S&P cuts Bowater to junk

Standard & Poor's downgraded Bowater Inc. to junk including cutting its $125 million debentures due 2012, $150 million 364-day revolving credit facility, $200 million debentures due 2021, $300 million term loan due 2005, $300 million 9% debentures due 2009, $350 million revolving facility due 2003, $500 million revolving credit facility due 2005, Bowater Canada Finance Corp.'s $600 million 7.95% senior unsecured notes due 2011 and Bowater Canadian Forest Products Inc.'s $102 million 10.5% senior notes series B due 2010 to BB+ from BBB-.

S&P said it lowered Bowater because it expects that over an industry cycle the company's credit measures are unlikely to reach average levels strong enough to support the former ratings.

Although newsprint demand and pricing are recovering gradually from depressed levels, the market downturn has been deeper and longer-lasting than expected, and prospects for a rebound to robust conditions this year are muted, S&P said. In addition, debt-financed activities undertaken by the company prior to the downturn have resulted in an elevated debt level that is unlikely to decline meaningfully in the near term.

Moreover, in retrospect, S&P said it believes the leverage ratio that the company had targeted has proven to be too high for the former rating given the demand and price volatility it has experienced.

Nonetheless, benefits from slowly improving market conditions, capacity closures, higher operating rates, and ongoing cost reductions should strengthen cash flows and allow Bowater to maintain the new ratings over the intermediate term, S&P added.

Debt to capital has averaged 50% over the past five years, well above the company's 40% target, S&P said. Debt increased by $130 million in 2002 to $2.4 billion, and S&P said it expects only modest debt reduction in 2003 because of still weak - though improving - operating results, and elevated capital spending to complete the newsprint machine conversion. As a result, debt to capital is likely to remain close to 57% throughout 2003, although debt to EBITDA should strengthen substantially from its current dismal level of 12x to about 3x over the next two years.

S&P cuts Abitibi to junk

Standard & Poor's downgraded Abitibi-Consolidated Inc. to junk including cutting its $100 million 7.4% notes due 2018, $250 million 6.95% notes due 2008, $250 million 7.5% notes due 2028, $250 million 7.875% notes due 2009, $250 million 8.5% senior unsecured notes due 2029, $450 million 8.3% notes due 2005, $450 million 8.85% notes due 2030, $500 million 8.55% notes due 2010 and Abitibi-Consolidated Co. of Canada's $300 million 6.95% senior unsecured notes due 2006 to BB+ from BBB-. The outlook is stable.

S&P said the downgrade reflects expectations that over an industry cycle credit measures for the companies are unlikely to reach average levels strong enough to support the previous ratings.

Although newsprint demand and pricing are gradually recovering from depressed levels, the market downturn has been deeper and longer-lasting than expected and prospects for a rebound to robust conditions this year are muted, S&P said.

In addition debt-financed activities before the downturn have resulted in high debt levels that are unlikely to decline soon, S&P said.

S&P added that it believes the company's targeted leverage ratios have proven to be too high for the previous ratings given the demand and price volatility it has experienced.

Debt reduction at Abitibi has been a major hurdle since the company's heavily debt-financed acquisition of Donohue Inc. in 2000, S&P noted.

Moody's rates DirecTV bank loan Ba2, notes B1

Moody's Investors Service assigned a Ba2 rating to DirecTV Holdings LLC's new $1.55 billion bank facilities and a B1 rating to its planned $1.4 billion in senior unsecured notes. The outlook is stable.

Moody's said the ratings reflect the company's high debt leverage and its weak historic, though recently improving, operating performance and performance predictability; intense competition with EchoStar Communications Corp. and cable operators; high and growing subscriber acquisition costs; increasing programming costs; and the cash requirements of other unprofitable subsidiaries of the parent Hughes Electronics.

The ratings also consider DirecTV's strong asset coverage; expected positive free cash flow generation and improved credit metrics in 2004; significant scale; a fully funded business plan for all of Hughes with the proceeds from the current offerings; and Hughes' 81% ownership interest in PanAmSat Corp., Moody's added.

The rating outlook presumes diminishing capital and investment requirements combined with operating profit improvement to generate eventual free cashflow, and therefore the ratings should be considered moderately prospective, Moody's added. The outlook does not consider the potential sale of DirecTV (despite its being in play for the past few years) given the uncertainty of the financial strength of the potential buyer and how the purchase might be financed. The outlook also presumes that General Motors' present ownership of the company remains intact as it is today and there will be no distributions or stock repurchases above the Hughes level.

If the company successfully achieves its present business plan and objectives, there could be upward pressure on the ratings, Moody's added. If the company's plans meet material resistance or there are significant unforeseen capital needs beyond their plan, downward pressure on the ratings would occur.

