S&P cuts Lucent

Standard & Poor's downgraded Lucent Technologies Inc. and put it on CreditWatch with negative implications. Ratings lowered include Lucent's $750 million 7.25% notes due 2006, $300 million 6.5% senior debentures due 2028, $500 million 5.5% senior notes due 2008, $1.36 billion 6.45% debentures due 2029 and $25 million 8% senior unsecured notes due 2015, all cut to B- from B, and its $1 billion 8% redeemable convertible preferred stock and $1.75 million 7.75% convertible trust preferred securities, cut to CCC- from CCC.

S&P said the downgrade follows Lucent's announcement that it plans to take an approximately $1 billion restructuring charge, will further downsize the business and has cancelled its $1.5 billion revolving credit agreement.

S&P said it is concerned that distressed industry conditions may challenge Lucent's ability to return to profitability and positive cash flows over the coming year, even after the latest downsizing.

The latest plans follow several actions that have not restored profitability, as marketplace deterioration has outpaced the company's downsizing actions, casting doubt on the ultimate success of the current action, S&P said.

Lucent cancelled its undrawn $1.5 billion revolving credit agreement, rather than be in default of the covenants, and is negotiating a new, smaller credit facility, S&P noted. Those negotiations could be protracted.

The company has also cancelled its $500 million accounts receivable sales program, which was not in use, and has repurchased $100 million in real estate, rather than be in default of the terms of the lease. The decisions underscore Lucent's limited financing options, S&P said.

Fitch cuts Lucent

Fitch Ratings downgraded Lucent Technologies Inc. including cutting its senior unsecured debt to CCC+ from B- and convertible preferred stock and trust preferred securities to CC from CCC-. The outlook remains negative.

Fitch's action follows Lucent's announcement that it plans to take more aggressive restructuring actions to further reduce its break-even revenue levels, has cancelled the undrawn $1.5 billion credit facility maturing February 2003, and will take an additional $1.0 billion restructuring charge in the quarter as well as a $3.0 billion charge to equity in recognition of the company's declining pension assets.

The additional restructuring actions will be implemented to reduce quarterly earnings per share break-even revenue to $2.5 billion from a previously announced $2.5-$3.0 billion range in order to return to profitability by the end of fiscal 2003, Fitch noted but added that it is likely that this amount could be reduced further.

The details of this restructuring have not been announced but Fitch said it expects that another charge will occur with a certain portion being cash. The company already has significant cash obligations from previously announced restructurings, potential funding for its pension plan in fiscal 2003, along with cash needed to fund operations, resulting in a significant cash burn rate for the next 12-18 months.

Fitch estimates that Lucent's revenues for the fiscal fourth quarter ending September 30, 2002, will be approximately $2.3 billion, which is below the currently planned break-even levels. Total revenues for fiscal 2002 are estimated to be $12.3 billion, a 42% decline from fiscal 2001. Lucent has stated that it is planning for a 20% reduction in fiscal 2003 revenues to approximately $10 billion.

Fitch believes telecommunications equipment capital spending, which is estimated to decline in excess of 45% in 2002, will be pressured throughout 2003 for both the wireline and wireless sectors as companies continue to revise spending estimates downward. Additionally, the potential consolidation in the wireless industry is also a concern.

Moody's cuts AES, rates new loan, notes B2

Moody's Investors Service downgraded AES Corp. Ratings lowered included AES' senior unsecured debt, cut to B3 from Ba3, senior subordinated debt, cut to Caa1 from B2, junior subordinated debt cut to Caa2 from B2, and preferred stock, cut to Ca from Caa1. Moody's also assigned a B2 rating to AES' proposed $1.6 billion senior secured bank credit facilities and its proposed up to $500 million of senior secured bonds offered in an exchange. The outlook is negative.

Moody's said it downgraded AES because of the company's weak cash flow relative to a high debt burden, difficult economic and power market conditions in several countries, and diminishing financial flexibility.

The company's credit measures have deteriorated due to difficult wholesale power markets in Argentina, Brazil, Venezuela, the U.S. and the United Kingdom, Moody's added.

The ratings also anticipate the creation of a new secured class of creditors at the holding company level, the rating agency said.

The negative outlook reflects the possibility of a negative rating action, if AES is unable to: maintain its expected dividend stream from subsidiaries and investments; execute the sale of Cilcorp in the first quarter of 2003; complete additional asset sales on a timely basis; maintain capital spending at more sustainable levels consistent with a debt reduction strategy; refinance bank credit facilities and near-term bond maturities.

S&P puts Sun World on watch

Standard & Poor's put Sun World International Inc. on CreditWatch with negative implications including its $115 million 11.25% first mortgage due 2004 rated B.

S&P said the action follows the announcement by Sun World's parent, Cadiz Inc., that the board of directors of Metropolitan Water District of Southern California rejected Cadiz's water storage project.

