S&P cuts Qwest to junk

Standard & Poor's downgraded Qwest Communications International Inc.'s senior unsecured debt to BB from BBB-, commercial paper rating to B from A-3, long-term corporate credit rating to BB+ from BBB- and short-term credit rating to B from A-3. The BB+ corporate credit rating incorporates the assumption that the directories business will be sold for gross proceeds in the $8 billion area, S&P said. Qwest Corp.'s senior unsecured debt rating was lowered to BB+ from BBB- and commercial paper was lowered to B from A-3. LCI Corp.'s senior unsecured debt was lowered to BB+ from BBB-. And, Qwest Capital Funding Inc.'s senior unsecured debt was lowered to BB from BBB- and $4 billion senior unsecured bank loan was lowered to BB+ from BBB-. All ratings remain on CreditWatch with negative implications.

The downgrade reflects the increase over the past several quarter of the company's risk profile, continued weakness in the economy, ongoing competitive threats, pending shareholder lawsuits and an SEC investigation into accounting practices, S&P said.

"The ratings on the senior unsecured debt at parent Qwest and funding conduit Qwest Capital Funding Inc. have been lowered one notch below the corporate credit rating to reflect the concentration of priority obligations relative to total asset value exceeding Standard & Poor's 15% threshold under its structural subordination criteria. This notching reflects the sale of the directory business, with proceeds used to pay down outstanding bank debt at the parent," S&P said.

At March 31, the company had about $26.5 billion in total debt. Operating cash flows for 2002 are expected to remain flat relative to total recurring operating cash flows for 2001, excluding estimated cash flows associated with indefeasible right of use sales in 2001.

Moody's cuts Nextel

Moody's Investors Service downgraded Nextel Communications, Inc. and Nextel Finance Co., concluding a review for possible downgrade begun on April 11. The outlook is stable. Ratings lowered include Nextel Communications' notes and senior notes including its convertibles, cut to B3 from B1, and exchangeable preferred stock and convertible preferred stock, cut to Caa2 from B3, and Nextel Finance's bank loans, cut to Ba3 from Ba2.

Moody's said the ratings reflect its revised opinion of Nextel's creditworthiness "in the face of a wireless marketplace that is growing more slowly than anticipated and likely to become even more competitive as the six large national wireless carriers look to take or at least defend their market shares, combined with the company's reduced financial flexibility as its cash debt service requirements materially increase in the coming years.

In addition, Moody's said there is uncertainty about Nextel's ability to compete over the long term against larger companies that have investment-grade balance sheets and utilize more traditional technologies and spectrum.

However Moody's said Nextel's strong results to date indicate that it is well equipped to compete and take share from its competitors.

In addition, Moody's said it expects Nextel to be able to maintain compliance with the financial covenants contained in the company's bank credit facility, although with less cushion than Moody's had previously anticipated, and to maintain access to undrawn amounts of its revolving credit facility.

"Nonetheless, Nextel is highly levered with over $14 billion of debt outstanding. Its bank term loans begin amortizing later this year, its three discount note issues become cash pay in 2003, and two preferred stock issues require cash dividend payments in the near future, all reducing the company's financial flexibility," Moody's said.

S&P puts Golden State on positive watch

Standard & Poor's put Golden State Bancorp Inc. on CreditWatch with positive implications.

Ratings affected include Golden State Holdings Inc.'s $1.85 billion floating-rate senior notes due 2003 at BB+, California Federal Bank, FSB's $100 million 10% subordinated debentures due 2006 at BBB- and California Federal Preferred Capital Corp.'s $500 million non-cumulative exchangeable preferred stock at BB+.

Fitch cuts Medallion Funding

Fitch Ratings lowered Medallion Funding Corp.'s $31 million senior secured notes to B from BB+ and put them on Rating Watch Negative.

Medallion Funding's parent Medallion Financial Corp. is in default on its secured bank facility because it was unable to repay the $56 million due when the facility matured on May 15, 2002, Fitch said.

