potentially attractive future business leasing regional jets if the airline reorganizes successfully, S&P commented. US Airways was able to secure badly needed near-term liquidity and longer-term financings, without providing new collateral, by using the leverage provided by the very weak aircraft market, which makes repossessing planes (particularly older models) unattractive for lessors and secured creditors.

Moody's withdraws Netia ratings

Moody's Investors Service withdrew its ratings on Netia Holdings SA following finalization of the company's recapitalization which eliminated all outstanding bond debt.

S&P upgrades Bay View capital securities

Standard & Poor's upgraded Bay View Bank NA's $90 million cumulative capital securities issued through Bay View Capital Trust I to B- from D and withdrew its B+ rating on Bay View's $100 million subordinated notes due 2007.

S&P cuts some Microcell ratings

Standard & Poor's downgraded some of its ratings for Microcell Telecommunications Inc. including cutting its $270 million 12% senior discount notes due 2009 and C$429 million 11.125% discount notes due 2007 to D from C.

S&P said the downgrade follows Microcell's announcement that it has reached agreement on a consensual recapitalization plan, and that it has filed for court protection under the Companies' Creditors Arrangement Act to ensure the plan is implemented in an orderly manner.

S&P noted that it cut Microcell's 2006 bonds to D from C following a missed interest payment on that series of bonds.

Moody's cuts Globopar

Moody's Investors Service downgraded Globo Comunicações e Participações (Globopar) including cutting its $870 million euro medium-term notes due 2004, 2006 and 2008 to Ca from B3. The action concludes a review begun on Oct. 31. The outlook is stable.

Moody's said the action reflects Globopar's ongoing liquidity crisis, as specifically highlighted by management's decision to not make the requisite December 2002 interest payments on its euro medium-term notes.

The company is currently in negotiation with its bondholders and creditors, and expects to present a debt restructuring proposal and business plan to investors by the end of January 2003.

The revised ratings are subsequently pegged entirely to ultimate anticipated recovery levels for the company's creditors given the current event of default scenario, which is expected to remain uncured, Moody's said.

The Caa3 senior implied rating reflects Moody's expectation of loss severity for senior unsecured claims of 30% or greater under an assumed restructuring of the company's balance sheet that would allow it to continue as a going concern. The medium-term note and unsecured ratings are notched down to Ca due to Moody's concern with a possible layering in of additional debt at TV Globo (principal guarantor) during the debt restructuring process.

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