Although Sun World has sufficient cash and availability under its revolving credit facility for the Oct. 15, 2002, interest payment on the first mortgage bonds, there is near-term refinancing risk, S&P said. Sun World's one-year secured revolving credit facility matures in November 2002 and Cadiz's one-year $35 million secured bank facility matures in January 2003.

S&P upgrades Pennzoil-Quaker State

Standard & Poor's upgraded Pennzoil-Quaker State Co. to AAA including its $200 million 6.75% senior notes due 2009, $400 million 7.375% senior debentures due 2029, $150 million 8.65% notes due 2002, $325 million revolving credit facility due 2004 and $23 million 364-day revolving credit facility, all previously at BB+, and its $250 million 10% senior notes due 2008, previously at BB-. The outlook is stable.

S&P said the action follows Shell Oil Co.'s acquisition of Pennzoil-Quaker State.

The upgrade of Pennzoil-Quaker State and the equalization of its ratings with Shell's reflect the strategic value of Pennzoil-Quaker State to Shell, particularly as it provides Shell with a dominant market share in motor oil, and Shell's announcement that it has tendered for all outstanding public debt of Pennzoil-Quaker State maturing after 2002, S&P said. To the extent that Pennzoil-Quaker State's bonds remain outstanding after the tender period is complete, they will not be guaranteed by Shell.

S&P puts American Tower on watch

Standard & Poor's put American Tower Corp. on CreditWatch with negative implications. Ratings affected include American Tower's $1 billion 9.375% senior notes due 2009, $300 million 6.25% convertible notes due 2009, $425.5 million 2.25% convertible notes due 2009 and $450 million 5% convertible notes due 2010, all at B-, and the $650 million revolving credit facility, $850 million term loan A due 2007 and $500 million term loan B due 2008 at BB- of American Tower LP, American Tower International Inc., American Towers Inc., Towersites Monitoring Inc. and Verestar Inc.

S&P said the action reflects its assessment that several risks to the wireless tower industry have increased so that American Tower could find it more challenging to improve cash flow and significantly lower debt in the next several years.

First, the potential for wireless carriers to reduce tower-related expenditures has increased. With carrier revenue growth expected to slow given the weak economy and that U.S. wireless penetration already exceeds 50%, carriers may be more willing to pursue consolidation and network sharing opportunities, S&P said. This could result in lower demand for both new and existing tower space going forward.

Second, the financial positions of many smaller wireless carriers have become more tenuous, S&P continued. The bankruptcy of some of these could have an adverse impact on the company.

Third, in the longer term, advancement in technologies that enable more efficient spectrum usage could reduce tower demand, S&P said. Smart antennas that boost network efficiency are already in use on a sizable scale in several markets outside the U.S.

S&P also said it is concerned that the prospect of slower cash growth could make it more challenging for American Tower to meet a bank covenant, especially in the second half of 2003, and bank debt amortization beyond 2003.

In the absence of an amendment to its bank credit agreement, the company does not have significant headroom under its cash flow to pro forma debt service test, S&P said.

S&P puts US Unwired, IWO on watch

Standard & Poor's put US Unwired Inc. and IWO Holdings Inc. on CreditWatch with negative implications. Ratings affected include US Unwired's $200 million senior subordinated discount notes due 2009 at CCC+ and $130 million secured bank loan at B and Independent Wireless One Corp.'s $120 million senior secured term loan A, $50 million senior secured term loan B and $70 million senior secured revolving credit facility at B.

S&P said the action is in response to concern about increased business risk from heavy wireless industry competition and slowing subscriber growth that could boost already high financial risk.

The companies' ability to meet or renegotiate bank covenants that tighten in 2003 is a particular concern given still-heavy negative discretionary cash flow and external liquidity needs, S&P said.

S&P said its outlook for Sprint PCS affiliates has dimmed due to maturing wireless penetration and recent disclosure of third quarter subscriber losses at Sprint PCS Group.

National wireless providers are introducing increasingly competitive pricing plans, intensifying pressure on all Sprint PCS affiliates, as well as Sprint PCS, S&P added. High churn rates above 3%, partly due to termination of sub-prime customers, continue to challenge US Unwired. Although demand is generally strongest in the fourth quarter and recently deployed next generation (3G) services may stimulate consumer interest, the soft economy could temper these positive factors.

S&P puts Crown Castle on watch

Standard & Poor's put Crown Castle International Corp. on CreditWatch with negative implications. Ratings affected include Crown Castle's $150 million 10.625% senior discount notes due 2007, $180 million 9% senior notes due 2011, $300 million 10.375% senior discount due 2011, $500 million 10.75% notes due 2011, $450 million 9.375% senior notes due 2011, $125 million 9.5% senior notes due 2011 and $260 million 11.25% senior discount notes due 2011, all at B, and $200 million 12.75% senior exchangeable preferred stock at CCC+, and Crown Castle Operating Co.'s $300 million term loan due 2007, $500 million reducing revolver due 2007 and $400 million term loan due 2008 at BB-.