Due to cross default provisions, Medallion Funding's senior secured bank credit facility, due June 28, 2002 and senior secured notes due 2004 also defaulted.

Medallion Financial is in the process of refinancing all of its bank debt with another lender and had expected to complete it by May 15, Fitch said.

The Rating Watch Negative reflects Fitch's view that the completion of the new facility is not completely certain, the rating agency said. Given the limited cure period before debt acceleration, the likelihood that an alternative facility could be structured and closed is remote.

Moody's rates TriMas' bank loan B1; notes B3

Moody's Investors Service rated TriMas Corp.'s proposed $500 million senior secured credit facility at B1, proposed $250 million senior subordinated notes due 2012 at B3, senior implied rating at B1 and senior unsecured issuer rating at B2. The outlook is stable.

The loan consists of a $150 million revolver due 2007, a $50 million term A due 2007 and a $300 million term B due 2009. At closing, about $9.5 million will be drawn down from the revolver. Security for the loan is a first priority lien on capital stock and assets of the company and its subsidiaries. The credit facility allows for $150 million incremental facility to be used for acquisitions. In addition, a $125 million accounts receivable securitization program will be available to TriMas.

Ratings reflect "significant financial leverage, weak balance sheet, moderate free cash flow generation, acquisition-oriented growth strategy, new management team, and substantial challenges in managing a large and disparate portfolio of businesses," Moody's said. "However, the ratings also incorporate the diversity of the Company's business mix, relative stability in its revenue stream, its strong position in a number of small niche markets, a track record of acceptable margins and returns, and considerable cost-cutting opportunities."

The stable outlook reflects the challenging environment offset by potential gains.

After the financing, TriMas' total funded debt will be about $609.5 million, or 4.9 times pro forma EBITDA for the last 12 months of $125 million. Pro forma LTM EBITDA and EBITA would cover pro forma interest expense of $45.1 million 2.8 times and 2.3 times, respectively, Moody's said. Goodwill and other intangibles together account for approximately 64% of total assets, and tangible book equity is a deficit of $463 million. The capex requirement is $30-35 million per annum, or 3-5% of sales.

S&P cuts Durango

Standard & Poor's downgraded Corporacion Durango SA de CV. The outlook is stable.

Ratings affected include Corporacion Durango's $318 million 13.125% notes due 2006 and $10.3 million 13.5% notes due 2008, both cut to B+ from BB-, and Grupo Industrial Durango SA de CV's $121.7 million 12.625% notes due 2003, also cut to B+ from BB-.

S&P raises Trump

Standard & Poor's upgraded Trump Hotels & Casino Resorts Holdings LP and assigned a developing outlook. Ratings affected include Trump Hotels & Casino Resorts' and Trump Atlantic City Associates' senior secured debt, raised to CCC from CC.

S&P also withdrew its B- corporate credit and senior secured debt ratings for Trump Casino Holdings LLC after the company's decision to withdraw its planned private placement of $470 million in mortgage notes.

S&P said the upgrade to Trump's ratings is in response to the company's continued payment of interest (as required under its 15.5% senior notes due 2005) and positive operating momentum at the Indiana riverboat whose cash flow primarily services this obligation.

The developing outlook for Trump Hotels & Casino Resorts reflects the desire to refinance these notes and other subsidiary debt, and the uncertain prospects for success.

Although the Trump Hotels & Casino Resorts notes do not mature until 2005, a favorable refinancing could result in an upgrade or an early repayment of these notes.

S&P lowers Western Wireless

Standard & Poor's downgraded Western Wireless Corp. and kept the company on CreditWatch with negative implications. Ratings affected include Western Wireless' $200 million 10.5% senior subordinated notes due 2006 and $200 million 10.5% senior subordinated notes due 2007, both lowered to CCC+ from B, and its $2.1 billion senior secured credit facility, cut to B from BB-.

S&P said it lowered Western Wireless because it is concerned the company does not have significant cushion against further execution missteps under a more restrictive bank covenant.

S&P said it is also concerned about the longer-term impact of network expansion by major carriers on the company's financial profile.

