Moody's rates new Avaya notes Ba2

Moody's Investors Service assigned a Ba2 rating to Avaya Inc.'s upcoming offering of $300 million senior secured notes. The outlook is negative.

Moody's said the notes are secured, making them superior to existing senior unsecured debt, currently rated Ba3.

The notes are secured by a lien on, among other things, the company's receivables, inventory, equipment, stock in domestic subsidiaries and domestic intellectual properties, which is subordinate to the claim on the same asset base held by the company's bank lenders, Moody's noted. That security interest will remain in place until either the unsecured debt of the company is rated Baa2 by Moody's and the corporate credit rating from S&P is BBB, in each case without a negative outlook, or the company has $400 million in unsecured indebtedness or availability under its credit agreements.

While Avaya is currently in compliance with the covenants, operating performance will have to improve significantly later in the year to remain in compliance.

Earlier this week, Moody's lowered Avaya's senior unsecured debt to Ba3 from Baa3, reflecting deterioration in operating outlook for end markets, cash costs of the next phase of restructuring and uncertain timing of a rebound in its business.

S&P rates new Avaya notes BB-

Standard & Poor's assigned a BB- rating to Avaya Inc.'s proposed $300 million senior secured notes due 2009. The outlook is negative.

S&P said Avaya's ratings continue to reflect its good position in the enterprise voice networking industry, ongoing maintenance revenues from its large installed base and its conservative financial practices, as well as industry trends toward an open, combined voice- and data-communications architecture.

Avaya anticipates revenues for the March 2002 quarter will decline about 4% sequentially and will be about 33% below the year-ago period, S&P noted.

"Weak revenues are likely to persist over the intermediate term as the company's enterprise customer base continues to defer the largely discretionary purchase of new communications equipment," the rating agency added.

Moody's downgrades Telewest

Moody's Investors Service downgraded Telewest plc, Telewest Finance (Jersey) Ltd. and Telewest Communications Networks Ltd., affecting £6 billion of debt. The outlook is negative. Ratings affected include Telewest Communications Networks's senior secured bank facility rating, downgraded to B2 from Ba2, Telewest Communications's senior unsecured bonds downgraded to Caa3 from B2, and Telewest Finance (Jersey)'s senior unsecured bonds downgraded to Caa3 from B2.

Without a meaningful injection of equity it now appears increasingly likely that a restructuring of the company's balance sheet may be required, Moody's warned.

Moody's said it cut Telewest because of its heightened concerns about Telewest's ability to grow into its highly leveraged capital structure given the company's slowing overall revenue growth trends (8% pro-forma growth in 2001 versus 16% in 2000), continued high levels of cash burn (over £600 million in 2001), and Moody's perception of a challenging operating and/or competitive environment for the company's different businesses.

The downgrade also reflects Telewest's significantly weakened access to capital over the past year which has diminished its financial flexibility and likely reduced the company's ability to strengthen its balance sheet through the issuance of subordinated capital, Moody's added.

Moody's rates new Huntsman notes B3, lowers outlook

Moody's Investors Service assigned a B3 rating to Huntsman International LLC's proposed $250 million senior notes and confirmed the existing ratings of Huntsman International LLC and Huntsman International Holdings LLC. It also lowered the outlook to negative from stable. Ratings affected include Huntsman International LLC's $2.1 billion senior secured guaranteed credit facility at B2 and $1 billion senior subordinated notes due 2009 at Caa1 and Huntsman International Holdings LLC's $334 million accreted value senior discount notes due 2009 at Caa2. Huntsman Corp. and Huntsman Polymers Corp. are unaffected.

Moody's said it lowered Huntsman's outlook because of significant uncertainties about the timing and degree of a recovery in market demand and prices of the company's key products, and sufficient improvement in cash flow to support its heavy debt burden.

Factors that could result in a downgrade include: inability to refinance the term loan amortization amounts due over the next 18 months; further deterioration in operating earnings and liquidity; Hunstman Corp.'s inability to successfully resolve its problems, which include defaulted debt, and the obligation to purchase ICI's ownership interest in Huntsman International Holdings; use of Huntsman International's cash to support Huntsman Corp.; or signs that Huntsman Corp.'s problems could have a contagion effect on Huntsman International's business or financial condition, Moody's said.

