Moody's puts Avnet on review

Moody's Investors Service put Avnet Inc. on review for possible downgrade including its 6.45% senior unsecured notes due August 2003, 8.2% senior unsecured notes due October 2003, $100 million 6.875% senior unsecured notes due March 2004, $360 million 7.875% senior unsecured notes due February 2005, $400 million 8.00% senior unsecured notes due November 2006 and $475 million 9.75% senior unsecured notes due February 2008 at Baa3.

The review on Avnet's long term rating will focus on prospects for revenue and earnings improvement that could strengthen Avnet's currently weak debt protection measures, including interest coverage and compliance with its undrawn $350 million bank facility, Moody's said.

For the quarter ending September 2003, Avnet must achieve a 2.35 times last 12 months EBITDA to interest expense coverage level as defined under the bank agreement. The interest coverage level rises to 2.60 times in the December 2003 quarter and higher thereafter, until a 3.0 times minimum is required by June 2004.

Moody's notes that Avnet's working capital-intensive business model has enabled the company to generate strong cash flow during the severe industry downturn through reductions in net working capital. As a result, available cash balances of $221 million at March 31, 2003, which excluded approximately $80 million cash in escrow to effectively defease remaining debt maturity payments due in August and October 2003, have been the company's highest since June 1999.

Therefore, given available cash balances and the expectation that operations will not consume material amounts of cash over the near term, Moody's expects that Avnet will be able to satisfy its March 2004 debt maturity through internal liquidity sources.

Moody's rates NVR notes Ba1

Moody's Investors Service assigned a Ba1 rating to the new $200 million senior note issue of NVR, Inc. and confirmed its existing ratings including its $115 million 8% senior notes due 2005 at Ba1. The outlook is stable.

Moody's said the ratings reflect NVR's strong returns and interest coverage, healthy cash flow, progress in geographic diversification, the industry's highest inventory turnover rate and lowest debt to capitalization ratio, and conservative land policies.

The ratings also consider the company's aggressive share repurchase program, concentration in the Baltimore and Washington D.C. markets, constraints on geographic expansion into new markets in which its very successful business model would be transferable, and the cyclical nature of the homebuilding industry.

The company produces the strongest financial ratios in the industry, Moody's said. In 2002, NVR generated EBIT interest coverage of 42x, return on assets (EBIT/assets) of 46%, return on equity of 83%, return on capital of 68%, homebuilding debt/capitalization of 23%, and homebuilding debt/EBITDA of

0.2x. Moody's notes that this financial ratio performance is greatly enhanced by an operating model that eschews investments in land inventory and, in the case of ROE, by an aggressive share repurchase program.

The company consistently generates strongly positive free cash flow by avoiding investing, as a result of its lot option strategy, ever-larger amounts of working capital in new and replacement land purchases.

Moody's rates Bowater notes Ba1

Moody's Investors Service assigned a Ba1 rating to Bowater Inc.'s new $400 million senior unsecured notes and confirmed its existing ratings including its senior unsecured notes, debentures, revolving credit facility and industrial and pollution control revenue bonds at Ba1 and Bowater Canada Finance Corp.'s senior unsecured guaranteed notes at Ba1. The outlook is stable.

Moody's said Bowater's ratings reflect its high leverage, minimal coverage and inability to materially reduce debt without a substantial recovery in the market for its key products.

Over the past several years, Bowater's leverage increased significantly due to various opportunistic acquisitions, while higher capital expenditures prevented the company from materially reducing leverage during stronger periods of free cash flow, Moody's noted. Over the past several quarters Bowater's core newsprint and uncoated groundwood markets have weakened considerably and internal cash flow has not been sufficient to cover fixed charges. Bowater continues to defer significant capital projects, as well as consider various asset sales that may generate cash for debt reduction in the near term.

The company has recently paid down debt with various assets sales, including sales of timberlands. As of March 31, 2003, debt was approximately $2.5 billion, (including accounts receivable securitization) which is very high in comparison to anticipated cash flows over the near term. As a result, operating income and interest coverage in 2003 are expected to be minimal.

Bowater and other producers of newsprint have been partially successful with recent price increases: including a $35 newsprint price increase in October 2002 and $35 in April 2003, however prices remain relatively low. Additional efforts to raise prices are expected later this year, and one competitor has announced an additional price increase to take effect August 2003.

