Moody's downgrades Kmart two notches, still on review

Moody's Investors Service downgraded Kmart Corp. and left the ratings on review for further possible downgrade. The action affects $4.7 billion of debt, including Kmart's senior unsecured debt and medium-term notes, both lowered to Caa1 from B2, and its lease certificates, lowered to Caa2 from B3;

Moody's said that while it "anticipates that the company is currently trying to arrange financing, there is little clarity at this point in time about the company's financial plan to support its 2002 business objectives and what these will entail."

Kmart's weak operating performance and the widening competitive gap create uncertainty about the prospects of its franchise longer term, as well as the traction of management's turnaround strategy, Moody's said.

S&P downgrades Kmart three notches, still on watch

Standard & Poor's downgraded Kmart Corp. and its Kmart Financing I unit. The ratings remain on CreditWatch with negative implications. Ratings affected include Kmart's debentures, notes, lease certificates and credit facility, cut to CCC- from B-, and Kmart Financing I's $1 billion convertible trust preferred stock, lowered to C from CCC-.

S&P said that since the most recent downgrade on Jan. 14 - which cited concerns regarding vendor confidence - two factoring companies, which provide intermediary financing for suppliers, have begun advising their clients to withhold shipments to Kmart.

"Management's lack of communication regarding the company's plans has increased Standard & Poor's concerns that the company could implement a financial strategy with high risk for creditors," the rating agency said.

Fitch downgrades Kmart multiple notches, still on watch

Fitch downgraded Kmart Corp., cutting its bank facility to CCC from BB-, its notes and debentures to CCC from B+, its lease certificates to CCC from B+, and its convertible preferred securities to CC from B-. The ratings are on Rating Watch Negative.

Fitch said the downgrades reflect "the company's tenuous financial position and the rapid decline in confidence in the marketplace, including significant concerns on the part of Kmart's vendor base."

Some vendors are withholding shipments, Fitch said, adding that "there is continuing uncertainty as to Kmart's current financial strategy in the absence of any communication from the company."

Fitch said a Chapter 11 filing appears "increasingly likely" in part as a means to eliminate undesirable leased store locations.

S&P downgrades Conseco, removes from watch

Standard & Poor's downgraded Conseco Inc. and removed the company from CreditWatch. The outlook is stable.

Ratings affected include Conseco Inc.'s various series of senior notes, lowered to B from B+; its $500 million FELINE PRIDES, lowered to CCC from CCC+; and its trust preferreds, lowered to CCC from CCC+.

S&P took no action on Conseco Finance Corp., leaving the unit's ratings on CreditWatch with negative implications.

S&P said Conseco has made "considerable progress" in reducing debt over the past 18 months but said the current economic weakness will likely reduce Conseco's flexibility in making further reductions.

In 2002, S&P anticipates Conseco will increasingly rely on dividends from its insurance operations to support the needs of the parent company.

Financial leverage, interest coverage, operating earnings, and operating cash flow remain in line with S&P's previous expectations.

However "further asset sales will be necessary for the parent to continue to meet its debt-reduction objectives," S&P said.

S&P downgrades Covanta six notches to junk, still on watch

Standard & Poor's downgraded Covanta Energy Corp. including lowering its senior unsecured debt to B from BBB and its subordinated debt to B- from BBB-. All ratings remain on CreditWatch with negative implications.

S&P said Covanta has not reached cash balance targets required by a bank facility covenant as a result of slower-than-anticipated asset sales and delays in the collection of accounts receivable from California utilities.

The company is reviewing options to strengthen short-term liquidity and to extend covenant waivers that currently run through the end of January, S&P said. "Although there are currently no draws under the bank facility, if the banks grant no further extension, the resultant default could cause draws on a number of LOC facilities, making it difficult for Covanta to remain solvent."

S&P noted Covanta has $149 million in convertible subordinated debentures coming due during the next 12 months ($85 million on June 1 and $64 million on Oct. 1).

"Covanta needs to formulate and execute a credible recapitalization plan, pay down these debentures when they come due, and provide liquidity for near-term operations. If the company does not soon implement an adequate plan and secure the requisite financing, a further downgrade will likely occur," S&P said.

S&P lowers IT Group to D

Standard & Poor's downgraded IT Group Inc. to D.

S&P said the downgrade follows IT's announcement it has filed for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code.

Ratings lowered to D include IT Group's $221 million term loan B due 2006, $185 million revolving credit facility due 2004 and $100 million term loan C due 2007, all previously CCC-, its $225 million 11.25% senior subordinated notes due 2009, previously C, and OHM Corp.'s $57.5 million 8% convertible subordinated debentures due 2006, previously C.

S&P downgrades Talk America, on negative watch

Standard & Poor's downgraded Talk America Holdings Inc. including lowering its subordinated debt to CC from CCC. The ratings were put on CreditWatch with negative implications.

S&P said it took the action because it has increased concerns Talk America may not have adequate liquidity to meet the redemption of $66.9 million in outstanding 4.5% convertible subordinated notes when they mature in September 2002.

Talk America "has not been able to improve its cash position, estimated to be in the low-$20 million area at the end of 2001, due to execution problems in aggressively expanding into new markets and payment of cash to settle an arbitration involving a previous marketing partner," S&P said.

Although the company has improved its EBITDA margin recently through high operating leverage, overhead reduction and more careful screening of customers, S&P said it is concerned Talk America will not be able to improve its liquidity materially before the notes mature.

S&P upgrades Charles River, rates new convertibles B+

Standard & Poor's upgraded Charles River Laboratories Inc. and assigned a B+ rating to its planned offering of $150 million senior convertible debentures due 2022.

Ratings raised include its bank facilities, raised to BB from BB-, its $150 million 13.5% senior subordinated notes due 2009, raised to B from B.

S&P revises watch on Railtrack exchangeables to negative

Following the rejection of the standstill arrangements by holders of Railtrack plc's €400 million 3.5% exchangeable bonds, Standard & Poor's Wednesday revised the watch implications on the bond's BB+ rating to negative from developing. The rating was placed on watch with developing implications on Oct. 9, following the application of the Railway Administration Order on the company. The ongoing receipt of payments of principal and interest from a loan provided by the U.K. government to the Railway Administrators was contingent, beyond Jan. 16 on bondholders accepting the standstill arrangements. As a result of their rejection of the standstill arrangements, the exchangeable bondholders will no longer explicitly benefit from this loan, S&P sid.

There are now a number of options for these bonds that will largely be determined by the actions of the U.K. government. The Secretary of State for Transport, Local Government, and the Regions may continue to allow the bonds to be serviced from the government loan mentioned above irrespective of the bondholders' vote, in which case, S&P said it would take no further rating action at this time. However, should the Secretary of State issue a "Stop" notice specifically preventing the Railway Administrators from funding debt service payments to the exchangeable bondholders, then S&P said it would lower the rating on this bond issue only to reflect the decreased likelihood of debt service from Railtrack. Following the failure to make a debt service payment - the next scheduled payment on the 2009 bonds is due on March 18 - the rating would be lowered to D, S&P said. The ratings on the other debt securities, all of which are participating in the standstill arrangements, would be unaffected by this rating action. Nevertheless, Railtrack's corporate credit rating would be lowered to SD, S&P said, indicating selective default.

It is also possible that the bondholders could enter into standstill arrangements acceptable to the Secretary of State following a further vote prior to the next interest payment date. In such a case, S&P said there might be scope for revising the watch implications on the bond issue to developing, in line with the other bond issues participating in the standstill arrangements.

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