S&P cuts Xerox, still on watch

Standard & Poor's downgraded Xerox Corp. and kept it on CreditWatch with negative implications. Ratings lowered include the notes of Xerox and its subsidiaries, cut to BB from BB-, Xerox's revolving credit facility, cut to BB- from BB, capital securities and convertible trust preferreds, cut to B- from B, and convertible subordinated debentures, cut to B from B+.

S&P said it lowered Xerox because of significant debt maturities, limited access to capital markets and its expectation that free operating cash flow levels after restructuring payments will be weak in the near term despite recent profitability improvements.

S&P added that the ratings remain on CreditWatch pending Xerox's receipt of commitments for new bank facilities, which will replace the existing $7 billion revolving credit facility maturing in October 2002.

If the bank commitments are received before June 30, 2002 the ratings will be affirmed with a negative outlook, S&P said. The negative outlook will reflect the need for Xerox to achieve material improvement in non-financing EBITDA in 2002 and non-financing cash flow over the intermediate term.

If the commitments are not received by June 30, 2002 the ratings will remain on CreditWatch pending further review for downgrade, S&P added.

S&P also said that on receipt of the bank commitments it will review the notching of its senior unsecured debt rating on Xerox, looking at the amount of secured debt, including security granted under the proposed new bank agreement, and on- and off-balance sheet loans secured by equipment finance receivables.

Moody's cuts CMS three notches, still on review

Moody's Investors Service downgraded CMS Energy Corp. and its Panhandle Eastern Pipeline Co. by three notches and kept them on review for further downgrade, affecting $18.9 billion of debt. Moody's also put Consumers Energy Co. on review for possible downgrade.

Ratings lowered are CMS' senior unsecured debt and bank facility, cut to B3 from Ba3, senior subordinated debt, cut to Caa2 from B1, junior subordinated debt cut to Caa3 from B1, and hybrid securities, cut to Caa1 from B1. Panhandle Eastern Pipe Line Co.'s senior unsecured debt was cut to Ba2 from Baa3.

Moody's said the action follows CMS's announcement that its auditors would be unable to give an opinion on CMS's restated financial statements when they are completed.

The downgrades reflect CMS's weak cash flow and high debt levels as well as limited financial flexibility and the challenge of refinancing upcoming debt maturities including the company's $450 million credit facility that comes due on June 15, Moody's said.

The company's market access is currently constrained by CMS's need to restate its 2000 and 2001 financial statements to eliminate the effects of round-trip trading with other energy companies.

The downgrades further reflect the difficulties CMS has had in executing an aggressive growth strategy and implementing exit strategies that provide real relief from the financial strains that have resulted, the rating agency said.

Cash flows from projects have not kept pace with the aggressive deployment of capital. Moreover, asset sales are now required at a time when asset prices are expected to come under pressure because of the significant number of properties that are up for sale by other firms, Moody's said.

Fitch puts CMS on watch

Fitch Ratings put CMS Energy Corp. and its subsidiaries, Consumers Energy Co. and CMS Panhandle Pipe Line Co. on Rating Watch Negative. Ratings affected include CMS' senior unsecured debt at BB+ and preferred stock at BB-, Consumers Energy's senior secured debt at BBB+, senior unsecured debt at BBB and preferred stock at BB+ and Panhandle's senior unsecured debt at BBB.

Fitch said the watchlisting is in response to concerns about refinancing risk for CMS' $450 million bank facility that expires on June 17.

CMS is currently seeking an extension on its facility, while exploring alternative liquidity structures, Fitch noted.

Of additional concern is the upcoming July rollover of Consumers' $300 million facility, Fitch added.

S&P rates Hilb Rogal loan BB-

Standard & Poor's assigned a BB- rating to Hilb, Rogal and Hamilton's new $260 million credit facility including its $30 million term loan A due 2004, $130 million term loan B due 2007 and $100 million revolver due 2004.

S&P said its assessment of Hilb Rogal reflects the company's status as the seventh largest broker in the U.S. and strong operating margins.

HRH has completed more than 200 independent agency acquisitions and more than 80 smaller books of business since it was founded in 1982, S&P noted.