Moody's said it believes Bowater's current liquidity position is adequate given its $600 million in revolving credit facilities. Covenants are relatively tight although Moody's expects the company to remain in compliance.

S&P rates Bowater notes BB+

Standard & Poor's assigned a BB+ rating to Bowater Inc.'s new $400 million 6.5% senior unsecured notes due 2013 and confirmed its existing ratings including its senior unsecured debt at BB+ and Bowater Canadian Forest Products Inc.'s senior unsecured debt at BB+. The outlook is stable.

S&P said the ratings reflect Bowater Inc.'s leading market positions in cyclical newsprint, pulp, and coated groundwood paper and its focus on cost reductions, offset by elevated debt levels and the prospects for weak cash flow generation in the near term.

Although Bowater has a diverse product mix, each of its major grades continues to experience low prices, causing weak operating earnings and negative free cash flow, S&P noted. Nonetheless, demand for newsprint has started to slowly recover from earlier weak levels, and a modest price increase has been realized. Moreover, permanent newsprint capacity closures by Bowater and Abitibi-Consolidated Inc, the industry leader, should improve supply and demand fundamentals when markets rebound.

Debt to capital has averaged close to 50% over the past five years, well above the company's 40% target. Debt increased by $200 million in the last 12 months to $2.5 billion, and S&P expects only modest debt reduction in 2003 despite the receipt of $122 million of proceeds from a timberland sale, because of still weak - though improving - operating results, and elevated capital spending to complete the newsprint machine conversion.

As a result, debt to capital is likely to remain about 57% throughout 2003, although debt to EBITDA should strengthen substantially from its current dismal level of 16x to about half that at Dec. 31, 2003, and to 3x over the next two years. As demand and pricing recover, and capital spending falls sharply after the first quarter, S&P expects Bowater to turn free cash flow positive in mid-2003. EBITDA interest coverage and funds from operations to debt should average in the 4x to 5x range and 20%, respectively, over an industry cycle.

Moody's rates Lucite notes B3

Moody's Investors Service assigned a prospective B3 rating to Lucite International Group Holdings Ltd.'s planned €50 million 10.25% senior notes due 2010 to be issued through Lucite International Finance plc and confirmed its existing ratings including its €200 million 10.25% senior notes at B3. The outlook remains stable.

Moody's said the confirmation reflects Lucite's intention to build a 93kte MMA plant in China, a high growth area, financed by way of shareholder equity, newly raised debt by Lucite downstreamed as equity into the project and local non-recourse financing; the revision of the group's financial covenants for the years 2003-2004, providing Lucite with similar financial headroom after reflecting limited increased debt levels and changes in exchange rates; and the improved MMA market which saw good demand, tight supply and improved pricing in the first quarter of 2003 which Moody's anticipates will continue in the next few quarters and will lead to improved financial performance and credit metrics.

Moody's believes that although Lucite takes additional risk linked to the Chinese project, it will remain limited to €20 million and should benefit the group on the longer term.

Moody's said it also recognizes the improvement in the company's financial performance as, in the first quarter of 2003, EBITDA increased to £23 million (from £16 million in the fourth quarter of 2002) on the back of increased volumes and pricing.

Moody's noted that Lucite's debt protection measures have not materially changed since the time of the initial rating in April 2000 with [net debt/ (EBITDA-capex)] ratio of 7.6x as of March 31, 2003 and (EBITDA-Capex)/Net interest reaching 1.8x. Moody's anticipates that these ratios will improve going forward as financial performance in 2003 is expected to be better than in the last two years driven by a tight MMA market and improved pricing. However, the group's capex plans in China will mitigate the benefits of the business improvement.

Moody's rates National Power bonds Ba1

Moody's Investors Service assigned a Ba1 rating to National Power Corp.'s proposed $500 million guaranteed bonds, based on the irrevocable and unconditional guarantee by the Republic of the Philippines. The outlook is stable, in line with the sovereign rating.

Moody's said it recognizes National Power's weak operating performance with return on rate base of only 0.21% in 2002, mainly attributable to the significant reduction of sales to Meralco, which accounts for about 50% of National Power's total sales as well as a reduction of National Power's tariffs.

Moody's said it expects National Power's operating performance to remain weak given the Philippines Government's mandatory removal in September 2002 of the Purchase Power Adjustment, an automatic cost recovery mechanism that allowed National Power to pass on increased costs associated with its dollar-denominated obligations under the Independent Power Producer contracts.

