S&P cuts AT&T Canada to junk

Standard & Poor's downgraded AT&T Canada Inc. to junk, lowering its corporate credit rating to BB from BBB and affecting C$4.5 billion of debt. The company's various series of notes were also lowered to BB from BBB while its bank facility was cut to BB+ from BBB+. All ratings are now on CreditWatch with developing implications.

S&P said it cut AT&T Canada because of "heightened concerns about AT&T Corp.'s economic incentive to provide support to AT&T Canada debtholders in the long term should regulatory changes and continuation of challenging market conditions not support a competitive Canadian telecommunications market."

AT&T Canada's rating had previously benefited from the assumption of "a very significant degree of support: from AT&T Corp. (BBB+), S&P said.

Moody's downgrades Dana

Moody's Investors Service downgraded Dana Corp. and Dana Credit Corp., affecting $3 billion of debt and concluding a review begun in October 2001. The outlook is stable. Ratings affected are Dana Corp.'s notes and industrial revenue bonds, cut to Ba3 from Ba1, and Dana Credit's medium-term notes, cut to Ba3 from Ba1.

Moody's said it lowered Dana because it expects the continuation of weak end markets into 2002 will delay meaningful improvement in the company's earnings, cash flow generation and debtholder protection measures.

Although the company acted to lower its breakeven cost base and shore up near-term cash flows, Moody's said it is concerned that the benefits will not be fully realized until 2003. In addition, the rating agency said a prolonged downturn in automotive demand could offset the benefits.

Moody's puts Goodyear on downgrade review

Moody's Investors Service put The Goodyear Tire & Rubber Co.'s ratings on review for downgrade to junk, affecting $2.2 billion of debt. Ratings affected include the company's senior unsecured notes and debentures at Baa3.

Moody's said it started the review because of Goodyear's lackluster financial performance in 2001 and its concern that volumes in both the OEM and replacement market will remain depressed through the intermediate term, resulting in weaker cash flow generation and further delay in a meaningful reduction of debt.

Moody's added that its review will focus on Goodyear's near-to-intermediate term earnings prospects, its ability to achieve higher unit pricing and operating margins and its capacity to improve cash flow generation and debtholder protection measures given adverse market conditions.

S&P rates Penn National notes B-

Standard & Poor's assigned a B- rating to Penn National Gaming Inc.'s new issue of $175 million 8.875% senior subordinated notes due March 15, 2010 and confirmed the company's existing ratings, including its subordinated debt at B-.

S&P said it expects to upgrade Penn National's $75 million senior secured revolving credit facility due 2005 to BB- from B+ when the new note offering closes and the term loans are repaid. S&P said that under its default simulation the distressed enterprise value would cover the entire loan facility.

Penn National's credit measures are "temporarily strong," S&P said, but added that it expects Penn National's aggressive growth strategy and capital spending plans to use further debt financing and bring the measures back in line with recent ratios.

The rating agency also expects the company's casinos to continue to generate relatively stable cash flow over the intermediate term.

S&P downgrades The Pantry

Standard & Poor's downgraded The Pantry Inc. and removed the ratings from CreditWatch. The outlook is stable. Ratings affected include The Pantry's $200 million 10.25% senior subordinated notes due 2007, lowered to B- from B and its $385 million secured revolving credit facility and $50 million acquisition facility, both lowered to B+ from BB-.

S&P said it lowered The Pantry because of a decline in credit measures in the first quarter of fiscal 2002 and in the full fiscal year of 2001.

"The decline in operating performance has resulted primarily from gasoline price volatility and weakened economic conditions in key markets, which has affected both gasoline and non-fuel sales," S&P said. "Should these trends continue, we expect the company will be challenged to improve operating performance significantly over the next two years."

Moody's upgrades AdvancePCS

Moody's Investors Service upgraded AdvancePCS. The outlook is stable. Ratings affected include AdvancePCS' $825 million senior secured credit facility, upgraded to Ba1 from Ba3, and $200 million senior unsecured notes due 2008, upgraded to Ba2 from B1.

Moody's said it raised AdvancePCS' ratings because of its strong operating performance, recent $291 million equity offering and subsequent debt repayment and significantly improved credit profile.

The upgrade also reflects the positive trends supporting the pharmacy benefit management industry, Moody's said. The rating agency noted increased drug utilization and drug spending have been boosting industry revenues while cost containment efforts have been leading plan sponsors to increasingly rely on PBMs for additional services such as mail pharmacy, formulary design and specialty distribution.

