Fitch cuts Broadwing

Fitch Ratings downgraded Broadwing, Inc. including cutting its senior secured bank facility to BB- from BB, 7.25% senior secured notes due 2023 to BB- from BB, 6.75% convertible subordinated notes due 2009 to B from B+ and 6.75% convertible preferred stock to B- from B. Fitch confirmed Cincinnati Bell Telephone's senior unsecured notes and MTNs at BB+. Fitch cut Broadwing Communications, Inc.'s 9.0% senior subordinated notes due 2008 to CC from B+ and confirmed its 12.5% junior exchangeable preferred stock at C. All ratings were put on Rating Watch Negative.

Fitch said it expects the rating watch will be resolved pending the outcome of the company's efforts to amend its existing bank facility. If the company is successful, Fitch expects to remove the rating watch and establish a stable outlook.

Fitch said its actions contemplate the successful closing of the asset sale between Broadwing Communications Services and C III Communications, LLC and the related assumption of operating liabilities and contracts. The downgrade reflects the company's anticipated leverage and an expectation that EBITDA and free cash flow levels will continue to be pressured by moderate access line erosion and competitive impact on wireless net additions and ARPU. The company's leverage will be more reflective of the current rating category over the next couple of years.

Cincinnati Bell Telephone and Cincinnati Bell wireless are market share leaders. Cincinnati Bell Telephone's access line losses and revenue growth have been impacted by competition from CLECs but not to the extent experienced by the RBOCs, Fitch said. Stemming in part from the relative lack of competition in the Cincinnati markets, Fitch expects the ILEC to continue to generate EBITDA margins that are higher than the RBOC peer group. Fitch also anticipates that CBT will continue to contribute free cash flow to the BRW parent.

On a consolidated basis, Fitch said it expects Broadwing to generate positive free cash flow during 2003 and over the medium term. Fitch expects free cash flow to be earmarked for debt reduction. Fitch expects Broadwing's leverage to range between 5.0 and 5.2 times by the end of 2003. Both of Broadwing's core businesses are mature so Fitch does not foresee material growth in free cash flow or revenue in the near term that would accelerate debt reduction.

Moody's cuts Alaska Air

Moody's Investors Service downgraded Alaska Air Group including cutting its convertible subordinated debentures to Caa1 from B3 and Alaska Airlines, Inc.'s equipment trust certificates series 1992A-D to B1 from Ba1. The senior implied rating is B1 and the outlook is negative. The actions complete a review.

Moody's said it lowered Alaska Air because of the company's negative free cash flow due to continued capital expenditures and the expectation that a recovery in the company's financial profile is unlikely in light of limited prospects for a near-term revenue recovery.

But Moody's acknowledged Alaska's current positive operating cash flow, its balance sheet liquidity, financial flexibility, well controlled operating costs, and its strong network and alliance structure.

The ratings anticipate continued financial losses coupled with increasing lease-adjusted debt to fund capital expenditures, Moody's added. The ratings also reflect concerns that yield improvement and revenue growth will be constrained by a continuation of industry over capacity and a highly competitive pricing environment.

The negative outlook reflects the difficult economic environment and the event risks currently facing the company and the entire airline industry, Moody's added.

S&P cuts Corus, still on watch

Standard & Poor's downgraded Corus Group plc and kept it on CreditWatch with negative implications including cutting its €2.4 billion bank loan and €307 million 3% notes due 2007 to BB- from BB and Corus Finance plc's €400 million 5.375% bonds due 2006 and £200 million 6.75% bonds due 2008 to BB- from BB.

S&P said the downgrade follows Corus' announcement that it will not be allowed to proceed with the sale of its Dutch aluminum division to Pechiney SA of France, as had been previously expected, following internal dissension at Corus.

S&P said it will continue to monitor the situation to determine whether the group is likely to obtain an extension, or renewal, of its key €1.4 billion ($1.5 billion) bank line, which matures in January 2004.

The group's failure to dispose of its aluminum division will undoubtedly be a set back in its negotiations concerning this bank line, S&P said.

