S&P downgrades CMS

Standard & Poor's downgrade CMS Energy Corp. and its subsidiaries, removed it from CreditWatch with negative implications and assigned a negative outlook, affecting $7 billion of debt. Ratings affected include CMS Energy's senior unsecured debt, cut to B+ from BB, Consumers Energy Co.'s senior secured debt, cut to BBB- from BBB+, and senior unsecured debt, cut to B+ from BB+, and CMS Panhandle Pipeline Cos.' senior unsecured debt, cut to BB from BBB-. CMS Energy's corporate credit rating was confirmed at BB while the corporate credit rating of the subsidiaries was lowered to BB.

S&P said the action is in response to CMS' use of the stock of subsidiary CMS Enterprises, which includes CMS Panhandle Pipeline, as security in certain bank facilities to obtain longer-term financing to weather its current liquidity position.

S&P said it considers that CMS Energy's actions indicate that the risk of default of CMS Energy and its subsidiaries is the same since the company relied on an operating subsidiary to meet its own financial commitments during a time of financial stress.

Historically, S&P separated the corporate credit ratings of Consumers Energy and CMS Panhandle from CMS Energy based the rating agency's judgment that the two subsidiaries would not be used to support its liquidity.

While regulators may impose fines or restrictions if CMS Energy needs to further encumber an operating subsidiary, the immediate penalty to CMS Energy is not perceived to be severe enough to prevent action by the company if it has to preserve liquidity in another stress scenario, S&P noted.

Fitch cuts WorldCom

Fitch Ratings downgraded WorldCom, Inc.'s senior unsecured debt to C from CC and its preferred securities to C from CC. The quarterly income preferred securities (QUIPS), currently under an interest deferral, remain at C. The action also applies to Intermedia Communications senior unsecured debt, which has been downgraded to C from CC and preferred securities, lowered to C from CC. All ratings remain on Rating Watch Negative.

Fitch said the downgrade follows WorldCom's failure to make a scheduled interest payment on approximately $2.1 billion of debt. The company has a 30-day grace period to make the interest payment before Fitch considers it an event of default.

S&P rates Gerresheimer notes B, loan BB-

Standard & Poor's assigned a B rating to Gerresheimer Holdings GmbH & Co. KG's €150 million subordinated bonds due 2011 and a BB- rating to its €279.8 million bank loan due 2009. The outlook is stable.

Fitch rates Bank Mandiri notes B-

Fitch Ratings assigned an expected long-term foreign currency rating of B- to Bank Mandiri's proposed subordinated debt issue. The rating is the same as the long-term foreign currency senior debt rating assigned to Mandiri.

Fitch said the ratings are the same because subordinated debt is notched one level below the senior debt rating applied to local currency issues. The foreign currency sovereign ceiling, if relevant, is then applied as a cap.

Fitch said it considers Bank Mandiri is of such importance to Indonesia's financial system that the government would try to ensure that the bank continued to operate even during a crisis that resulted in a default (in practice a rescheduling) of the government's own local currency debt.

Hence, despite remaining weaknesses in its financial condition, the bank's local currency senior debt rating is B, one notch above Indonesia's B- sovereign local currency rating. The bank's long-term foreign currency of B- is capped at the sovereign ceiling and is in practice the same as its subordinated debt rating.

Mandiri is by far the largest bank in Indonesia with a market share of close to 25%, Fitch noted. At March 2002 its capital/weighted risks ratio was 27% and it shows improving asset quality and profitability.

Moreover, its size, role and relationship with the government and central bank make it likely that it would receive selective support even if the government - its main source of support - was facing financial difficulties, Fitch said.

Moody's lowers Escelsa outlook

Moody's Investors Service changed its outlook on Espirito Santo Centrais Eletricas SA (ESCELSA) to negative from stable. The company's senior notes are rated B1.

Moody's said the action follows its revision of Brazil's outlook to negative.