Negatives include the high level of competition in the industry, continued pricing pressure on the core claims processing business and the company's concentration of revenues among certain plan sponsors, Moody's added. It is also concerned about federal and state government efforts to contain drug prices and the potential impact any regulation may have on pharmaceutical manufacturers margins and indirectly on PBMs' profitability.

Moody's lowers Invensys to junk

Moody's Investors Service downgraded Invensys plc to junk, affecting $3.7 billion of securities including its long-term debt, cut to Ba1 from Baa3, and its short-term debt, cut to Not-Prime from Prime-3. The outlook is negative.

Moody's said it cut Invensys because of the company's covenant issue and the continuing reliance on confidence sensitive markets for the funding of its refinancing needs.

"The recent strategy announcement includes a major reorganization of its business structure with more customer focus, but did address the near term financing issues only to the extent of adding business assets to the list of disposals scheduled for next fiscal year," Moody's said.

The rating agency said the outlook for Invensys is negative because of the covenant pressure in its major bank facility and its substantial refinancing needs by August 2002.

If the refinancing is completed in time, Invensys may advance back into the investment grade category, Moody's added.

S&P cuts TGS loans, Salta Hydrocarbon

Standard & Poor's downgraded TGS SA's $176 million 9.65% IADB B loan due 2011 and $75 million IADB B loan to CC from CCC-.

S&P also cut Salta Hydrocarbon Royalty Trust's $234 million targeted amortization notes due 2015 to CCC+ from B-. The notes remain on CreditWatch with negative implications.

The downgrade to TGS' loans follows the downgrade of the local currency rating of the underlying obligor, Transportadora de Gas del Sur SA, S&P said. That downgrade, in turn, was in response to governmental decree 293 to renegotiate concession contracts, which S&P said will further increase pressure on already weakened public services companies' creditworthiness.

For Salta Hydrocarbon, the lower ratings are after S&P reassessed the Province of Salta's oil and gas industry risk, on which the transaction's cash flow is dependent.

"Recent economic measures, coupled with the many uncertainties surrounding the sector, continue to significantly increase risk to the oil and gas industry in the province of Salta," the rating agency commented.

Moody's puts Northrop Grumman on review for downgrade to junk

Moody's Investors Service put Northrop Grumman Corp. and TRW, Inc. on review for downgrade, affecting $23.4 billion of securities. Ratings affected include Northrop's senior debt at Baa3 and TRW's senior debt at Baa2.

Moody's said its action follows Northrop's unsolicited proposal to merge with TRW.

For Northrop, Moody's said it will look at the risk that the cost of acquiring TRW could increase. The review will also look at integration risks.

As currently structured, the transaction could enhance Northrop's business position and "provide a basis for further improvement in earnings and cash flows," Moody's said. That would lead to Northrop's current ratings being confirmed.

However Moody's said Northrop's ability to receive adequate valuation for TRW's automotive businesses is uncertain in weakening global automotive markets. Without this sale, Northrop will have higher debt levels.

For TRW, Moody's said its review reflects concerns about the defense mechanisms TRW might use to remain independent and which could have negative implications for the company's current credit ratings.

S&P affirms Northrop Grumman on TRW bid

Standard & Poor's on Friday affirmed its BBB- corporate credit rating and stable outlook on Northrop Grumman Corp. following the defense contractor's unsolicited bid to acquire TRW Inc. in an all-equity offer valued in a merger valued at about $11 billion, including $5 billion of TRW debt to be assumed.

The rating affirmation reflects the strong business profile of the combined defense operations of Northrop Grumman and TRW and preservation of adequate financial flexibility at the combined entities, said S&P credit analyst Martin Knoblowitz. The action assumes Northrop Grumman will be able to realize appropriate value for TRW's very large automotive operations, which would be separated at the close of the merger. If the acquisition closed in 2002, the combined entity would generate over $26 billion revenues in 2003, S&P said, and Northrop Grumman's debt-to-total-capital would not rise above the mid-40% level, adjusted for operating leases, attained at year-end 2001.

Northrop Grumman's management has demonstrated a strong commitment to maintaining investment-grade credit rating, S&P noted.