Any future rating actions, which could be by one or more notches, will depend on: whether the sale of the aluminum assets to Pechiney will eventually be allowed to go ahead or whether the group will be forced to break up following the internal dissensions that have led to the disposal being blocked; whether Corus will manage to meaningfully extend its short-term bank lines - which currently expire in January 2004 - or replace them with long-term financing and, therefore, ease a liquidity situation that could become constrained; whether Corus can generate enough free operational cash flows in 2003 and beyond to cover its capital expenditures, dividends, interest, and taxes.

S&P keeps United on watch

Standard & Poor's said ratings on non-defaulted debt of UAL Corp. and United Air Lines Inc. remain on CreditWatch with negative implications.

S&P's comments come after UAL said its United Air Lines subsidiary had generated positive operating cash flow or about $1 million per day in January 2003, despite a $382 million net loss, and that the airline should meet its first debtor-in-possession covenant test, which measures cumulative EBITDAR from December 2002 through the end of February 2003.

United's January results were helped by interim wage cuts of about $70 million per month and less-than-anticipated loss of traffic.

In addition the airline did not have to pay on its aircraft debt and leases in the first 60 days following its Dec. 9, 2002, bankruptcy filing.

The most important issues facing UAL and United in the near term remain the airline's efforts to dramatically reduce labor costs, and the effect of a potential Iraq war on revenues and cash flow, S&P said. United has threatened to ask the bankruptcy court to void existing labor contracts if negotiated agreements are not reached by March 17.

The prospect of an attack by the U.S. and its allies against Iraq has driven up fuel prices and weakened traffic, particularly on international routes, for all large U.S. airlines, S&P added. Accordingly, United may violate its second covenant test measuring EBITDA through the end of March if these effects are serious enough, which would allow DIP lenders to either waive the violation or accelerate their $700 million of loans, potentially causing the airline to cease operations and liquidate.

S&P keeps Gemstar on watch

Standard & Poor's said Gemstar-TV Guide International Inc. remains on CreditWatch with negative implications including its corporate credit rating at BB.

S&P said its primary concerns are the SEC's investigation into Gemstar's internal accounting practices and the company's consecutive restatements of financial results.

The subpoena enforcement actions relating to two former Gemstar executives suggest that the SEC may be intensifying its investigative efforts, S&P noted. The impact is difficult to gauge at this time.

While the restatement of financial results has reduced historical profitability, it represents an effort by the new management team to boost internal accounting controls. The most recent restatement lowered consolidated revenues by $110.9 million and consolidated EBITDA by $45.2 million during the past three years, S&P said. Separately, Gemstar was able to settle anti-trust charges filed by the U.S. Justice Department for a modest sum.

S&P upgrades Radnor

Standard & Poor's upgraded Radnor Holdings Corp. and removed it from CreditWatch with positive implications. Ratings affected include Radnor's $135 million 11% senior notes due 2010, raised to B from B-.

S&P said the upgrade follows Radnor's announcement that it has successfully completed its debt refinancing, which has enhanced financial flexibility, and eliminated near-term refinancing pressures.

The company's senior notes are rated one notch below the corporate credit rating, reflecting the amount of priority debt in the company's capital structure, following the establishment of its $90 million credit facility, which would limit note holders' prospects for full recovery under a default scenario, S&P said.

The ratings reflect Radnor's below-average business profile and improved financial flexibility, offset by its narrow scope of operations and very aggressive financial leverage, S&P added.

Radnor remains highly leveraged, although credit measures have improved with total debt (adjusted for capitalized operating leases) to EBITDA of about 4.5x as of Dec.. 31, 2002, from a peak level of about 7x in 2000, S&P said. The company's operating profits have improved significantly in 2002 supported by increased pricing in the foam cup segment, improved EPS operations and cost-reduction measures. Although the company has not generated free cash flows in five of the past six years, reduced capital spending (at about 70% of depreciation) and working capital needs are expected to facilitate modest free cash flows for debt reduction in 2003 and beyond. Accordingly, total adjusted debt to EBITDA is expected to average about 4.5x to 5x over the business cycle, and EBITDA to interest coverage is expected to average above 2.5x.