S&P says Wabtec unchanged

Standard & Poor's said Westinghouse Air Brake Technologies Co.'s announcement that it expects earnings per share in the 45 cents - 50 cents range for the full year, below previous expectations of the upper end of the 50 cents - 60 cents range, has no immediate effect on the company's credit rating or outlook. S&P gives Wabtec a BB corporate credit rating with a stable outlook.

S&P noted that the earnings shortfall is a result of weaker-than-expected demand in new freight car and bus orders, and the deferral of an option for 60 new subway cars by New York City, which Wabtec believes may be exercised in 2003.

However, good working capital management and lean manufacturing initiatives should enable the firm to generate about $40 million in free cash flow, S&P said adding that its expectations of EBITDA to interest coverage in the 3 times to 4x range and total debt to EBITDA in the 3.0x-3.5x range remain unchanged.

S&P puts Rent-A-Center on positive watch

Standard & Poor's put Rent-A-Center Inc. on CreditWatch with positive implications. Ratings affected include Rent-A-Center's $300 million 11% senior subordinated notes due 2008 at B and $120 million revolving credit facility due 2004, $203 million term loan B due 2006, $248 million term loan C due 2007 and $125 million term loan D due 2007, all at BB-.

S&P said the action is in response to the potential significant reduction in the company's leverage due to the likely conversion of its series A preferred stock to common equity and its announcement that it prepaid $128 million of debt in the second quarter.

The conversion of the preferred stock to common equity would eliminate $205 million of debt-like preferred shares whose dividends are payable in cash in August 2003, S&P said. This would reduce the company's leverage, with pro forma total debt to EBITDA of 2.4 times compared with 3.0x.

The series A preferred stock is redeemable in August 2002 at the company's option, at a conversion price of about $29 for a total of about $205 million. Because the company's stock is currently trading at about $50, the preferred shareholders are expected to convert their shares to common equity rather than have their shares redeemed at $29, S&P noted.

Rent-A-Center also prepaid $128 million of senior debt in the second quarter after experiencing increased profitability due to higher-than-anticipated revenues and the benefit of cost-control programs, S&P said.

S&P cuts Mattress Discounters to D

Standard & Poor's downgraded Mattress Discounters Corp. including cutting its $20 million bank loan due 2005 to D from CCC- and its $140 million 12.625% senior unsecured notes due 2007 to D from CC.

S&P said the action follows Mattress Discounters' failure to pay the +interest payment on its $140 million 12.625% senior unsecured notes due in 2007.

Mattress Discounters has been operating with very limited liquidity and has not been able to generate positive cash flow, S&P said. Operating performance deteriorated due to significant and prolonged comparable-store sales declines throughout the company's markets.

In addition, operating difficulties occurred at a time when a softening in the economy contributed to an overall industry slowdown, S&P added.

S&P rates Kaufman & Broad SA notes BB-

Standard & Poor's assigned a BB- rating to Kaufman & Broad SA's planned offering of €125 million notes due 2009. The outlook is stable.

S&P cuts Romacorp to D

Standard & Poor's downgraded Romacorp Inc. including lowering its $75 million 12% senior unsecured notes due 2006 to D from CC and its $25 million senior secured revolving credit facility due 2003 to D from CCC+.

S&P said the action follows Romacorp's failure to make the interest payment on its $57 million 12% senior unsecured notes due in 2006.

Romacorp experienced weakness in its markets that are sensitive to fluctuations in tourism following the events of Sept. 11, 2001, such as Florida and Las Vegas, where more than one-third of company-owned restaurants are located, S&P said. In addition, volatile prices for baby-back ribs, which represent about 25% of its cost of sales, negatively impacted the company.

Moody's raises Herbst Gaming outlook

Moody's Investors Service raised its outlook on Herbst Gaming, Inc. to stable from negative and confirmed its existing ratings including its $170 million senior secured notes due 2008 at B2.

Moody's said the outlook revision reflects Herbst's company's consistent revenue and cash flow performance despite the negative impact on the Las Vegas gaming market resulting from the events of Sept. 11, 2001.

On Oct. 3, 2001, Moody's changed Herbst's ratings outlook to negative from stable based on the expectation that the events of Sept. 11, 2001 would have negative impact on Herbst's primary customer base, the Las Vegas locals gaming market.

