Moody's cuts Citgo, still on review

Moody's Investors Service downgraded Citgo Petroleum Corp.'s senior unsecured long-term debt to Ba3 from Ba2 and kept it on review for further downgrade.

Moody's said the action reflects continuing uncertainty over Citgo's liquidity and related crude supply and financial performance issues. These continue to pressure the ratings, despite the potential beneficial impact of planned senior unsecured financing.

Citgo is planning to undertake a $500 million senior unsecured financing, the proceeds of which would help replenish tightening liquidity and also generate proceeds to potentially support via dividends the retirement of PDV America's $550 million senior note issue due in August 2003, Moody's noted. PDV America is the holding company and direct parent of Citgo.

Citgo's constrained liquidity and increased working capital needs are the result of a number of events since the beginning of the general strike in Venezuela, including reductions in deliveries under its crude supply agreements with its ultimate parent, Petroleos de Venezuela (PDVSA), tighter trade payment terms on open market crude purchases, rising crude oil prices, and loss of access to a $225 million accounts receivable financing facility, Moody's said. The company is pursuing a new $200 million receivables financing to replace that facility.

The Ba3 rating reflects the expectation that Citgo Petroleum will become more highly leveraged as a result of the debt issue and potential dividend flows to PDV America, Moody's added. It also incorporates the favorable impact of the financing on Citgo's liquidity and financial flexibility.

S&P changes PDV America, Citgo watch to developing

Standard & Poor's changed its CreditWatch on PDV America Inc. and Citgo Petroleum Corp. to developing from negative. Ratings affected include Citgo's $200 million 7.875% senior notes due 2006 at B+ and PDV America Inc.'s $500 million 7.875% notes due 2003 at B-.

S&P said the change in CreditWatch reflects the potential for a ratings upgrade, downgrade, or affirmation, depending on the success of efforts to restore liquidity, which is tied to maintenance of improved crude oil shipment volumes from Venezuela and access to external financing.

However, if Citgo is unable to complete a proposed bond offering, ratings on PDV America and Citgo likely will be downgraded, as PDV America liquidity could be insufficient to meet 2003 obligations barring financial assistance from PDVSA or access to alternative external financing, S&P noted.

Citgo recently announced that it will sell $550 million in new unsecured notes, which would raise the company's liquid resources to about $800 million, S&P added. The proceeds of the offering will be retained by Citgo to reduce outstanding bank debt and meet potential calls on the company's resources, specifically provide for the potential termination letters of credit posted on behalf of Citgo, working capital needs, and maturing debt at PDV America.

S&P puts SPX on positive watch

Standard & Poor's put SPX Corp. on CreditWatch with positive implications including its $175 million senior secured tranche A term loan due 2008, $650 million term B loan due 2009, $650 million term C loan due 2010 and $500 million senior secured revolving credit facility due 2008 at BB+ and its $220 million zero-coupon Liquid Yield Option Notes due 2021, $500 million 7.5% senior notes due 2013 and $576 million zero-coupon Liquid Yield Option Notes due 2021 at BB-.

S&P said the watch placement reflects SPX's strong operating performance and cash generation, steps taken to improve the debt structure, and an apparent shift to a somewhat more conservative financial posture.

Operating performance in 2002 has been strong notwithstanding a weak industrial economy, S&P noted. For the nine-month period ending Sept. 30, 2002, net income from continuing operations before special items was $253 million, up about 35% year-over-year on a comparable basis and excluding goodwill amortization in 2001. SPX is benefiting from large-scale acquisition synergies and cost-reduction initiatives.

Likewise, cash generation has been strong with free cash flow through September 2002 year-to-date totaling $202 million ($273 million on a normalized basis excluding cash outlays for restructuring), S&P said.

SPX has also improved its debt composition with a $500 million 10-year senior unsecured debt issue. Proceeds were used to reduce bank borrowings. SPX also amended its secured bank credit facility, extending maturity dates. SPX now has a very manageable annual debt maturity schedule for the next five years, S&P said. Debt usage has also diminished as the firm has indicated it is targeting investment-grade credit metrics. Year-end 2002 net debt to EBITDA is estimated to be around 2.6x.

Moody's cuts J.L. French, rates new loans

Moody's Investors Service downgraded J.L. French Automotive Castings, Inc. including cutting its $175 million 11.5% guaranteed senior subordinated unsecured notes due June 2009 to Caa1 from B3 and $90 million revolving credit facility maturing 2006 and $132.7 million remaining term loan B maturing 2006 to B2 from B1. Moody's also rated J.L. French's new $95 million gross guaranteed senior secured term loan C maturing 2006 at B2 and $96.4 million gross second lien guaranteed senior secured loan maturing 2007 at B3. The outlook is stable. The action concludes a review for downgrade begun on Nov. 26.

Moody's said the downgrade follows its evaluation of the impact of a partial refinancing of J.L. French's existing bank credit facilities on Dec. 27 together with prospective information derived from analysis of the company's financial reporting, press releases and management input.

