Moody's rates new Perry Ellis notes B1, upgrades bank debt

Moody's Investors Service assigned a B1 rating to Perry Ellis International, Inc.'s proposed $50 million senior secured and guaranteed notes due March 2009, upgraded the company's $75 million senior secured and guaranteed revolving credit facility due October 2002 to Ba3 from B1and confirmed its other ratings including its 12.25% senior subordinated notes due 2006 at B3. The outlook is stable.

Proceeds from the new notes offering will be used to purchase some Jantzen Inc. assets from VF Corp. for $25.6 million and to reduce borrowings on its revolving credit facility, Moody's said.

The new notes will be secured by the company's trademarks, license agreements and income, royalties and other payments from those licenses and will rank alongside other senior debt, Moody's said.

Perry Ellis' ratings reflect the relative stability of revenues and margins in the tough economic environment of the 12 months ending October 2001, Moody's said.

"The company benefited from its successful development of a portfolio of targeted brands and product mix, its wide use of distribution channels, a history of efficient foreign sourcing, minimal fixed assets, and growth in licensing revenues," the rating agency commented.

"The rating also acknowledges the contribution of the rejuvenated trademarks to lowering the company's dependence on dress shirts, decreasing the percentage of lower margin private label product and adding channels of distribution."

S&P rates new Perry Ellis notes B+

Standard & Poor's assigned a B+ rating to sportswear designer Perry Ellis International Inc.'s proposed $50 million senior secured notes due 2009 and confirmed the company's other ratings. The outlook is stable.

S&P noted the company's intention to acquire the Jantzen business from VF Corp.

"The company's ongoing acquisition strategy targets under-performing brands that management works to revitalize and integrate into the company's existing portfolio," S&P stated. "The Jantzen business, consisting of women's swimwear and sportswear, represented only a small part of VF's overall sales. However, at Perry Ellis International, Jantzen is expected to be a significant contributor."

S&P expects the company to achieve total debt to EBITDA below 5 times and EBITDA interest coverage of at least two times for the current fiscal year, S&P stated, adding that although the company is expected to remain acquisitive, S&P does not anticipate any material transactions for the remainder of 2002.

"At the current rating level, there is limited room for additional debt-financed acquisitions in the near term," the release added.

S&P downgrades Tower Automotive

Standard & Poor's downgraded Tower Automotive Inc., and said failure to improve financial flexibility over the near term could lead to further downgrades. Ratings lowered include Tower's $200 million 5% convertible subordinated notes due 2004, cut to B+ from BB-, Tower Automotive Capital Trust's $225 million 6.75% convertible trust preferred securities, lowered to B from B+, and R.J. Tower Corp.'s €200 million 9.25% notes due 2010, $900 million multi-currency revolving credit facility due 2006 and $350 million multi-currency term loan due 2006, all lowered to BB from BB+.

S&P said the downgrade reflects deterioration in financial flexibility following a challenging year in which the company has had to deal with declining automotive production, significant launch activity and delayed program launches by key customers.

S&P believes that 2002 will be another challenging year for Tower and that the company's financial profile will remain weaker than previously expected. The ratings are based on the assumption that Tower will take steps to bolster its financial flexibility over the near term and that restructuring efforts underway will lead to a gradual improvement in operating performance.

There was a significant deterioration in credit protection measures during the past year when the company reported a net loss of $267.5 million, including a restructuring and asset impairment charge of $383.7 million, the rating agency said. Funds from operations to debt, which was about 29% in 1999, is now estimated to be in the mid- to upper-teen percentage area. Some improvement is expected in credit protection measures this year, although the magnitude will depend to some extent on the market acceptance of several key new platforms, S&P added.

As a result of earnings and cash flow pressures during the past year, Tower faces very tight covenants. In addition, borrowing capacity under its credit lines has been severely curtailed by covenant limitations. The ratings incorporate the expectations that Tower will retain access to credit lines and that it will take steps to increase its borrowing capacity over the near term.

Fitch lifts Sovereign Bancorp outlook

Fitch Ratings revised its outlook on Sovereign Bancorp, Inc. to positive from stable and confirmed its ratings at BB+ senior and B short-term. Sovereign Bank was also confirmed and the outlook remains stable.

Fitch said the better outlook reflects several positive developments, including the successful integration of the company's sizable New England branch acquisition, an improved level of tangible equity, and continued debt reduction at the parent.

Although tangible equity remains relatively low, it has been steadily improving, Fitch said. Moreover, a recent common stock issuance was used to pay down a portion of the parent's long term debt.

Also, Sovereign made its final non-solicitation payment to FleetBoston, a series of payments that had compressed earnings generation and subsequent internal capital enhancement.

Released from this burden, Fitch said it expects noticeable improvement in company performance.

S&P downgrades Penton, rates new notes B-

Standard & Poor's assigned a B- rating to Penton Media Inc.'s upcoming offering of $150 million senior secured notes due 2007 and downgraded the company's existing ratings including its $125 million revolving credit facility due 2006, $140 million term A due 2006 and $75 million term loan B due 2007 to B- from B and its $185 million 10.375% notes due 2011 to CCC from CCC+.

S&P also changed the CreditWatch to developing from negative.

S&P rates new Mail-Well notes BB

Standard & Poor's assigned a BB rating to Mail-Well I Corp.'s offering of $300 million senior notes due 2012 guaranteed by Mail-Well Inc.

S&P downgrades Doman

Standard & Poor's downgraded Doman Industries Ltd. and kept 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, both cut to CCC- from CCC+, and its $160 million senior secured notes due 2004, cut to CCC+ from B.