While the tragedy did have some near-term impact on the local Las Vegas economy, stability in Herbst's route operations and improvements in casino operations helped the company to maintain creditor protection measures consistent with the current rating, Moody's said.

Route operations, which account for about 70% of the company's total revenues, reported an 8.2% increase in revenues for the 3-month period ended Mar. 31, 2002, while Route EBITDA increased over 21% during that same period, Moody's noted. Casino revenues increased almost 6.0% while casino EBITDA rose about 9.1%. As a result of these improvements, Debt/EBITDA for the 12-month period ended Mar. 31, 2002 was 4.7x; down slightly from 4.8x in fiscal year ended Dec. 31, 2001.

S&P keeps SpectraSite on watch

Standard & Poor's said SpectraSite Holdings Inc.'s senior unsecured notes remain on CreditWatch with negative implications; they are rated C. It also changed the CreditWatch on its $200 million senior unsecured convertible notes and its bank debt to negative from developing. The convertibles are rated C and the bank debt CC.

S&P said its action follows SpectraSite's announcement that it has terminated its debt exchange offer to repurchased about 60% of its public debt at a substantial discount.

The change on the convertibles and bank debt, neither of which had been part of the exchange, reflects S&P's view that these instruments would have benefited from the overall reduction in the company's debt levels had the exchange gone ahead.

With the termination of the exchange offer, the potential for a near-term bankruptcy filing by SpectraSite has materially increased, S&P said.

Although a significant amount of SpectraSite's debt is not currently cash-pay, the company's ability to eventually service such debt is highly uncertain, which may increasingly motivate management to restructure the company's balance sheet in bankruptcy, S&P added.

S&P downgrades Encompass

Standard & Poor's downgraded Encompass Services Corp. and removed it from CreditWatch with negative implications. The outlook is negative. Ratings lowered include Encompass' $300 million revolving credit facility due 2005, $130 million term A loan due 2006, $170 million term B loan due 2006 and $100 million term C loan due 2007, all cut to B from B+, its $135 million 10.5% senior subordinated notes due 2009, cut to CCC+ from B- and Building One Services Corp.'s $200 million 10.5% notes due 2009, cut to CCC+ from B-.

Moody's rates Greif Bros. loan Ba3; notes B2

Moody's Investors Service rated Greif Bros. Corp.'s amended and restated senior credit facilities at Ba3 and proposed $300 million senior subordinated notes at B2. The credit facilities consist of a $250 million senior secured revolver due 2006 and a $250 million secured term loan C due 2009. Furthermore, the company's Ba3 senior implied rating and B1 senior unsecured issuer rating were confirmed. The outlook is positive.

Proceeds from the notes, the term C and about $76 million from the revolver will be used to repay the company's existing term A and B loans, with current outstanding borrowing of $254.3 million and $361.2 million respectively. The refinancing extends overall debt maturity and reduces annual amortization requirements.

Ratings reflect cyclical and commodity nature of the sector, acquisitive growth strategy, difficult end markets for the company's business lines, volatile raw material prices and considerable debt and leverage, Moody's said.

Ratings are supported by the company's leading market position, ability t generate sizeable cash flows for debt reduction, progress in the Van Leer integration and significant value of timer assets, Moody's said.

The positive outlook reflects an improving economic environment, as well as recent favorable developments in the company's major end-markets, including stabilizing containerboard prices and recent price increases of industrial shipping containers, as a result of rising steel and resin costs, Moody's said.

Following the refinancing, debt will increase slightly to $673.5 million or 3.3 times LTM EBIDTA. LTM EBIDTA will cover pro forma interest expense of $60 million 3.3 times and EBITA will cover pro forma interest expense of $60 million 1.9 times.

S&P puts Microcell on watch

Standard & Poor's put Microcell Telecommunications Inc. on CreditWatch with negative implications. It had previously had a positive outlook.

Ratings affected include Microcell's C$429 million 11.125% discount notes due 2007 and $270 million 12% senior discount notes due 2009, both rated B-.

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