The rating remained on CreditWatch negative because of increased potential for the violation of the total leverage covenant in the bank loan in the near term, S&P said.

In the second quarter of 2002, Western Wireless's total domestic debt to operating cash flow covenant tightened to 7.0 times from 7.5 times, S&P noted. Because the company recently experienced two sequential quarters of disappointing performance with respect to churn, lower average revenue per unit, and EBITDA, mainly due to the late introduction of competitive service plans and lower roaming rates, S&P said it believes Western Wireless may find it challenging to meet the stricter total leverage covenant if it does not show immediate and sustainable improvement in operations.

S&P said it projections show even a small degree of execution misstep in each of the remaining quarters in 2002 could cause the company to risk violating the total leverage covenant. With coverage and leverage covenants becoming more restrictive in 2003, Western Wireless has to maintain solid execution not only this year but beyond.

Fitch rates Clayton BB+

Fitch Ratings assigned a BB+ indicative senior unsecured rating to Clayton Homes, Inc. The outlook is stable.

Fitch said Clayton's rating reflects the company's historically conservative corporate financial policy, broad vertical integration, high recurring stream of income and substantial free cash flow generation that results from its operating model.

"Management clearly understands the dynamics of the manufactured housing sector and had the discipline to not over-expand during the last cyclical upturn," Fitch commented.

Concerns with Clayton center on the high-risk credit profile of the financial services operations Vanderbilt Mortgage, dependence on secured funding facilities, capital constraints required to run a financial services unit and declining portfolio performance measures as a result of the slowdown in the manufactured housing industry, Fitch said.

Industry manufactured housing shipments declined from 372,843 in 1998 to 193,229 in 2001 and may not yet have bottomed, Fitch noted. Considerable industry production, retail and finance capacity have exited the business.

Yet Clayton has remained solidly profitable, largely because of its integrated businesses and conservative operating policies, Fitch said.

S&P lowers Bear Island

Standard & Poor's downgraded Bear Island Paper Co. and kept it on CreditWatch with negative implications. Ratings lowered include Bear Island's $100 million 10% senior notes due 2007, cut to CCC+ from B- and its $25 million revolving credit facility and $70 million term loan, cut to B- from B.

S&P said it is increasingly concern Bear Island's continuing violation of bank covenants, without any waivers, could jeopardize the company's ability to make its $5 million bond interest payment due June 1.

The company was in violation of covenants at Dec. 31, 2001 and March 31, 2002. Bear Island had about $1.1 million in cash at the end of the first quarter, but does not have access to its revolving credit facility due to the covenant violations, S&P said.

S&P added that it continues to expect that the company will successfully address the liquidity crisis. However the time frame for a resolution is dwindling, which is increasing the company's financial stress.

S&P lowers Columbus McKinnon

Standard & Poor's downgraded Columbus McKinnon Corp. and kept it on CreditWatch with negative implications. Ratings reduced include Columbus McKinnon's $200 million 8.5% senior subordinated notes due 2008, cut to B- from B, and its $300 million revolving credit facility due 2003, cut to B+ from BB-.

S&P said Columbus McKinnon's liquidity position is constrained, with about $13 million in cash and no access to its bank credit facility. That holds even after the recent sale of the company's automotive unit, ASI, for $27 million.

Columbus McKinnon is not in compliance with certain of its senior bank debt covenants due to the loss recorded on the asset sale and its weak financial performance, S&P noted. The company is currently negotiating a waiver of non-compliance, which it expects to receive in the near term.

The company continues to be affected by soft industrial markets in the U.S. and Europe, S&P said. Columbus McKinnon's management has tried to offset the decline in operating results by initiating various cost-cutting initiatives, however, financial results remain weak.

For the full year ended March 31, 2002, operating income was about $61 million compared with $100 million (excluding ASI) in 1999, a 38% decline in three years.

Credit measures are currently modest with total debt to EBITDA of about 5.8 times and EBITDA interest coverage of around 2 times at March 31, 2002, S&P added.

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