This business model contains above-average risk because of its reliance on acquisitions to achieve strategic and financial goals, S&P added. Also, this business model is expected to add a high degree of variability to future operating results.

Notwithstanding, operating margins have been strong in recent years, S&P said although it added that it remains concerned about the sustainability of those margins given potential integration issues with past acquisitions and the anticipated acquisition of Hobbs Group LLC, which is expected to be finalized before the end of the June 2002.

Fitch rates Fleming notes BB, loan BB+

Fitch ratings assigned a BB+ rating to Fleming Cos., Inc.'s proposed $950 million secured bank credit facility and a BB to its planned $200 million senior unsecured notes.

The outlook remains negative, reflecting the uncertainty as to the achievement of Kmart's sales levels, the ultimate nature of Fleming's agreement with Kmart, as Fleming's contract with Kmart has not yet been confirmed in the bankruptcy process and the inherent integration risks associated with the acquisitions, Fitch said.

Also of concern is the possibility for additional Kmart store closures, beyond those already announced, Fitch added.

S&P upgrades Alfa Laval

Standard & Poor's raised Alfa Laval AB's corporate credit rating to BBB- from BB+ and kept it on CreditWatch with positive implications.

It also raised Alfa Laval Special Finance AB's €220 million 12.125% notes due 2010 to BB+ from BB-.

Ratings on Alfa Laval Credit Finance AB's bank loan were withdrawn and a BB+ assigned to Alfa Laval Treasury International AB and Alfa Laval U.S. Treasury Inc.'s €425 million multi-currency term loan A due 2007 and €150 million multi-currency revolving credit facility due 2007.

Moody's confirms CSK

Moody's Investors Service confirmed CSK Auto Inc. including its $300 million guaranteed senior secured bank facilities at Ba3, its $280 million guaranteed senior notes due 2006 at B2 and its $81 million guaranteed senior subordinated notes at B3. The outlook remains stable.

Moody's said its confirmation follows the filing of a registration to sell equity by CSK's parent CSK Auto Corp.

Moody's said CSK's operational turnaround is still in its early phases and added that it also anticipates CSK's debt protection measures will remain modest following the proposed equity issuance.

The registration covers 11.3 million shares, about half of which will be offered by the company. Proceeds are expected to be used to redeem $81 million principal amount of CSK's senior subordinated notes.

Elimination of this debt and its associated 11% coupon will reduce CSK's leverage, improve its financial flexibility and allow it to direct more of its cash from operations towards future debt paydowns, Moody's said. Leverage has already been improved by the May 2002 conversion of the convertible subordinated notes issued in 2001, which had been anticipated by the ratings.

The equity issuance will further improve the company's ability to weather normal volatility due to shifts in customer demand, the rating agency added.

Moody's rates Burns Philp notes B2

Moody's Investors Service assigned a B2 rating to Burns Philp's planned US$450 million senior subordinated notes due 2012. The outlook is stable. Moody's does not rate the company's US$450 million senior secured multi-currency credit facilities maturing 2006 or its A$240 million mandatory converting preference shares maturing 2003.

Burns Philp intends to use a portion of the proceeds from the US$450 million senior subordinated note issuance to repurchase its $98 million outstanding euro convertible bonds, with the majority to be used for general corporate purposes, especially acquisitions, Moody's said.

Burns' ratings are limited by the commodity nature of its primary yeast business (which accounts for 60% the company's sales and 78% of EBITDA), declining US$ revenue trends over the past few years, decreasing volumes in its highly profitable North American Fleischmann's-branded consumer yeast segment, growing exposure to emerging markets, including the announced US$110 million acquisition of Kraft Foods' Latin American yeast business, material levels of debt (although more moderate leverage net of cash balances) raised in anticipation of growth initiatives, and the foreign currency risk associated with its mainly US dollar debt on a revenue base with a non-US dollar component of approximately 30%, Moody's said.

Also limiting the ratings is significant acquisition event risk associated with Burns' growth strategy, Moody's said.

Positives are the relative stability of the yeast business (yeast is a non-substitutable ingredient in the production of bread and bakery products, and bread is a staple food in most markets), Burns' geographic and customer diversity, its leading market shares in most of the areas in which it operates, supported by a strong distribution platform, the presence of only one or two players in most markets, and relatively solid operating margins in the yeast business (15% LTM), Moody's added.