Moody's rates new Wolverine Tube notes B1

Moody's Investors Service assigned a B1 rating to Wolverine Tube, Inc.'s $115 million of guaranteed senior unsecured notes due 2009 confirmed the company's existing ratings including its $150 million of 7.375% guaranteed senior unsecured notes due 2008 at B1 and maintained the negative outlook.

Moody's said its ratings reflect Wolverine's "high leverage at a time of reduced cash flow and its limited liquidity, which will comprise approximately $40 million of cash and unused revolver availability at the conclusion of its proposed financing."

The rating agency noted Wolverine's business is subject to cyclical and seasonal demands for commercial and wholesale copper tube and copper alloy products, as well as intense industry competition, especially among producers of commodity wholesale products. "The current economic slowdown has sharply impacted Wolverine's sales volumes, net sales and margins due to poorer fixed cost absorption, a shift in product mix to lower margin products, and downward pressure on fabrication margins," it added.

On the positive side, Wolverine has leading market share for many of its higher value-added commercial products, technological expertise, solid customer relationships and a broad product offering and international footprint, Moody's said. Over the past several years, Wolverine has initiated programs to rationalize operations, reduce fixed costs, and increase efficiency and future capital investments are expected to be considerably less than the company has spent over the last three years, the rating agency added. The investments were needed to maintain technological and cost competitiveness but they raised its leverage to current levels.

Moody's put Mission Resources on downgrade review

Moody's Investors Service put Mission Resources on review for possible downgrade. Ratings affected include Mission's $225 million of 10.875% notes due 2007 at B3 and $200 million bank revolver maturing 2004 at Ba3.

"Depending on Mission's ability near-term to turn production, unit cost, cash flow cover, and leverage trends around, and depending on the price outlook at the time, the outcome of the review for downgrade will otherwise rest heavily on Mission's possible near-term execution of a significantly credit accretive strategic transaction," Moody's commented.

If trends continue to deteriorate, Moody's said it does not believe Mission intends to unreasonably go it alone and would hope instead to merge with a stronger firm.

Moody's rates new Hughes bank debt at Ba3 ahead of EchoStar merger

Moody's assigned a Ba3 debt rating to Hughes Electronic Corp.'s newly amended and expanded $1.812 billion senior secured credit facility, which consists of a new $577.3 million term loan and $1.235 billion revolving credit facility maturing on the earlier of Dec. 5 or at the close of the merger with EchoStar Communications Corp. (B1 senior implied rating with developing outlook). The entire facility will be secured by the assets and capital stock of significant wholly-owned domestic subsidiaries, excluding PanAmSat Corp. and DirecTV Latin America.

Hughes' Ba3 rating remains on review for possible further downgrade pending the EchoStar merger. Hughes' rating is now positioned at the anticipated ceiling for what Moody's believes to be the high probability scenarios and the range of possible ratings pending the merger.

Hughes ratings reflect high debt leverage and weak operating profit performance at Hughes.

The primary risk for the bank facility is refinancing risk, given the short duration to maturity. If the merger is not completed, we believe that EchoStar would still be required to purchase Hughes' 81% stake in PanAmSat, which Moody's believes it has adequate capital and capital commitments to complete, and pay a transaction termination fee to Hughes of $600 million under most scenarios. The proceeds from both should be adequate to repay the outstanding debt under the bank facility.

Moody's downgrades Alestra, on review

Moody's Investors Service downgraded Alestra, S de RL de CV and kept the company on review for possible further downgrade. Ratings affected include Alestra's $270 million senior unsecured notes due 2006 and $300 million senior unsecured notes due 2009, both cut to Caa1 from B2.

Moody's said its action is in response to Alestra's recently announced operating results and Moody's heightened concern about whether Alestra's pressured liquidity position can sustain its business model in the near term, absent additional funding.

The review will focus primarily on the company's liquidity position, the rating agency said, adding it expects to conclude the review after the closing of a proposed $70 million bank credit facility.

Moody's said it will also assess the likelihood of a rebound in call volumes, which recently experienced a marked decline. In the fourth quarter of 2001, Alestra recorded a sequential 41% decline in international long distance traffic and an 11% decline in local long distance traffic, as measured in minutes of use. It also recorded a sequential 43% quarterly revenue decline, which management attributes to the fall-off in traffic and to a one-time retroactive adjustment affecting all of its 2001 international incoming revenues in order to reflect the actual reduced rate paid by Concert, Moody's said.

Moody's downgrades British Airways senior unsecured debt

Moody's Investors Service downgraded British Airways plc's senior unsecured debt to Ba2 from Ba1 and assigned a Ba1 senior implied rating, affecting $940 million of debt. The outlook is negative.

Moody's said the action concludes a review begun on Dec. 6, 2001.

The Ba1 senior implied rating reflects better than forecasted earnings recovery since the Spet. 11 terrorist attacks, the expectation of an improving cash flow generation ability as a result of an accelerated cost cutting program and the relatively good cash position supported by an asset sale program, Moody's said. The rating also takes into consideration BA's significant leverage, which is unlikely to reduce significantly over the near term.

Moody's said it notched the senior unsecured debt because of unsecured bondholders' effectively subordinated position behind a material amount of secured debt, primarily leases and "hire purchase" financing.

In the event of a further downgrade, the one notch between the senior implied rating and the unsecured bondholder is likely to widen, the rating agency added.

The negative outlook reflects the challenge for BA's management to timely implement the cost savings program, whilst maintaining service quality and minimizing any disruption of service, Moody's said.

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