In order for Moody's to consider a revision of the rating outlook to stable, the company would need to demonstrate sustained improvement in its performance and liquidity profile, and the resolution of potential contagion risks related to Huntsman Corp.'s precarious financial position.

Moody's rates new Enodis notes B2

Moody's Investors Service assigned a B2 rating to Enodis plc's upcoming issue of £100 million senior unsecured notes and rated Enodis Holdings Ltd.'s $455 million senior secured credit facilities due 2008 at Ba3. The outlook is stable.

Moody's noted Enodis is in the process of completing a recapitalisation plan announced in February 2002, with the aim of de-leveraging the business and extending debt maturities.

The company has a leveraged capital structure, with substantial mandatory debt amortization requirements over the life of the senior secured credit facilities, a limited track record of delivering on expected operating and financial targets, in particular following recent re-structuring efforts and strategic changes in the business, faces weak market conditions in the food service equipment industry, has significant albeit fragmented competition, and needs to continue to enhance relationships with distributors and end-customers while maintaining the pace of product innovation, Moody's said.

On the positive side, Enodis has a leading market position in core markets, benefits from attractive long-term industry fundamentals, which, in spite of a currently weak economic environment, should provide a strong platform for future growth, has re-focused on core competencies and continues to reduce costs, generates fundamentally strong cash flow, has an experienced management team, the rating agency added. It expects an improvement in market conditions over the short- to medium-term.

Moody's rates new Penton notes B3, lowers existing notes

Moody's Investors Service assigned a B3 rating to Penton Media, Inc.'s planned senior secured notes due 2007 and downgraded its existing ratings including its $185 million senior subordinated notes due 2011 to Caa2 from Caa1. The outlook is negative.

Moody's said its ratings reflect Penton's high leverage and increasingly weak financial performance during 2001.

Although Penton maintains a reasonable level of diversity, several sectors, including internet/broadband and manufacturing, were disproportionately hurt by the recession in those industries, Moody's added. In addition, the downturn in the advertising cycle had a negative impact on the entire publishing portfolio.

During 2001, Penton's cash flow margins deteriorated precipitously - publishing from 22.3% to 12.5% and trade shows from 46.8% to 35.2% - and performance in both Penton's trade show and publishing divisions is expected to remain below expectations prior to 2001, the rating agency said.

Consequently, Penton management has been forced to re-orient its focus from a growth strategy to improving profitability, Moody's noted.

The rating agency said it is also concerned about management's lack of visibility as companies continue to book trade shows with less advance notice.

Moody's puts Ono on downgrade review

Moody's Investors Service put ONO group on review for possible downgrade, affecting €1.7 billion of debt. Ratings covered by the action include ONO Finance plc's senior unsecured issuer rating at Caa2 and senior unsecured bond rating at Caa1 and Cableuropa SA's senior secured bank facility at B1.

Moody's said its action reflects heightened concerns about ONO's ability to increase penetration and average revenue per user enough to allow it to adequately service its considerable debt burden.

The rating agency recognized the continued support of ONO's shareholders - who committed to inject €300 million in equity in the first quarter of 2002 - and the company's continued operating progress and success in growing revenue and decreasing EBITDA losses. But it said ONO will likely need to increase considerably its household and business penetration and ARPU growth rates as the company approaches the completion of its network build.

Moody's puts Callahan NRW on downgrade review

Moody's Investors Service put Callahan Nordrhein-Westfalen GmbH on review for possible downgrade, affecting €4.1 billion of debt. Ratings covered by the action include Callahan's Caa1 senior unsecured issuer and senior unsecured notes and its subsidiary's €2.9 billion guaranteed senior secured credit facility at B1.

Moody's said its action reflects its heightened concerns about Callahan's liquidity position, longer-term ability to adequately service its debt burden and the likely recovery prospects for bondholders in a downside scenario.

The rating agency said it is increasingly likely that Callahan will be unable to meet its EBITDA covenants requirement over the next two years, given existing delays in its business plan, the relatively slow speed at which the company is releasing homes to marketing and the potential further delays.

