S&P cuts Stelco, still on watch

Standard & Poor's downgraded Stelco Inc. including cutting its C$150 million 8% debentures due 2006 and C$125 million 10.4% retractable debentures due 2009 to CCC+ from B- and C$90 million 9.5% convertible debentures to CCC form CCC+. The ratings remain on CreditWatch negative.

S&P said the ratings were lowered due to the company's liquidity position, which declined a further C$26 million in third-quarter 2003.

This is compounded by a deteriorating competitive position and increasingly limited options to stabilize its finances, S&P said. Stelco will require significant changes in its cost structure to ensure its viability, particularly as several major steel producers in North America have restructured their operations and improved their cost profiles.

At the end of third-quarter 2003, the company might only have liquidity to sustain its operations through mid to late 2004.

Stelco is currently generating a cash loss per ton, despite operating near full capacity, S&P noted. Management is undertaking a wide-ranging strategic review with the goal of enhancing the company's cost competitiveness. Although such an improvement may be achievable without entering a formal restructuring process, the company could enter Companies' Creditors Arrangement Act proceedings to effect the requisite reorganization.

S&P raises Amazon outlook

Standard & Poor's revised its outlook on Amazon.com to positive from stable, on significant progress in improving operating results and credit protection measures in 2003, and S&P's belief that continued gains could lead to a higher rating in the future.

Ratings were confirmed, including its subordinated debt and convertibles at CCC+.

The ratings reflect the risks of rapid growth in an evolving marketplace, weak profitability and a heavy debt burden. Ratings also incorporate the potential for margin pressure from intense retail competition and the soft U.S. economy.

Amazon's debt burden is significant, with total debt to EBITDA at about 5.1x. Although lease-adjusted EBITDA coverage of interest improved to 2.4x in the trailing 12 months ended Sept. 30 from 0.4x in 2001, any operating difficulties could hinder further progress.

Financial flexibility is adequate for the near term, with liquidity from $1.1 billion of cash and equivalents at Sept. 30.

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