S&P said the action reflects its assessment that several risks to the wireless tower industry have increased so that Crown Castle could find it more challenging to improve cash flow and significantly lower debt in the next several years.

First, the potential for wireless carriers to reduce tower-related expenditures has increased. With carrier revenue growth expected to slow given the weak economy and that U.S. wireless penetration already exceeds 50%, carriers may be more willing to pursue consolidation and network sharing opportunities, S&P said. This could result in lower demand for both new and existing tower space going forward.

Second, the financial positions of many smaller wireless carriers have become more tenuous, S&P continued. The bankruptcy of some of these could have an adverse impact on the company.

Third, in the longer term, advancement in technologies that enable more efficient spectrum usage could reduce tower demand, S&P said. Smart antennas that boost network efficiency are already in use on a sizable scale in several markets outside the U.S.

Crown Castle's debt to EBITDA leverage was about 11.8 times on June 30, 2002. The company had planned to deleverage significantly by 2004 on the assumption that it could rapidly expand cash flow margin commensurate with high revenue growth, S&P said. However, growing cash flow proved more challenging as some customers went bankrupt starting in 2001 and major carriers scaled back their network plans due to weak capital market conditions and unavailability of new spectrum. In the absence of asset sales, debt restructuring, or new equity, Crown Castle is unlikely to reduce debt significantly in the next several years.

S&P puts SBA on watch

Standard & Poor's put SBA Communications Corp. on CreditWatch with negative implications. Ratings affected include SBA's $269 million senior discount notes due 2008 and $500 million 10.25% senior notes due 2009 at B- and SBA Telecommunications Inc.'s $300 million senior secured credit facilities due 2007 at B+.

S&P said its action is in response to its heightened concern that SBA's slowing cash flow could make it challenging for the company to meet maintenance covenants on its bank facility in 2003 and improve its weak liquidity.

SBA recently lowered its EBITDA guidance for third quarter 2002 by about 13% due to lower capital expenditures by wireless carriers and increased property taxes, S&P noted. If the situation does not improve, the company faces increased risk of not meeting its recently amended interest coverage, fixed charge coverage, and debt service covenants in 2003.

S&P said the action also reflects its assessment that several risks to the wireless tower industry have increased so that SBA could find it more challenging to improve cash flow and significantly lower debt in the next several years.

First, the potential for wireless carriers to reduce tower-related expenditures has increased. With carrier revenue growth expected to slow given the weak economy and that U.S. wireless penetration already exceeds 50%, carriers may be more willing to pursue consolidation and network sharing opportunities, S&P said. This could result in lower demand for both new and existing tower space going forward.

Second, the financial positions of many smaller wireless carriers have become more tenuous, S&P continued. The bankruptcy of some of these could have an adverse impact on the company.

Third, in the longer term, advancement in technologies that enable more efficient spectrum usage could reduce tower demand, S&P said. Smart antennas that boost network efficiency are already in use on a sizable scale in several markets outside the U.S.

S&P raises Doman

Standard & Poor's upgraded Doman Industries Ltd. and put the company on CreditWatch with negative implications.

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

S&P lowers Marsh outlook

Standard & Poor's lowered its outlook on Marsh Supermarkets Inc. to negative from stable and confirmed its ratings including its bank loan at BB and subordinated debt at B+.

S&P said the revision reflects Marsh's recent negative same-store sales trends resulting from increased promotional activity from competitors, more selective consumer spending trends and competitive store openings in its core markets.

S&P said it could consider a downgrade if these trends continue to negatively impact credit measures.

The company has faced increased competitive store openings over the past year from Wal-Mart Stores Inc., Kroger, and others, S&P noted. This factor, coupled with increased promotional activity from competitors and more selective consumer shopping patterns, contributed to a 2.9% same-store sales decline in the first quarter of 2002.

S&P said it expects Marsh will be challenged to improve same-store sales trends significantly in 2002 if increased promotional activity and more selective consumer shopping trends continue. Marsh had experienced same-store sales increases of 2.5% in fiscal 2001 and 2.0% in fiscal 2000.

S&P cuts Bally Fitness outlook

Standard & Poor's lowered its outlook on Bally Total Fitness Holding Co. to stable from positive and confirmed its ratings including its senior secured credit facility at B+ and senior subordinated debt at B-.

S&P said it revised Bally's ratings because it believes the timeframe for a ratings upgrade is more distant than previously anticipated.