Burns also has ample pro forma liquidity, reasonable returns on assets and has successfully restructured the company over the past few years to exit non-core businesses and enhance profitability in remaining businesses.

S&P rates Terex loan BB-

Standard & Poor's assigned a BB- to Terex Corp.'s new $375 million term loan B and confirmed its existing ratings. The outlook is stable.

Proceeds from the new term loan B will repay the existing term loans B and C and fund the acquisition of Demag Mobile Cranes GmbH & Co. KG for about $150 million. The ratings on the existing term loans B and C will be withdrawn when this transaction is closed, S&P said.

Terex's ratings reflect its leading global positions as a low-cost provider of construction and mining equipment with good geographic and product diversity, offset by highly cyclical and competitive end markets and an aggressive financial profile, S&P said.

Terex's business strengths include its well-known brands with leading global market shares, its highly variable cost structure, low-cost products, and significant aftermarket parts sales, the rating agency added. During the past few years, Terex has made a series of acquisitions, enhancing the business mix while maintaining good geographic diversity, with about half its sales coming from outside the U.S. where recent emphasis on acquisitions has been.

The most recent pending purchase is for Demag Mobile Cranes, a leading German producer of lattice boom cranes and telescopic mobile cranes, and follows its purchase of Atlas Weyhausen and The Schaeff Group. These recent acquisitions provide Terex with a leading share in the crane market in the U.S. and create one of the largest construction equipment companies in Germany, S&P said.

Terex has funded these acquisitions with a combination of debt and equity.

Terex's highly variable cost structure enables the company to pare down costs due to its extensive outsourcing. In addition, Terex's good geographic, product, and customer diversity, and modest capital expenditures (about 1%-2% of sales) should help to stabilize earnings and cash flow generation throughout a business cycle, S&P said.

S&P rates Mariner notes B-

Standard & Poor's assigned a B- rating to Mariner Health Care Inc.'s planned $150 million senior subordinated notes due 2010 and confirmed its existing ratings including its senior subordinated notes at B- and senior secured bank facilities at BB-. The outlook is stable.

Mariner's ratings reflect its large position in an industry that has been buffeted by such issues as reimbursement cuts and rapidly escalating insurance costs, S&P said.

However, the company emerged from bankruptcy with a lower debt burden than the large acquisition-related load that contributed to its need to seek creditor protection, S&P added.

Mariner's skilled nursing facility occupancy is at the industry average of 87% with a payor mix comprised by 51% Medicaid and 29% Medicare, S&P noted. The company's significant presence in Florida and Texas is of some concern as these states (particularly Florida), have the highest patient litigation and insurance costs in the country. However, Mariner continues to operate profitably in both Florida and Texas.

Mariner has pared its assets in order to focus on nursing homes and LTACs, the only two businesses it currently operates, S&P said.

The company is not expected to seek acquisitions of any significance, and is not likely to expand into other businesses, as was the case prior to its bankruptcy filing. Instead, it is more likely to pursue initiatives to fortify its presence in current markets and focus efforts on improving financial performance, S&P said.

S&P keeps Riverwood on positive watch

Standard & Poor's said Riverwood International Corp. remains on CreditWatch with positive implications and added that its financing plans as currently structured will result in a one-notch upgrade to its corporate credit rating, currently B. Riverwood's bank debt is currently rated B and its senior unsecured and subordinated debt CCC+.

S&P said its announcement follows a review of the company's refinancing plans including an initial public offering of $350 million of common stock. The ratings were put on positive watch after the IPO was registered with the Securities and Exchange Commission.

Proceeds from the offering are expected to be used to reduce debt, which would improve credit measures to levels corresponding to the higher rating, S&P said.

But the rating agency added that the company still faces meaningful term loan amortization beginning in 2003, which S&P said it expects will be met primarily from free operating cash flow.

S&P said it expects to rate Riverwood's proposed $250 million term loan C due 2008 at B+ and its proposed $400 million senior unsecured notes due 2012 at B-.

S&P lowers Wyndham outlook

Standard & Poor's lowered its outlook on Wyndham International to negative from stable and confirmed its ratings including its senior secured debt at B-.