Moody's noted that while J.L. French has significantly alleviated the likelihood of near-to-intermediate term liquidity issues or bank covenant defaults and has also announced approximately $180 million of net new business awards it remains highly leveraged with only moderate EBIT coverage of cash interest.

The new loans were conditions for several critical amendments to J.L. French's guaranteed senior secured bank credit agreement which materially loosened the company's ongoing financial covenant requirements and facilitated cash payment within the permitted grace period of an approximately $10.1 million past-due semiannual senior subordinated interest payment.

The downgrade primarily reflects the fact that J.L. French's partial refinancing of its guaranteed senior secured credit agreement with new debt obligations did not serve to improve the company's high existing leverage, Moody's said.

In addition the rating agency said it believes that despite the company's strong operating margins relative to its peers J.L. French's EBIT coverage of cash interest and ability to achieve debt reduction over the next couple of years will be modest given the substantial interest requirements associated with the company's high absolute level of debt.

S&P confirms Westar

Standard & Poor's confirmed Westar Energy Inc.'s ratings and removed it from CreditWatch with negative implications. Ratings affected include Westar Energy's senior secured debt at BBB-, senior unsecured debt at BB- and preferred stock at B+ and Kansas Gas & Electric Co.'s senior secured debt at BB+, senior unsecured debt at BB- and preferred stock at B+. The outlook is developing.

S&P said the action is in response to the plan filed by Westar Energy with the Kansas Corporation Commission outlining how it intends to reduce its onerous debt burden and become a pure-play vertically integrated electric utility. The target date for completing the plan is year-end 2004.

The developing outlook indicates that ratings may be raised, lowered, or affirmed. Upward ratings potential is solely related to KCC approval of the plan and successful implementation of Westar Energy's proposed transactions. Downside ratings momentum recognizes the company's currently frail financial condition coupled with execution risk of the plan, including KCC's possible rejection of the plan.

The proposed plan transforms Westar Energy into a purely regulated utility, S&P noted. KCC approval of the plan and its successful implementation would likely result in a stronger business profile. This is important because less stringent financial parameters would be required to achieve investment-grade credit quality.

Execution of Westar Energy's proposed transactions will lead to dramatic improvement of the company's liberally leveraged capital structure, frail earnings protection and weak cash flow measures, S&P said. It appears that over time, the proceeds from the sale of Westar Energy's Oneok stock will be forthcoming and substantial. Depending upon the actual proceeds received for the Protection One assets and, if necessary to achieve certain debt guideposts established by the KCC, the size of the future common stock offering, Westar Energy's overall financial condition may support investment-grade credit quality.

While uncertainties still exist with regard to re-audits of historical financials, investigations and subpoenas, the recent receipt of $300 million through the partial sale of Oneok stock and prospects for additional proceeds to further pare debt levels, tempers these concerns, S&P said.

Moody's puts Nash Finch on review

Moody's Investors Service put Nash Finch Co. on review for downgrade including its $165 million 8.5% senior subordinated notes due 2008 at B2.

Moody's said the review was prompted by increased unease about timely and benign resolution of the SEC investigation, concerns regarding receipt of a bank agreement waiver or amendment if financial results are not reported before current deadlines, and revenue pressures expected to confront the entire grocery distribution and retailing industry in 2003.

Moody's puts Caraustar on review

Moody's Investors Service put Caraustar Industries on review for downgrade including its senior unsecured notes at Ba1 and senior subordinated notes at Ba2.

Moody's said the review was prompted by Caraustar's deteriorating financial performance in 2002, its continued high financial leverage, the potential for continued volatility in key raw material (primarily old corrugated containers) costs in 2003, and the adverse effect of increasing energy costs.

In 2002, Caraustar acquired the tube and core business of Smurfit Stone for about $80 million, delaying its efforts to repay debt.

The review will focus on Caraustar's ability to reduce financial leverage through a combination of debt reduction and improved operating results, the integration and impact of assets acquired from Smurfit Stone in 2002, the overall market for packaging products in North America, and Caraustar's exposure to and management of volatile raw material costs, Moody's said.

Fitch cuts GATX Financial to junk

Fitch Ratings downgraded GATX Financial Corp. to junk including cutting its senior debt to BB from BBB-, affecting $2.6 billion of debt. The outlook was revised to stable from negative.

Fitch said the downgrade is in response to GATX's weakening credit profile and the challenging operating environments in the company's core markets. Specifically, nearly all of the company's leverage and capitalization measures weakened in 2002.

Much of the downward trend was directly due to GATX's weak operating results in 2002. During 2002, net of a $6.2 million gain from the sale of a segment, the company realized $66 million of one-time and asset impairment charges, which resulted in net income of $0.3 million. Fitch noted that writedowns to goodwill accounted for 66% of the net charge. However, even without these charges, GATX's internal capital formation, after common dividends, would have been negative in 2002.