S&P raises Eagle-Picher outlook

Standard & Poor's raised its outlook on Eagle-Picher Industries Inc. to stable from negative and confirmed its ratings including its secured bank debt at B+, subordinated debt at B- and preferred stock at CCC+.

S&P said the outlook revision reflects Eagle-Picher's improved financial profile and stronger credit protection measures, following a period of restructuring by new management.

Debt levels have declined to about $380 million at year-end 2002 from about $450 million in 2001 and debt to EBITDA is now in the 4x area versus about 5x in 2001.

EBITDA margins are steady at about 13%. A new leadership team at Eagle-Picher has in the past 12 months restructured and implemented new processes at each of the company's three operating segments, S&P noted.

However, given the soft economy, credit measures are expected to remain weak and significant debt levels prevent credit measures from improving materially from current levels, S&P said. For 2002, total debt to EBITDA was about 4x and EBITDA interest coverage was slightly more than 2x (excluding preferred stock dividends). S&P said it expects total debt to EBITDA to be in the 4.0x to 5.0x range and EBITDA interest coverage to between 2.0x and 2.5x.

S&P raises Remington Products outlook

Standard & Poor's raised its outlook on Remington Products Co. LLC to positive from negative and confirmed its ratings including its subordinated debt at CCC and Remington Capital Corp.'s subordinated debt at CCC.

S&P said the outlook revision is in response to Remington's improved operating results and better cash flows, resulting in debt reduction year over year. S&P said the company's performance exceeded its expectations and led to improved credit protection measures and liquidity.

Despite lower sales in Remington's wellness category and at U.S. service stores, fiscal 2002 total revenue grew 2.5% due to successful new product introductions in the North American shaver and grooming category. The company's operating margin (before depreciation, amortization, and non-recurring charges) increased to 11.9% in 2002 from 9.4% the previous year, which contributed to improved credit measures.

The personal care appliance segment is very competitive and relatively mature, with slow volume growth and limited pricing flexibility, S&P noted. Product innovation and marketing are key factors in generating consumer demand. Remington has experienced success with new product introductions as a significant portion of its sales came from products introduced within the past three years. Nevertheless, the company will be challenged to continue developing innovative products and to stay ahead of larger competitors, namely Norelco (a subsidiary of Philips Electronics N.V.) and Braun (a subsidiary of Gillette Co.).

Credit protection measures improved in 2002 due to increased cash flows from higher earnings and better working capital management, which resulted in lower debt balances, S&P said. EBITDA coverage of interest expense increased to 1.8x in 2002 from 1.2x the prior year. Leverage also showed improvement with debt to EBITDA declining to 4.3x from 6.6x in 2001.

Moody's rates Chiquita notes B2

Moody's Investors Service assigned a B2 rating to Chiquita Brands International, Inc.'s $250 million 10.56% senior notes due 2009. The outlook is stable.

Moody's said the ratings reflect Chiquita's recognized brand name and its well established market position, but also take into account the company's product concentration on bananas and its earnings concentration in Europe. Moody's added that its actions are a reassignment of ratings for Chiquita after its March 2002 emergence from bankruptcy.

Chiquita's ratings are constrained by its narrow focus on the volatile fresh fruit business (87% of its $2 billion revenue base, comprised principally of bananas), which has low margins, high fixed costs, and material ongoing capital spending needs, Moody's said. The banana business is exposed to labor and weather related supply risks, volatile fuel and packaging costs, and regulatory and political frameworks that are subject to change.

In addition, the banana market is mature, with limited opportunity for volume growth or margin expansion in Chiquita's primary geographic areas of current operation - North America and Europe.

Chiquita's ratings also are limited by its significant earnings concentration in Europe. Although banana volumes are roughly similar in North America and Europe, margins in North America are thin while European prices and profitability are bolstered by a regulatory regime that will be subject to modification in 2004-06, Moody's said. Chiquita therefore faces future market uncertainty in Europe, where the majority of the its profits are derived.