Moody's raises LIN outlook, confirms STC

Moody's Investors Service confirmed the ratings of LIN Holdings Corp. and its operating subsidiary LIN Television Corp. and revised their outlooks to stable from negative after the company announced its intention to sell $300 million in common stock and acquire STC Broadcasting Inc. Moody's also confirmed the ratings and stable outlook of STC. Ratings affected include LIN's $425 million discount notes due 2008 rated Caa1, LIN Television's $232 million guaranteed senior secured bank credit facilities due 2005 - 2007 rated Ba3, $210 million guaranteed senior unsecured notes due 2008 rated B2 and $300 million guaranteed senior subordinated notes due 2008 rated B3, and STC's $35 million guaranteed senior secured revolving credit facility due 2004 rated Ba3 and $100 million of senior subordinated notes due 2007 rated B3.

Moody's said the IPO and acquisition will improve its balance sheet, increasing cash flow while decreasing the debt burden. "This serves to improve the overall credit profile of the company and strengthens the position of noteholders," the rating agency commented. As a result LIN will "more comfortably fit" into its current rating category.

"While LIN's credit statistics will clearly improve as a result of the IPO, the company remains vulnerable to the risks posed by its high financial leverage and thin cash flow coverage of interest, and the soft advertising environment over the intermediate-term," Moody's added.

Moody's rates Penn National notes B3

Moody's Investors Service rated Penn National Gaming Inc.'s new $175 million senior subordinated notes due 2010 at B3 and confirmed its $75 million senior secured revolver due 2005 and $200 million 11.125% senior subordinated notes due 2008 at B3. The outlook is stable.

Pro forma for the new note offering, and for the company's recently completed common stock offering, total outstanding debt is $375 million, or 3.3 times fiscal-year 2001 reported EBITDA and 2.9 times management's 2002 EBITDA guidance, Moody's said.

The rating agency added that its assessment reflects Penn National's rapid transformation from a relatively small racing company to a larger, more diversified and higher margin gaming company.

Horse racing is now only 19% of total revenue compared to 56% in 1999; as a result, EBITDA margin has increased to 21.8% in 2001 from 15.5% in 1999.

Moody's also noted Penn National's positive operating performance.

But the rating agency said it expects Penn National to continue to aggressively pursue acquisitions and that the current leverage trend most likely understates the company's use of debt over the next 12-18 months.

In addition, Moody's observed that Penn National will likely not generate positive cash flow after interest and capital expenditures in 2002.

Moody's confirms Pacific Dunlop

Moody's Investors Service confirmed the long-term ratings of Pacific Dunlop Ltd., affecting $320 million of debt securities. The outlook is negative. Ratings confirmed include the company's senior unsecured debt at Ba2 and senior subordinated debt at Ba3.

Moody's said it confirmed Pacific Dunlop's ratings in response to the company's improved capital structure with reduced levels of debt following the sale of the Pacific Brands business and finalization of a three-year committed bank facility.

The rating agency said the company is now narrowly focused on the production and distribution of occupational, professional and consumer protective coverings through Ansell. It recently transferred production to Asia and Mexico in response to competitive pricing pressures and the need to reduce its cost base although Moody's said the cost benefits are yet to be fully realized.

The negative outlook reflects the potential for softness in operating margins, given the current economic climate and competition, Moody's said.

S&P downgrades Maxxim Medical

Standard & Poor's downgraded Maxxim Medical Group Inc. and kept the company on negative outlook.

Ratings affected include Maxxim's $131.4 million senior subordinated discount notes due 2009, cut to CCC from B- and its $80 million senior secured term loan A due 2005, $90 million senior secured term loan C due 2008, $50 million senior secured revolver due 2005 and $90 million senior secured term loan B due 2007, all cut to B- from B+.

S&P upgrades AdvancePCS

Standard & Poor's upgraded AdvancePCS and changed the outlook to positive from stable.

Ratings affected include AdvancePCS' $300 million term loan B due 2007 and $175 million revolver due 2005, both raised to BB+ from BB, and its $200 million 8.5% senior notes due 2008, raised to BB from BB-.

Moody's puts Guangzhou-Shenzhen Superhighway on upgrade review

Moody's Investors Service put Guangzhou-Shenzhen Superhighway (Holdings) Ltd.'s notes rated B1 on review for possible upgrade.

Moody's said its review is in response to the company's announcement it will defease its outstanding 2004 and 2007 notes and exercise the early redemption option on the 2007 notes.

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