The negative internal capital formation resulted in leverage, defined as all on-balance sheet debt divided by tangible equity, increasing to 5.79 times at Dec. 31, 2002 from 5.03x at Dec. 31, 2001, Fitch said. Fitch added that it views leverage at Dec. 31, 2002's level as high given the company's business mix, heavily weighted toward operating leases and higher risk secured loans and finance leases. Additionally, GATX's equity base also supported $861 million of investments in off-balance sheet joint ventures and partnerships at Dec. 31, 2002. GATX's proportionate share of assets from these partnerships is believed to exceed $1.5 billion.

During 2002, GATX issued over $1.5 billion of long-term debt. Of this amount, $425 million was unsecured and issued in public markets. The majority of the remaining debt issued was secured. Secured debt allowed management to fund the company at a lower cost than the terms available in the unsecured market. However in doing so, GATX's asset base was further encumbered to the detriment of the unsecured bondholders, Fitch said.

Positively, management reduced the amount of short-term debt in the company's capital structure during the year, Fitch added. Therefore, debt rollover is not a risk at present. Additionally, the company has over $1.1 billion of available liquidity at Dec. 31, 2002, including full availability under its bank revolvers, in order to help meet upcoming debt maturities and committed capital expenditures.

Moody's raises Mohegan Tribal outlook

Moody's Investors Service raised its outlook on Mohegan Tribal Gaming Authority to stable from negative and confirmed its ratings including its $350 million senior secured credit facility at Ba1, $200 million 8.125% senior unsecured notes due 2006 at Ba2 and $300 million 8.75% senior subordinated notes due 2009, $150 million 8.375% senior subordinated notes due 2011 and $250 million 8.0% senior subordinated notes due 2012 at Ba3.

Moody's said the outlook change reflects Mohegan Sun's improved free cash flow profile, and management's stated intention to apply free cash flow towards debt reduction over the next two fiscal years.

The stable ratings outlook also reflects evidence of weakened support for additional Connecticut based gaming operations. Connecticut's Governor Rowland recently signed a bill that repeals the state's Las Vegas Nights legislation and prohibits all gaming in the state except for Foxwoods and Mohegan Sun.

Additionally, The Golden Hill Paugussetts just lost their third preliminary bid for federal recognition, and as a result, cannot open a casino in Connecticut at this time.

The ratings confirmation is based on the favorable demographics and continued growth of the Connecticut gaming market as well as limited competition in that market, Moody's said. Currently, Foxwoods is Mohegan Sun's only direct competitor.

Key credit concerns include Mohegan Sun's dependence on a single property, the sizable dividend being paid to the Mohegan Tribe of Indians of Connecticut, and expectation of increased competition in the Northeastern U.S.

At this point, any ratings improvement would require significant and demonstrated improvement in free cash flow as well as a meaningful and sustainable reduction in leverage, Moody's said.

S&P rates Freeport convertible at B-

Standard & Poor's assigned a B- rating to Freeport-McMoRan Copper & Gold Inc.'s $500 million of senior convertible notes due 2011 and affirmed its other ratings.

Ratings are limited by the risks of operating in Indonesia and aggressive debt leverage.

Still, Freeport benefits from low production costs and improved liquidity due to recent refinancing activities, S&P said.

Freeport's management has been comfortable operating with high debt leverage, which at yearend 2002 was a very aggressive 90%. However, the company has not repurchased any stock since early 2001 and is prohibited under its bank credit facilities from doing so.

This may change when the company replaces its bank credit facility, which the company plans to do shortly, S&P added.

Freeport paid down $300 million of debt in 2002 and remains committed to reducing its burdensome debt levels.

Freeport is expected to generate meaningful free cash flow, which came to $325 million for 2002, and had $8 million in cash and $455 million available on a $734 million bank credit facility at Dec.

Since Dec. 31, the company has issued $1 billion of new debt, a portion of which will be used to repay its bank facilities. After paying down the bank facilities, Freeport is expected to have about $701 million of cash, S&P said.

The outlook is stable, reflecting the expectation that Freeport will continue to face considerable country risk but will meet the debt maturities it faces in the near future.

S&P cuts CRM to D

Standard & Poor's downgraded Compania de Radiocomunicaciones Moviles SA to D from SD but CRM's $150 million 9.25% senior unsecured notes due 2008 remain at CC until there is a default on the security. The next interest payment is due in May 2003.

S&P said the downgrade is in response to CRM's decision to suspend principal and interest payments on its financial obligations in order to preserve liquidity to continue funding its operations, in light of the current economic situation in Argentina and its limited financial flexibility.

The company has hired BroadSpan Capital as financial advisor to restructure the terms of the existing debt to adapt them to CRM's expected cash generation, S&P noted.

Although, until now, the company had remained current on interest for the majority of the bank and capital market debt, it had missed certain short-term bank maturities in June 2002.

CRM's financial flexibility is severely constrained by the contraction of the credit market for Argentine corporates, the mismatch between dollar-denominated debt and peso-denominated revenues after the Argentine currency devaluation in early 2002, the harsh demand conditions in the country, and the relatively onerous debt maturity schedule in comparison with the company's cash generation ability, S&P added.

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