Pro forma for the financing, DirecTV's 2002 debt to EBITDA was 4.1x and debt to EBITDA less capital expenditures was 9.7x, Moody's said. In 2003, Moody's expects these metrics will be well under 4.0x and 8.0x, respectively.

S&P cuts Reliant Resources

Standard & Poor's downgraded Reliant Resources Inc. and kept it on CreditWatch with developing implications. Ratings lowered include Orion Power Holdings Inc.'s $200 million 4.5% convertible senior notes due 2008 and $375 million 12% senior notes due 2010, cut to CCC from B-, and Reliant Energy Mid-Atlantic Power Holdings LLC's $210 million 8.554% passthrough certificates series A due 2005, $220 million 9.681% passthrough certificates series C due 2026 and $421 million 9.237% passthrough certificates series B due 2017, cut to B- from B+.

S&P said the downgrade reflects the time frame that Reliant Resources has to reach an agreement with its lenders.

S&P said it believes that the possibility of a default and a bankruptcy filing within the next 12 months, and particularly within 60 days, is not consistent with a default rating of B+.

Reliant Resources faces no new uncertainties regarding the refinancing of its bank maturities. The company has obtained an extension from its banks extending the due date until March 28, 2003. However, should less than 100% of the bank lenders agree to commit to the terms of a renegotiated deal representing a long-term solution, a default could occur, S&P said. Reliant Resources currently has no access to the capital markets and lacks adequate liquid funds to fully repay the $2.9 billion maturity on March 28.

If Reliant Resources is unable to obtain commitments from all of its bank lenders, it may resolve its credit situation in a bankruptcy filing.

S&P upgrades Fisher Scientific, rates loan BB+

Standard & Poor's upgraded Fisher Scientific International Inc. and assigned a BB+ rating to Fisher Scientific Co., LLC's new $175 million senior secured revolving credit facility due 2008 and $400 million senior secured term loan due 2010. Ratings raised include Fisher Scientific's $150 million 7.125% senior notes due 2005, raised to BB+ from BB-, $200 million 9% senior subordinated notes due 2008, $350 million 8.125% notes due 2012 and $400 million 9% senior subordinated due 2008, raised to B+ from B. The ratings were removed from CreditWatch with positive implications. The outlook is stable.

S&P said the upgrade reflects the financial benefits of the company's soon-to-be completed refinancing. The new credit facility, combined with recently-issued subordinated debt, will fund the prepayment of $600 million of 9% subordinated debt. These actions will reduce ongoing interest expense by at least $10 million annually and lengthen the maturity schedule.

S&P said the credit facilities are rated one notch higher than the corporate credit rating, reflecting a strong likelihood of full recovery of principal in event of default or bankruptcy. The rating agency said the most likely default scenario would be the addition of a substantial amount of debt combined with moderate operating reverses. Management's willingness to use debt to achieve its value goals is evidenced by Fisher's 1998 recapitalization, which added $950 million of debt. The scenario envisions, however, that the additional borrowings would be unsecured. Assuming that, at default, the revolving credit facility is fully utilized and recognizing that a senior "unsecured" note became secured as part of the 1998 LBO, total secured debt at default would be about $700 million. Accordingly, applying a moderate stress of 20% to EBITDA of about $300 million in 2002 and using a 5x enterprise value multiple yields an enterprise value in excess of the combined secured borrowings of Fisher.

Fisher's ratings reflect its well established position as a distributor of a wide variety of supplies and equipment for the scientific and clinical laboratory communities, as well as its highly leveraged capital structure, S&P added. The company's broad product offering, diverse customer base, exclusive distribution arrangements with equipment manufacturers, and agreements with most major domestic group-purchasing organizations are barriers to entry for new competitors.

Because the company has only a small presence in the big-ticket capital equipment market, its sales are not strongly influenced by the capital budget cycles of its public and private customers, S&P noted. Sales of consumable products contribute about 80% of the total, providing a stable base of recurring revenues. In addition, the company's rapidly growing electronic-commerce business, which now accounts for 23% of sales, holds the promise of lower selling costs.

S&P says Wabtec unchanged

Standard & Poor's said its ratings on Wabtec (Westinghouse Air Brake Technologies Co.) including its corporate credit rating of BB with a stable outlook are unchanged on news the company generated $18.8 million of EBITDA, up 134% year-over-year, and that it expects to generate about $75 million of EBITDA, and $40 million of free cash flow, on sales of about $700 million in 2003.

Earnings in the fourth quarter benefited from a 5% increase in higher-margined freight sales, as well as reduced interest expense, S&P noted.