In addition, the review will look at the potential need to re-evaluate German cable asset values in light of the disappointing operating progress of German cable operators in general and Liberty Media's potential inability to acquire Deutsche Telekom's other German cable assets, Moody's added.

S&P takes Buhrmann off watch

Standard & Poor's removed Buhrmann NV from CreditWatch with negative implications, confirmed the company's ratings but assigned a negative outlook.

Ratings affected include Buhrmann's $2.25 billion bank loan due 2007 at BB- and its $350 million subordinated notes due 2009 at B.

Moody's cuts Prime Hospitality outlook

Moody's Investors Service lowered its outlook on Prime Hospitality Corp. to negative from stable and confirmed the company's ratings including its $120 million 9.25% first mortgage notes due 2007 at Ba2 and its $200 million 9.75% senior subordinated notes due 2007 at B1.

The action concludes a review begun on Oct. 3, 2001 in response to the Sept. 11 terrorist attacks.

Moody's said its confirmation indicates that Prime Hospitality's credit profile was relatively strong for the ratings prior to Sept. 11 and that despite continued RevPar and margin pressure the company anticipates operating cash surpluses in 2002, some of which will be applied towards balance sheet improvement.

In 2002, Prime expects EBITDA of about $100 million and capital expenditures of approximately $25 million, Moody's said. Estimated free cash flow after interest, taxes and capital expenditures is approximately $30 million.

However the negative outlook reflects continued uncertainty regarding the company's RevPar performance, Moody's said.

RevPar for comparable owned and leased hotels decreased 13.7% compared to the fourth quarter of 2000 and Moody's said it expects that fourth quarter 2001 trends will continue through the beginning of 2002. Prime estimates that its RevPar will decrease about 12% in the first quarter of 2002.

Moody's confirm John Q. Hammons

Moody's Investors Service confirmed John Q. Hammons Hotels, LP and assigned a stable outlook. Ratings affected include Hammons' $300 million 8.875% first mortgage notes due 2004 and $90 million 9.75% first mortgage notes due 2005, both at B2.

The confirmation concludes a review for downgrade begun on Oct. 3, 2001 in response to the Sept. 11 terrorist attacks.

Moody's said its action reflects expectations that Hammons will continue to produce operating cash surpluses despite the RevPar and EBITDA declines after Sept. 11.

In September 1998, the company decided to cease development activity, resulting in annual operating cash surpluses since then, some of which was used to buy back $16 million of first mortgage notes, Moody's noted. At Dec. 31, 2001 Hammons had over $40 million of balance sheet cash.

The rating agency also noted the lodging industry is showing some signs of modest improvement.

S&P cuts Ifco

Standard & Poor's downgraded Ifco Systems NV.

Ratings lowered include Ifco's €200 million 10.625% senior subordinated notes due 2010, cut to D from CC and PalEx Inc.'s $78 million acquisition facility due 2006 and $100 million revolver due 2006, both guaranteed by Ifco and both lowered to CC from CCC.

S&P upgrades DaVita

Standard & Poor's upgraded DaVita Inc. and changed the company's outlook to stable from positive.

Ratings affected include DaVita's $225 million 9.25% senior subordinated notes due 2011, $125 million 5.625% convertible subordinated notes due 2006 and $345 million 7% convertible subordinated notes due 2009, all raised to B from B-, and its $175 million senior secured revolving credit facility due 2006, $75 million senior secured term A loan due 2006 and $175 million senior secured term B loan due 2007, all raised to BB from BB-.

S&P downgrades Genuity, on watch

Standard & Poor's downgraded Genuity Inc. and put the company's ratings on CreditWatch with negative implications. Ratings affected include its corporate credit rating at BB.

S&P said the action is in response to increased uncertainty about the likelihood of Genuity being reconsolidated with Verizon Communications Inc.

Previously the ratings imputed "a very high likelihood" of reconsolidation on completion of Verizon's Section 271 long-distance approvals expected by 2003, S&P said.

However on March 11 Verizon's management publicly stated that Genuity's financial position must improve to a point where, post consolidation, it would not be dilutive to Verizon.

