S&P rates Allied Waste notes BB-, bank loan BB, convertibles B

Standard & Poor's assigned a BB- rating to Allied Waste North America Inc.'s proposed $300 million senior notes due 2013 guaranteed by its parent Allied Waste Industries Inc., BB rating to Allied Waste North America's new $3 billion senior secured credit facilities and a B rating to Allied Waste's proposed $300 million series C senior mandatory convertible preferred stock. S&P also confirmed Allied Waste's existing ratings. The outlook is stable.

Proceeds of the notes, together with the proceeds from the preferred stock and proposed common stock offering, will be used to repay portions of tranches A, B, and C of the term loans under Allied Waste North America's existing credit facility.

The ratings on Allied Waste reflect a strong competitive business position, offset by a relatively weak, albeit improving, financial profile, S&P said.

Although the U.S. solid waste industry is mature and competitive, its overall risk characteristics are favorable, supported by the essential nature of services, relatively strong and reliable cash flows, and considerable resilience to economic swings, particularly in the more predictable residential and light commercial segments, S&P added. Allied Waste's market position is enhanced by a low cost structure, very good collection route density, and a relatively high rate of waste internalization.

Still, the economic slowdown has had a moderately adverse effect on the company's volumes, especially in the industrial and roll-off segments (about 20% of revenues), and pricing flexibility in core services, the latter stemming partly from greater competition for the remaining waste, S&P said.

Consequently, Allied Waste's historically very impressive profit margins in the mid-30s percentage area declined slightly to the low-30s percentage in 2002. As a result, the anticipated improvement in subpar credit protection measures has been delayed. Gradual strengthening in the credit profile is expected over time, aided by additional debt reduction from internally generated funds and selected divestitures. In the intermediate term, debt to EBITDA should be in the 4x-4.5x range, EBITDA and EBIT interest coverages approximately 2.5x and 1.75x, respectively, and debt to capital in the 70%-75% range, S&P said.

In rating the bank facilities, S&P said there is a strong likelihood of substantial recovery of principal of fully drawn facilities in the event of default or bankruptcy.

Fitch rates Allied Waste notes BB-, loan BB, convertibles B-

Fitch Ratings assigned a BB rating to Allied Waste Industries' new $3 billion senior secured credit facility, a BB- rating to the proposed $300 million senior secured notes and a B- to the new series C mandatory convertible preferred stock. The outlook is stable.

Fitch noted the outlook was recently revised from negative, reflecting Allied Waste's steady and healthy debt reduction amid a weak operating environment that has impacted margins and operating cash generation. Over the intermediate term, any improvement in economic conditions should result in margin expansion toward previous levels.

The new issues and sales of underperforming non-core assets will replace Allied Waste's existing bank credit facility, improve the maturity schedule, contribute towards debt reduction, and further support the senior-most debt in the capital structure, Fitch said.

It is expected that operating cash generation, preferred and common equity issuance, and divestitures will be used to bring down debt by $1 billion during 2003. Free cash flow from operations is expected to total in excess of $300 million in 2003, providing a significant buffer in the case of further deterioration in the economy, Fitch added.

Allied Waste's EBITDA margin for 2002 slipped below 32% as compared to slightly over 35% in 2000, with EBITDA falling 2% in 2002 to $1.753 billion. Excluding 2001 costs associated with acquisitions and divestitures, 2002 EBITDA fell 9.3%. Nevertheless, total debt declined to $8.882 billion from $9.260 billion in 2001, Fitch said.

The new financing and divestitures plan demonstrates management's intent to delever, Fitch said. A change in outlook to positive may be considered upon successful completion of the announced transactions, stable operating performance, and meaningful debt reduction.

Moody's puts Frontier Oil on upgrade review

Moody's Investors Service put Frontier Oil Corp. on review for upgrade including its $170 million 11.75% senior unsecured notes due 2009 and $39 million 9.125% senior unsecured notes due 2005 at B2.

Moody's said the review is in response to Frontier's announced pending $460 million acquisition of independent refiner Holly Corp.

Holly and Frontier serve adjacent markets. Pro-forma, Frontier's portfolio of five refineries would comprise 263,000 barrels per day of refining capacity with a weighted average Nelson Complexity Index of 7.5.

The review for upgrade begins by noting the substantial equity component of this important merger and very low assumed Holly debt, Moody's said. The review will subsequently consider: pro-forma earnings power in each phase of the refining cycle; greater pro-forma scale, regional intensification, and diversification of refinery operating risk and regional margins; the pro-forma liquidity and financial structure (including operating leases) as Frontier considers several funding alternatives; and Moody's outlook for expected adequate 2003 sector margins.

After allocating $30 million of the purchase price to Holly cash, $60 million to inventory, and $75 million to Holly's common carrier pipelines (five times $15 million of reported third-party pipeline EBITDA), Frontier seems to be paying roughly $3,100 per Holly distillation capacity throughput barrel and $410 per complexity barrel. Allocating only the $30 million paid for Holly cash, Frontier is paying $4,650 per distillation barrel and $620 per complexity barrel. Moody's will assess the suitability of allocating the pipeline EBITDA away from the refinery acquisition price.