S&P said the outlook change follows Wyndham's unsuccessful $750 million note offering.

The ratings reflect Wyndham's very high debt leverage for its rating, sizable maturities expected in the next few years and expectations for limited discretionary cash flows to reduce debt in the intermediate term, S&P said.

The ratings further incorporate the company's geographically diverse and good quality portfolio of upscale hotels and resorts, S&P added.

S&P says Duke agreement highly supportive of Sierra Pacific

Standard & Poor's said the agreement announced by Sierra Pacific Resources (B+/CreditWatch-Negative) and Duke Energy (A+/Stable) under which Duke Energy North America will supply the entire short power position of Sierra Pacific's two utility subsidiaries Nevada Power Co. (B+/CreditWatch-Negative) and Sierra Pacific Power Co. (B+/CreditWatch-Negative) for the summer of 2002 and receive deferred payments for the deliveries is highly supportive of Sierra Pacific's credit quality.

Nevada Power, in particular, was facing a critical cash shortfall this summer as a result largely of the March 29 ruling by the Public Utilities Commission of Nevada to disallow about 50% of the company's very high-cost deferred energy purchases in 2001, S&P said.

Under the terms of the agreement, Duke will provide up to 1,000MW per hour to meet the short position of both utilities between June 15 and Sept. 15, 2002, that was caused by the cancellation of power supply contracts by Morgan Stanley, Enron and others, thereby reducing considerably the uncertainty of supply for Nevada Power for the summer, the rating agency said.

Moody's cuts Payless outlook

Moody's Investors Service lowered its outlook on Payless ShoeSource Finance, Inc. to stable from positive and confirmed the company's ratings including its $600 million guaranteed unsecured term loan and revolving credit facilities at Ba1.

Moody's said the revision follows reports of continued same store sales declines and compressed gross margins reflecting the need to clear excess inventory.

This disappointing performance is below Moody's expectations, the rating agency said. Even if sales and profitability levels recover later in the year, Moody's said it believes that lower than anticipated cash flow generation will delay the debt reduction and improvements to financial condition that had been expected to lead to a ratings upgrade.

S&P cuts Quality Distribution

Standard & Poor's downgraded Quality Distribution Inc., cutting its $100 million 10% senior subordinated notes due 2006 and its $40 million floating-rate senior subordinated term notes due 2006 to D from CC. The secured bank facility remains at B+ and on CreditWatch with negative implications.

S&P said the action follows Quality's completion of its distressed exchange of $140 million in subordinated notes.

The rating actions reflected the fact that the exchange offer resulted in the subordinated debt holders receiving less than they were contractually entitled to receive, S&P said.

S&P upgrades Valhi, rates Kronos notes BB-

Standard & Poor's upgraded Valhi Inc.'s corporate credit rating to BB from BB- and assigned a BB- rating to Kronos International Inc.'s proposed €270 million senior secured notes due 2009. The outlook is stable. It also withdrew the corporate credit and senior secured ratings on NL Industries Inc.

A substantial portion of the proceeds from Kronos' financing will be used to repay NL's senior secured notes due 2003.

S&P said it raised Valhi because of improvements to the company's financial profile following the proposed refinancing as well as ongoing efforts to reduce debt during the past few years.

Kronos' new notes, which are secured by 65% of the shares of its first-tier subsidiaries, are rated one notch below Kronos' corporate credit rating to reflect the disadvantaged position of these creditors in the event of a bankruptcy. S&P said the security will provide only limited protection to the noteholders, who are structurally subordinated to the claims of creditors at key operating subsidiaries.

Kronos' ratings also reflect its strategic importance to, and the credit quality of its ultimate parent, Valhi Inc.

Valhi's credit quality reflects a below-average business profile derived from a solid market position among the leading global titanium dioxide producers, a niche component products business (ergonomic computer support systems, precision ball-bearing slides for furniture, and security products) and an aggressive financial profile, S&P said.

In TiO2, Valhi benefits from decent geographic diversity, environmentally compliant proprietary technology, and competitive cost positions, S&P added. Still, this is primarily a commodity business, and price and margin fluctuations will occur due to shifts in economic conditions, the relative balance of supply and demand, and fluctuations in raw materials costs.

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