The ratings are supported by Chiquita's position as one of three global banana companies, with leading market shares in Europe and North America that have remained relatively stable over time. The company benefits from scale in the banana business, an established logistics infrastructure, and strong brand name recognition. The ratings also gain support from a deleveraged balance sheet, the result of its Chapter 11 bankruptcy restructuring, in which $861 million in debt was swapped for equity.

S&P rates new GXS notes B, loan BB

Standard & Poor's assigned a B rating to GXS Corp.'s new $105 million senior secured floating-rate notes due 2008 and withdrew its B+ rating on the company's previously proposed $175 million floating-rate notes issue. S&P also assigned the company's $100 million senior secured bank loan a BB and withdrew its BB+ rating on the company's proposed $40 million revolving credit facility, which did not close. S&P also confirmed GXS' corporate credit at BB- and subordinated debt at B. The outlook is negative.

The company's new credit facility consists of a $70 million term loan and a $30 million revolving credit facility. The proceeds from the notes issue and the term loan, totaling $175 million, will be used to repay GXS' existing $175 million senior secured term bank loan.

S&P said the bank loan rating reflects improved recovery prospects following repayment of the term loan. The $105 million senior secured notes are rated two notches below GXS' corporate credit rating, reflecting the amount of bank debt with first-priority liens in the capital structure. The notes have second-priority liens on the same assets.

EBITDA margins have recovered to the high 20% area, following the completion of cost-reduction actions implemented over the past two years, S&P noted. Pro forma debt to EBITDA is below 4x, and EBITDA interest coverage is expected to fall slightly below 3x. Lower capital expenditures levels, about $40 million annually, should help sustain modest levels of free cash flow.

S&P said it believes the company's enterprise value in default or bankruptcy would be ample to cover the credit facility.

The negative outlook reflects GXS' limited track record of both operating as an independent company and sustaining profitability improvements following its recent cost restructuring actions.

S&P cuts CESP, still on watch

Standard & Poor's downgraded Companhia Energetica de Sao Paulo and kept it on CreditWatch with negative implications. Ratings lowered include CESP's $150 million notes due 2005 and $300 million 10.5% notes due 2004, cut to CCC from B+.

S&P said the downgrade is because of a sudden and severe drop in CESP's cash flow generation; its further deteriorated liquidity position; and its announcement that it was hiring a financial advisor to help it restructure short-term maturities of about BrR3 billion (approximately $850 million), including a May 2003 put option on a $150 million medium term note and the final maturity of another $500 million MTN issue due in February 2004. The remaining BR700 million ($200 million) is due to the federal government.

Due to the importance of CESP's assets in the Brazilian generation industry, it is still possible that CESP will receive some financial support from its majority shareholder, the state of São Paulo (74% stake of voting capital), or even from the federal entities, such as Eletrobras or BNDES, as previously occurred in 2002, S&P said. However, up to this point there is no clear evidence that such support will occur, or even if some is forthcoming, whether it will prevent a default.

While an exchange offer has not been formalized, the company will try to negotiate with bondholders new terms and conditions to the notes coming due in the next few months, conditions that will probably include a smoother maturity schedule that CESP can accommodate in its cash flow, S&P said.

Fitch raises Ocwen outlook

Fitch Ratings raised its outlook on Ocwen Financial Corp. to stable from negative and confirmed its ratings including its senior debt at B and Ocwen Federal Bank's subordinated debt at B-.

Fitch said the revision is in response to Ocwen's progress in disposal of non-core assets and good cash position at the holding company relative to maturing debt obligations.

Over the course of 2002, Ocwen reduced non-core assets by 55% or $297 million and remaining non-core assets now stand at $246 million, Fitch noted. In addition, Ocwen has repurchased $73.5 million of holding company debt and strengthened the cash position of the bank and the holding company.

Fitch believes that Ocwen should have sufficient cash and liquidity to repay $44 million of maturing debt in October 2003.

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