S&P cuts Western Wireless, still on watch

Standard & Poor's downgraded Western Wireless Corp. and kept it on CreditWatch with negative implications including lowering its $2.1 billion senior secured credit facility to B- from B and $200 million 10.5% senior subordinated notes due 2007 and $200 million 10.5% senior subordinated notes due 2006 to CCC from CCC+.

S&P said the downgrade reflects the impact of lower roaming yield and the anticipated GSM (Global System for Mobile Communications) network buildout by national carriers on the company's future roaming revenue growth. It also reflects uncertainty related to the company's ability to meet increasing debt maturities commencing in 2003 and overall slower industry growth.

The continuing CreditWatch is because under S&P's stressed scenario slower revenue growth could result in the potential breach of an operating cash flow to pro forma debt bank covenant.

In 2002, total domestic revenue declined 3% compared to a 13% growth rate in 2001, S&P noted. The decline was due to slower subscriber growth and a significant decline in roaming yield. In addition, competition from national carriers increased with their offering of regional plans.

To somewhat offset some of these challenges, Western Wireless introduced new regional plans in the second quarter of 2002, which resulted in a lower churn rate of 2.2% in the fourth quarter of 2002, below the industry average of 2.5%. Nevertheless, roaming revenue, which comprises about 26% of total domestic revenues, declined about 6% in 2002 and is anticipated to be relatively flat in 2003.

Potential for new revenue growth, although minimal in the near term, is expected from universal service funding related to the company's Eligible Telecommunications Carrier (ETC) status in 14 of the 19 states it serves, S&P said. The company received about $11 million in USF in 2002 and is expected to receive an incremental $30 million in 2003.

The adequacy of the company's liquidity position will depend on its ability to continue to meet bank covenants and continue to grow free cash flow, as well as its ability to access the public markets and/or execute a new bank credit facility to meet debt maturities increasing in 2003, S&P said. Debt maturities are as follows: $106 million in 2003; $156 million in 2004; $256 million in 2005; $518 million in 2006; and $502 million in 2007.

S&P puts WestPoint Stevens on watch

Standard & Poor's put WestPoint Stevens Inc. on CreditWatch with negative implications including its $475 million 7.875% senior notes due 2008 and $525 million 7.875% senior notes due 2005 at CCC+.

S&P said the watch placement follows the company's recent form 12b-25 filing in which it stated that its 10K filing will be delayed due to negotiations with its lenders "regarding the amendment to its senior credit facility."

The filing also stated that the "outcome of these negotiations will likely have a significant impact on the financial and other information presented in the Form 10K."

S&P cuts Sweetheart

Standard & Poor's downgraded Sweetheart Holdings Inc. and its Sweetheart Cup Co. Inc. subsidiary including lowering Sweetheart Cup's $110 million 12% subordinated notes due 2003 to C from CCC-. S&P also revised the CreditWatch to negative from developing. Fonda Group Inc.'s 120 million subordinated notes due 2007 continue at CCC- but now on CreditWatch with positive implications.

S&P said the action follows Sweetheart Cup's announcement that it has accepted for exchange all of the $93 million or 85% of its 12% senior subordinated notes due 2003 that were validly tendered under its exchange offer and consent solicitation.

On the date of the exchange, April 8, S&P will cut the notes to D because it considers the offer a distressed exchange, tantamount to a default.

After the exchange has been completed, new debt ratings will be assigned. The new senior notes will be rated two notches below the new corporate credit rating, reflecting the significant amount of secured debt and operating leases ranking ahead of them in the capital structure.

In fixing the new ratings, S&P said it will consider the likely easing of refinancing pressures, any developments with respect to management's review of strategic options including a potential sale of all or part of the business, market conditions, company performance, and liquidity.

Moody's rates Huntsman International notes B3

Moody's Investors Service assigned a B3 rating to Huntsman International LLC's new $150 million notes and confirmed its existing ratings including its senior secured bank facilities at B2 and senior subordinated notes at Caa1 along with Huntsman International Holdings LLC's senior discount notes at Caa2. The outlook remains negative.

Moody's said the ratings and negative rating outlook continue to reflect significant uncertainties related to the timing and degree of a cyclical recovery in market demand for and prices of the company's key products.

Such demand is critical to sufficient improvement in earnings and cash flow to support the company's heavy debt burden, Moody's added. Creditor protection measurements are weak and improved financial performance depends upon a sustained economic recovery.

Pending such a recovery, Huntsman relies on its revolving credit facility for liquidity, which could be constrained if the company fails to meet leverage and coverage tests; the covenants were amended in February 2003.

The ratings also continue to recognize the company's leading market positions in polyurethane chemicals, titanium dioxide and propylene oxide, low-cost production, strong operating capabilities, vertical integration, and diverse customer relationships, Moody's said.

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