S&P said this statement signaled a change in Verizon's position.

On a stand-alone basis, Genuity's corporate credit rating would be no better than CCC, S&P added.

Moody's lowers Airborne notes to junk

Moody's assigned a Ba3 rating to Airborne Inc.'s proposed $100 million of guaranteed convertible senior notes due 2007, and cut Airborne Express Inc.'s senior notes to Ba1 from Baa3. The outlook is stable.

The convertible rating reflects the support provided by guarantees of the company's operating subsidiaries and subordination to the currently undrawn $275 million bank line of credit, $200 million accounts receivable securitization and $200 million of existing notes.

The downgrade reflects an increase in financial risk profile created by higher levels of debt and reduced cash flow. Acknowledged in the ratings is the company's progress in strengthening cash flow through cost controls and reduced capital spending but, in Moody's view, a recovery of revenue growth and underlying earnings are critical to the company's full recovery.

This is anticipated to be a relatively slow process with debt coverage ratios remaining weak for the intermediate term, the rating agency said. The stable outlook anticipates a slow but steady positive revenue impact on Airborne from an economic recovery, the benefits of its pricing and product initiatives, and the ability of the company to manage its costs.

S&P lowers Sealy outlook

Standard & Poor's lowered its outlook on Sealy Corp. and Sealy Mattress Co. to stable from positive. Both have a B+ corporate credit rating.

S&P downgrades Doman

Standard & Poor's downgraded Doman Industries Ltd.

Ratings lowered include Doman's $425 million 8.75% notes due 2004 and $125 million 9.25% notes due 2007, both lowered to D from CCC-, and its $160 million senior secured notes due 2004, lowered to D from CCC+.

S&P raises CMS outlook

Standard & Poor's raised its outlook on CMS Energy Corp. to positive from stable. The company's corporate credit rating is BB.

Moody's downgrades Doman

Moody's Investors Service downgraded Doman Industries Ltd.'s guaranteed senior secured notes to Caa2 from B3 and its guaranteed senior unsecured notes to Ca from Caa1.

Moody's said its action follows Doman's failure to make the interest payment scheduled for March 15.

The current weak operating environment for the company's core pulp and lumber businesses and uncertainly surrounding restrictions on softwood shipments to the U.S. provide a weak outlook for recovery, the rating agency added.

Moody's said its Ca senior implied rating on Doman reflects its view that the company's current enterprise value is significantly below the outstanding amount of its debt.

The Caa2 rating on the senior secured notes reflects their superior position and the value of the collateral, although Moody's said the collateral may not be sufficient in a liquidation to fully recover 100% of the principal.

S&P upgrades Magnum Hunter

Standard & Poor's upgraded Magnum Hunter Resources, Inc. The outlook is stable; the company had previously been on CreditWatch with positive implications.

Ratings affected include Magnum Hunter's $140 million 10% senior notes due 2007 and $300 million 9.6% senior unsecured notes due 2012, both raised to B+ from B.

S&P rates new Enodis notes B

Standard & Poor's assigned a B rating to Enodis plc's upcoming offering of £100 million subordinated notes due 2012. The outlook is stable.

Moody's downgrades Sotheby's, still on review

Moody's Investors Service downgraded Sotheby's Holdings, Inc. and kept the ratings on review for possible further downgrade. Ratings affected include Sotheby's $100 million senior unsecured notes, lowered to B2 from Ba2.

Moody's noted the ratings have been on continuous review since March 2000 as a result of uncertainties from ongoing legal actions.

The latest action follows the announcement of Sotheby's financial results for 2001 and a surprise decision issued against Sotheby's and Christie's International by a U.S. Appellate Court on March 13.

Moody's said the lowered ratings reflect increased uncertainty about Sotheby's future strategies and financial profile as a result of the appellate court decision.

The ratings also reflect the burden of agreed-upon future payments arising from settlement of an anti-trust action against Sotheby's and Christie's, including accrued fines to government entities and certificates redeemable against future commissions; future payouts under employee retention plans which have already been accrued; the expectation that today's less favorable operating environment will continue for the near term; and high levels of cyclicality and seasonality inherent in the auction business, Moody's said.

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