Bally's operating performance has been pressured by a slower than expected ramp-up of newer clubs and flat new membership growth amid a weak economic environment, S&P said. The company has lowered its earnings expectations for the second half of 2002. Bally is now expected to generate in 2002 roughly the same level of EBITDA as in 2001, restraining financial profile improvement.

Near-term visibility is limited by the soft economy and its impact on new membership sales, S&P noted.

S&P cuts American Buildings' subordinated debt

Standard & Poor's downgraded the C$84 million 12.5% subordinated notes due 2007 issued by American Buildings Co.'s Vicwest Corp. subsidiary to D from CC after the company failed to pay interest.

S&P said its ratings on American Buildings remain unchanged including its senior secured debt at CC on CreditWatch with developing implications.

The company had previously entered into an amendment with its senior lenders to deal with non-compliance of financial covenants, S&P noted. This amendment contemplated a capital transaction that has not been completed, resulting in an event of default. Until the event of default is rectified, or the senior lenders otherwise agree, Vicwest is prohibited from paying interest to the holders of its subordinated notes.

S&P cuts PG&E National Energy

Standard & Poor's downgraded PG&E National Energy Group Inc. and its subsidiaries and kept the ratings on CreditWatch with negative implications. Ratings affected include PG&E National Energy's $1 billion 10.375% senior unsecured notes due 2011 and $625 million revolving credit facility tranche A due 2003, USGen New England, Inc.'s $100 million unsecured credit facility due 2003 and $413.643 million pass-through certificates series 1998 and Attala Generating Co. Inc.'s $258 million pass-through certificates due 2023, all cut to B- from BB+; GenHoldings I, LLC's $1.698 billion senior secured bank loan due 2006, cut to CC from BB+; and PG&E Gas Transmission-Northwest's $250 million 7.1% senior notes due 2005 and $150 million 7.8% senior debentures due 2025, cut to BB- from BBB+.

S&P said the action reflects the uncertainty facing National Energy Group in reaching an agreement with its bank lenders regarding an impending Oct. 21 maturity of $431 million.

Should the bank lenders not extend the maturity of that loan, a default could occur at National Energy Group, S&P said.

National Energy Group currently has no access to the capital markets and lacks adequate liquid funds to make the Oct. 21 payment, S&P said.

The ratings on Indiantown Cogeneration Funding Corp. and Selkirk Cogen Funding Corp. are not affected by this rating action. These project financings are structured as bankruptcy remote subsidiaries and are not 100% owned by National Energy Group. Therefore, the incentives to consolidate them in a bankruptcy filing of National Energy Group are low.

Moody's cuts Amerco

Moody's Investors Service downgraded Amerco and kept it on review for possible downgrade. Ratings lowered include Amerco's senior unsecured debt, cut to Ba3 from Ba2.

Moody's said the action follows Amerco's failure to complete a planned $275 million bond offering.

Continued, efficient access to the capital markets is important for Amerco to run its business, Moody's said.

The continuing downgrade review will focus on the company's plans to enhance its funding and liquidity structure and refinance a note maturing during the second quarter of 2003, Moody's said.

The company indicates that it has sufficient cash on hand to meet its $100 million debt maturity on Oct. 15 however Amerco's liquidity position is tight, as the bank credit facility is fully drawn and cash flow from operations is expected to weaken as the truck rental business enters its normal seasonal slowdown, Moody's said.

S&P lowers IMC Global outlook

Standard & Poor's lowered its outlook on IMC Global Inc. to negative from stable. Ratings affected include IMC Global's $150 million 6.875% debentures due 2007, $150 million 6.55% notes due 2005, $150 million 7.3% debentures due 2028, $200 million 6.5% notes due 2003, $100 million 7.375% debentures due 2018, $300 million 7.4% notes due 2002, $300 million 7.625% notes due 2005 and Phosphate Resource Partners LP's $150 million 7% senior notes due 2008, all at B+.

S&P said the action is in response to IMC Global's sub-par financial profile.

S&P said it is concerned that weaker-than-expected operating and financial performance could make it more difficult for the company to reduce debt and strengthen credit protection measures in the near term.

Profitability and cash flow have been negatively affected by the continuation of difficult industry conditions, which constrained demand and pricing through another difficult spring planting season, S&P said.

Operating margins (before depreciation and amortization) remain below 20%, thereby limiting free cash flow and straining credit protection measures, S&P said. Funds from operations to total debt has fallen into the single-digit percentage area, EBITDA interest coverage is less than 2 times, and debt to EBITDA is more than 7x.

A gradual recovery in business conditions and restrained capital spending (about $140 million for 2002) should result in improved free cash flow generation. China's entry into the World Trade Organization could benefit North American phosphate producers. However, the significant upswing in phosphate pricing needed to provide meaningful and sustainable improvements in cash flows and expected credit protection measures are not expected to occur in the near term, S&P said.

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