Holly appears to contribute just under 50% of the pro-forma gross margin. Moody's estimates pro-forma cash of $130 million, pro-forma debt of $400 million, pro-forma book equity of $431 million, pro-forma 2003 EBITDA in the range of $150 million to $190 million, interest expense of roughly $45 million, and capital expenditures in the range of $90 million.

Pro-forma debt/book capital would approximate 48%. In severe trough conditions, Frontier generated $55 million of 2002 EBITDA and Holly generated $52 million of EBITDA in the four quarters ended Jan. 31, 2003, Moody's noted.

S&P puts Kansas City Southern on watch

Standard & Poor's put Kansas City Southern Railway Co. on CreditWatch with negative implications including its $100 million senior secured revolving credit facility, $150 million senior secured term loan A and $250 million senior secured term loan B at BB+ and $150 million 7.5% senior unsecured notes due 2009 and $200 million 9.5% senior unsecured notes due 2008 at BB-.

S&P said the action reflects its concerns that continuing economic weakness and potential funding requirements related to the company's investment in Grupo Transportacion Ferroviaria Mexicana could cause a deterioration in the financial profile of the company.

Although Kansas City Southern is a Class 1 railroad, it is significantly smaller and less diversified than its peers, S&P noted.

In October 2003, the Mexican government has the right to exercise a put of its ownership interest in TFM to Grupo TFM, TFM's holding company. If Grupo TFM does not purchase the government's interest, Grupo TMM and Kansas City Southern would be obligated to purchase the government's interest. If Grupo TMM could not purchase its pro rata share, Kansas City Southern would be obligated to pay the total purchase price which, measured as of Dec. 31, 2002, would have been approximately $485 million.

Grupo TMM is currently experiencing significant liquidity pressures and is in the process of trying to complete an exchange offer for outstanding debt, including debt due in 2003, S&P noted. Grupo TMM has stated that its existing cash reserves and cash flow generation will not be sufficient to repay the 2003 notes at maturity and meet other obligations, if it is unable to complete the exchange and that if the exchange offer is not completed, it would need to find an alternative source of refinancing to repay the 2003 notes or sell assets to generate cash to satisfy its obligations. Given Grupo TMM's current financial position, it is unlikely that it will be able to fund its share of the put option.

Kansas City Southern's credit measures have been adequate for the rating, considering the economic environment in which it has been operating, S&P said. Funds from operations to debt has remained in the low-teens percentage area and debt to total capital has stayed in the mid-to-upper-50% area (adjusted for operating leases). Current ratings assume that debt to total capital will remain at or below 60% and funds from operations to debt will improve to the 20% area over time as the economy recovers and the company achieves benefits from cost cutting initiatives.

S&P puts Steinway on watch

Standard & Poor's put Steinway Musical Instruments Inc. on CreditWatch with negative implications including its $150 million 8.75% notes due 2011 at BB-.

S&P said the watch placement reflects its concerns about Steinway's credit quality arising from heightened competition in the band instrument business, ongoing strikes, and the softening retail environment for piano sales.

Lower priced band instruments from Asia are taking market share from the company's Conn-Selmer instruments, while strikes at band instrument and timpani plants may hurt sales, S&P said. In addition, the war with Iraq has resulted in a very uncertain retail environment, which could constrain domestic piano sales in 2003.

Moody's rates Seagate SGL-1

Moody's Investors Service assigned an SGL-1 speculative-grade liquidity rating to Seagate Technology HDD Holdings.

Moody's said the liquidity rating is based on its expectation that Seagate's operating cash flow over the next 12 months should provide more than sufficient liquidity to finance its capital expenditures over that time frame, without resorting to any outside source of capital beyond normal vendor relationships.

Moody's puts Trinity Industries on review

Moody's Investors Service put Trinity Industries, Inc. on review for downgrade including its senior secured bank facilities at Ba1 and Trinity Leasing Co.'s equipment trust certificates at Baa3.

Moody's said the review is prompted by heightened financial risk stemming from a $163.7 million award from a Texas jury in connection with the accidental death of an independent contractor.

Moody's notes that while the ultimate impact of this award on Trinity remains to be determined, the business environment for Trinity's core railcar operation remains weak.

Trinity's ability to absorb any major negative financial or operational events could weaken without steady recovery in its core business, Moody's said.

S&P confirms Amkor ratings

Standard & Poor's affirmed Amkor Technology Inc.'s ratings, including senior unsecured debt at B+ and subordinated debt at CCC+, and assigned a B+ rating to its proposed $200 million credit facility.

Ratings reflect volatile conditions in the semiconductor market and a sustained deterioration in profitability and debt-protection measures, offset by adequate near-term liquidity.

Expected modest sequential improvements in operating performance and adequate cash balances provide ratings support.

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