Underpinning the firm's 2003 estimates are assumptions for a pickup in demand of freight cars of 22% to 22,000 units (although still more than 70% below peak demand from 1998), about a 25% drop in demand for locomotives, and a 42% decline in transit railcars to 700 units, S&P added.

Nonetheless, the company should continue to benefit from lean manufacturing initiatives, new product introductions, and improved working capital management, S&P said.

S&P said its expectations of EBITDA to interest coverage in the 3x-4x range and total debt to EBITDA in the 3.0x-3.5x range remain unchanged.

S&P rates SpectaGuard Acquisitions loan B+

Standard & Poor's rated SpectaGuard Acquisitions LLC's (operating under the name Allied Security) $125 million senior secured credit facilities at B+. The outlook is stable.

The credit facilities consist of a $105 million seven-year term loan and a $20 million five-year revolver. The revolver includes a $12 million sublimit for letters of credit and a $1 million sublimit for swingline loans.

Security is all tangible and intangible assets of the company and its domestic subsidiaries, 100% of the capital stock of the company and its domestic subsidiaries, and 66% of the capital stock of its foreign subsidiaries.

Proceeds from the bank loan and about $50 million of subordinated debt will be used to finance the planned acquisition of Allied Security by MacAndrews & Forbes Holdings Inc.

In a possible default scenario, which assumes a fully-drawn revolver and severely distressed cash flow, bank lenders would likely realize meaningful, but less than full, recovery of principal in the event of a bankruptcy, S&P said.

Ratings reflect the company's narrow business focus, limited size and leveraged financial profile. Somewhat offsetting these factors are the industry's favorable growth prospects, fairly stable cash flows and efficient operations.

Moody's cuts Nash Finch, still on review

Moody's Investors Service downgraded Nash Finch Company and kept it on review for downgrade including its $165 million 8.5% senior subordinated notes due 2008, cut to Caa1 from B2.

Moody's said factors prompting the downgrade and further review of the ratings include Moody's understanding that the company still has not retained outside auditors or made measurable progress at resolving the SEC's accounting concerns.

Moody's said that in its opinion the company likely will not file third quarter 2002 results before the March 15 deadline given by the senior subordinated note trustee.

S&P confirms Genesis Health, off watch

Standard & Poor's confirmed Genesis Health Ventures Inc.'s ratings, removed it from CreditWatch with developing implications and assigned a developing outlook. Ratings affected include Genesis Health's $150 million senior secured revolving credit facility due 2006, $282 million senior secured term B loan due 2006 and $80 million senior secured delayed-draw term loan due 2006 at B+ and $242 million senior notes due 2007 at B-.

S&P said the removal from CreditWatch reflects Genesis Health's announcement that its board approved a plan that will split Genesis into two public companies. Genesis will retain its institutional pharmacy business, called NeighborCare, and will spin off its eldercare businesses into a new firm. The transaction is expected to be completed by the end of the year.

Genesis' credit profile after completion of the spin-off is uncertain, S&P noted. Existing debt will be refinanced, but the capital structure will not be determined for several months. Moreover, operating prospects are clouded.

It is expected that these issues, as well as the company's future strategic focus, will become clearer sometime this summer, and S&P said it will review the credit prospects for the company at that time.

Liquidity was strong as of Dec. 31, 2002. Genesis had $94 million cash and cash equivalents and full availability of its $150 million revolving credit facility due 2006, S&P noted. Additional cash proceeds will be received when the company completes the announced sales of its facilities in Florida and Illinois.

S&P puts CB Richard Ellis on watch

Standard & Poor's put CB Richard Ellis Services Inc. on CreditWatch with negative implications including its $175 million 8.875% senior subordinated notes due 2006 at B and $210 million bank loan due 2008 and $50 million bank loan due 2007 at BB-.

S&P said the watch placement is in response to the company's announced acquisition of Insignia Financial Group, Inc.

While the acquisition would leave the firm with a substantially stronger business position, and Insignia's stated capitalization is stronger than CB Richard Ellis', the significant debt component to the financing will challenge the firm in this currently weak operating environment, S&P said.

CB Richard Ellis is a recognized leader in commercial real estate sales and services and already has a strong business position that will be further strengthened by the acquisition of the publicly traded Insignia, which has strong U.S. and European commercial brokerage and property management operations, S&P added. Combined, they will be the world's largest commercial brokerage and property management firm.

CB Richard Ellis' outlook was already negative due to considerable debt leverage and limited debt service capacity, which has been further challenged given the current operating environment, S&P said. Although the company has diversified some, the majority of revenue still comes from sales and leasing transactions.