Fitch says ProSiebenSat.1 unchanged

Fitch Ratings said ProSiebenSat.1's planned capital increase of €97.2 million is welcome but added that it is credit neutral.

The company's current rating of BB with a negative outlook has been under pressure due to the poor advertising market in Germany upon which ProSiebenSat.1 relies for in excess of 95% of revenues, Fitch said.

Deleveraging is key to ProSiebenSat.1's ratings but must be balanced in the context of the advertising market conditions in Germany and the successful renegotiation of financing of the revolving credit facility maturity December 2004 and the 2005 and 2006 bonds, Fitch said.

Fitch says no rating actions from gaming tax changes

Fitch Ratings said it does not anticipate taking any rating actions from proposed changes in gaming taxes.

The new tax increase on the gaming industry in the State of Illinois could effectively shrink the tax base, as casinos respond by reducing the headcount, hours of operation and promotional expenses and shut down lower-margin table games, Fitch said.

While other states, such as Iowa, Missouri, Nevada and New Jersey have proposed gaming tax initiatives to plug budget shortfalls, Illinois' tax increase is by far the most severe with the highest marginal tax rate raised to a top tier of 70% on revenues over $250 million, Fitch noted.

The proposed and approved tax plans nationwide will have an adverse effect on the cash flows and credit measure of all operators under Fitch coverage, particularly those with exposure to Illinois and New Jersey.

Companies least affected are those in stable regulatory environments, such as Las Vegas (i.e. MGM Mirage and Station Casinos) and those that are geographically diversified, such as Harrah's Entertainment, Park Place Entertainment, and Boyd Gaming.

Conversely, Ameristar Casinos and Trump Holdings suffer fairly significant credit deterioration due to a lack of diversity and heavy exposure to Illinois and Atlantic City, respectively, Fitch said.

Moody's rates Remy Cointreau bonds Ba2

Moody's Investors Service assigned a Ba2 rating to Remy Cointreau SA's planned €150 million senior notes due 2010, confirmed the company's existing Ba2 senior implied and issuer ratings and maintained a positive outlook.

Moody's said the confirmation reflects the company's leading position in the cognac sector, the stability of earnings generated from this business and the sector's prospects for moderate volume and revenue growth; the stability of the cash-flows generated by the company's liqueurs and spirits businesses and Moody's expectation of further improvements in the operating performance of Remy Cointreau's champagne business over the intermediate term; financial measures which are considered to position the credit satisfactorily in the Ba2 rating category; and the working capital impact of the absorption of the Prochacoop inventory in the fiscal year ended March 2003 and the agency's understanding that the negative working capital impacts associated with the remaining components of this transaction will be modest going forward.

Moody's noted that Remy Cointreau's expected de-leveraging has been modestly delayed since the agency changed the rating outlook to positive in April 2002 and further that the expected pace of de-leveraging may be somewhat slower than originally envisaged.

However, the agency believes the positive outlook is still appropriate given the improvements expected in the company's financial profile in the current financial year and fiscal years ending March 2004 and 2005.

S&P rates Rogers Cable notes BBB-

Standard & Poor's assigned a BBB- rating to Rogers Cable Inc.'s $350 million of 6.25% second-priority notes due 2013 and confirmed the existing ratings of Rogers Cable and its 100% parent, Rogers Communications Inc., including Rogers Communications' BB+ long-term corporate credit rating. The outlook is negative.

The notes were rated one notch above the long-term corporate credit rating, reflecting S&P's expectation that there is a strong likelihood of full recovery of the principal in the event of default or bankruptcy.

In particular, the secured debt rating recognizes Rogers Cable's well-clustered and largely upgraded systems in attractive geographic markets, including the greater Toronto area, which is likely to retain ample value even under a stress scenario.

The ratings on Rogers Communications reflect the above-average business position of its key cable television subsidiary, Rogers Cable, and the added business diversity provided by its media subsidiary, Rogers Media Inc., S&P said These factors are offset by the company's relatively aggressive financial profile, negative free cash flow generation, and ongoing losses associated with its sports initiatives.

The negative outlook reflects S&P's concerns regarding Rogers Communications' heavy, albeit decreasing, capital spending and continuing negative free cash flows.

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