S&P rates Central Parking loan BB+

Standard & Poor's assigned a BB+ rating to Central Parking Corp.'s proposed $350 million senior secured credit facilities and confirmed its existing ratings including its senior unsecured debt at BB and preferred stock at B. The outlook is stable.

S&P noted the senior secured debt is rated one notch higher than the corporate credit rating. The collateral package includes substantially all of the capital stock of the company and its domestic subsidiaries and 65% of the voting stock of its material foreign subsidiaries. There will be a negative pledge on all other current and future assets and properties of the company and its subsidiaries, which will limit the incurrence of additional secured debt.

To further provide security to the lenders, there will be a springing lien on all material real and personal property if the company's credit ratings are reduced to BB- or below by S&P and Ba3 or below by Moody's Investors Service.

S&P said that in evaluating the recovery prospects associated with the underlying collateral it used the discrete asset value methodology, given the likelihood that the company's portfolio of real property should provide greater value than the parking operations in the event of a bankruptcy. In a simulated default scenario, S&P assumes that the revolving credit facility would be fully drawn and that the springing lien would have been triggered. Possible causes of a default scenario could include heightened competitive pressures, or a prolonged weak economy that could severely curtail parking revenues. Based on this analysis, S&P said it believes that the proceeds from the liquidation of collateral in a distressed situation would be sufficient to fully cover the bank debt.

S&P added that Central Parking's ratings reflect its leveraged financial profile and regional concentration risk, as well as S&P's concerns regarding continued challenging economic conditions.

Somewhat offsetting these factors is the company's leading position within the highly fragmented and competitive parking industry and its fairly predictable cash flow, S&P said.

Lease-adjusted EBITDA margins of about 24.6% for the past 12 months ended Dec. 31, 2002, declined from 27.8% in the prior year, reflecting declines in revenues in key business districts as well as problems identified by new centralized systems. Standard & Poor's expects that margins will be flat to slightly up in 2003, S&P said. Lease-adjusted EBITDA coverage of interest expense is expected to be in the 1.8x to 2x range, and lease-adjusted funds from operations to total debt is expected to be in the 15% to 18% range in fiscal 2003.

S&P cuts Ntelos

Standard & Poor's lowered its rating on Ntelos Inc. to SD from CCC+ and removed the rating from CreditWatch. The outlook is negative. Ratings affected include the company's $280 million 13% senior notes due 2010 and $95 million 13.5% subordinated notes due 2011, cut to D from CCC- and removed from CreditWatch. Also affected are Ntelos' $100 million second revolving credit facility, $75 million senior second term A loan, and $150 million senior second term B loan, cut to CCC from B-. These ratings remain on CreditWatch with negative implications.

S&P said the action follows Ntelos' company's announcement that it would not be making the interest payment on its 13% senior notes or its 13.5% subordinated notes.

Ntelos has indicated it is in active discussions with debtholders regarding a comprehensive financial restructuring plan, S&P said. If the company is not successful in this venture, it may be unable to continue to service the bank facilities. If it is able to complete a financial restructuring successfully, the ratings will be reassessed based on S&P's analysis of Ntelos' new capital structure and business prospects.

Moody's rates ON Semiconductor notes B3, cuts other ratings

Moody's Investors Service assigned a B3 rating to ON Semiconductor's and Semiconductor Components Industries' planned $200 million senior secured notes due 2010 and downgraded its other ratings including cutting its $300 million 12% guaranteed senior secured notes due 2008 to Caa1 from B3, $360 million guaranteed senior subordinated notes due 2009 to Caa2 from Caa1 and Semiconductor Components' senior secured revolving credit facility and senior secured term loan tranches A, B, C and D to B3 from B2. The outlook is stable.

Moody's said the downgrade is because of ON Semiconductor's considerable debt burden and tight cash position at a time when end-market demand for its products remains subdued.

The ratings reflect the company's large debt burden relative to its cash flow, its tight liquidity position and the uncertain outlook for recovery in end-user demand, Moody's added. As of Dec. 31, 2003, debt stood at 8.3x EBITDA. Furthermore, EBITDA-Capex/interest was only 1.0x at year-end. Although both figures are improvements from the comparable ones in the preceding year, they represent a major debt burden for a company operating in the volatile electronics sector.

The company's cash position of $182 million as of 4Q02, while slightly better than it was at 4Q01, is not high enough to serve as a buffer from the effects of any unexpected downturn in end-user demand, Moody's added.

Moody's said the stable rating outlook reflects its belief that despite the risks the most likely outcome over the course of the next year is for continued depressed end-user demand and additional cost cutting.

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