Moody's puts IMC Global on review

Moody's Investors Service put IMC Global Inc. on review for possible downgrade, affecting $2 billion of debt including IMC Global's secured credit facility at Baa3, senior unsecured notes with subsidiary guarantees at Ba1, senior unsecured notes and debentures at Ba2 and Phosphate Resource Partners LP's senior unsecured notes at Ba2.

Moody's said the review is in response to concerns that domestic and export fertilizer volumes may recover more slowly than previously anticipated over the intermediate term, thereby slowing the improvement in the company's financial performance.

Moody's said its review will focus on IMC's ability to improve its financial performance to levels commensurate with its current debt ratings over the next 12-18 months.

Specifically, Moody's will examine that likelihood that IMC will be able to maintain or increase phosphate and potash fertilizer prices, while returning sales volumes to pre-2000 levels. Moody's review will investigate the negative impact of a weak global farm economy and potential weather-related disruptions on international fertilizer demand.

Fitch cuts Fleming

Fitch Ratings downgraded Fleming Cos., Inc.'s senior unsecured debt to BB- from BB, its secured bank facility to BB from BB+ and its senior subordinated notes to B from B+. The outlook remains negative.

Fitch said it lowered Fleming in response to the company's plans to divest its retail business, which consist of 110 conventional supermarkets and price impact stores, operating under the Rainbow and Food 4 Less banners, in 6 states for approximately $450 million after-tax. Sale proceeds are expected to be directed to reduce the company's $2.2 billion debt burden.

Over the last year the difficult competitive and economic environment has weakened the performance of Fleming retail operations, Fitch said. These challenges, coupled with the better growth and return on capital opportunities in its wholesale business, led to the company's strategic decision to focus on its primary wholesale operations.

In 2002 retail revenues and EBITDA are expected to be substantially lower than 2001 levels, when retail revenues were $2.3 billion (approximately 15% of total sales) and EBITDA was $133 million (nearly 30% of total EBITDA), Fitch added.

Fleming's April 2002 acquisitions of two convenience store distribution companies as well as its organic business growth will help mitigate its exit from the retail business, Fitch said. However, the additional operating profits generated will not offset the lost EBITDA from its higher margin retail operations and EBITDA in 2002-2003 will be significantly below expected levels.

While the application of the anticipated $450 million in sale proceeds to reduce debt is viewed positively, the improvement in credit protection measures Fitch had anticipated has been delayed. In addition, the number of sales transactions involved in generating the expected proceeds also creates some uncertainty.

The negative outlook continues to reflect uncertainty surrounding Fleming's agreement with Kmart, as its contract with Kmart has not yet been confirmed in the bankruptcy process, Fitch said. There is also concern that additional Kmart stores may close, which will adversely impact the company's wholesale business.

S&P says U.S. Steel unchanged

Standard & Poor's said it is making no change to United States Steel Corp.'s rating including its corporate credit at BB and stable outlook following the company's announcement that its third-quarter earnings will be at the high end of Wall Street forecasts.

The results are in line with the expectations S&P established when it revised the company's outlook to stable from negative on May 17, 2002. Strong shipments, operating efficiencies, and improved prices for both U.S. and Slovakian operations are expected through the fourth quarter.

Beyond that point, however, uncertainties remain regarding potential increases in U.S. supply and weakening demand resulting from the sluggish economy, S&P said.

Moody's puts Amatek on review

Moody's Investors Service put Amatek Industries Pty Ltd. on review for possible downgrade, affecting $152 million of debt including Amatek's 12% senior subordinated notes due 2008 at B3 and 14.5% subordinated notes due 2009 at Caa1.

Moody's said the review follows the announcement of the sale of the company's Laminex business for A$645 million. As yet Amatek has not decided as to how the sale proceeds will be applied.

Moody's noted that while Amatek's owners have a degree of flexibility it is likely a significant portion will be allocated to debt reduction, primarily senior bank debt.

S&P cuts ASAT

Standard & Poor's downgraded ASAT Holdings Ltd. and maintained its negative outlook on the company.

Ratings lowered include ASAT Finance LLC's $155 million 12.5% senior notes due 2006, cut to B from B+.

Moody's rates ClubCorp notes B3

Moody's Investors Service assigned a B3 rating to ClubCorp, Inc.'s planned $225 million senior notes due 2010. The outlook is stable.

Moody's said the ratings incorporate ClubCorp's high leverage as well as the refinancing risk related to the company's senior secured bank credit facility.

Proceeds from the senior note offering will be used to reduce bank debt, but a significant amount will remain outstanding following the transaction and will need to be refinanced before the revolving portion of the facility comes due in 2004, Moody's said.

The ratings also take into account that ClubCorp will need to improve its operating performance in order to comply with increasingly restrictive covenants in the bank credit facility, Moody's said.

Positive consideration is given to the company's diversified portfolio of properties (across 30 states and five foreign countries) and membership base which provide a significant recurring cash flow stream supporting the ratings, Moody's added. Approximately 34% of consolidated operating revenues come from membership dues, a very stable source.

The stable ratings outlook indicates that despite recent declines in operating performance, EBITDA will benefit from the sale of poorer performing assets and recent facility upgrades. Additionally, capital expenditures are expected to drop substantially following several years of significant investment activity by the company, Moody's said.

For the 12-month period ended June 11, 2002, debt/EBITDA was 5.3x, Moody's said. Over the past two and one-half years, the company spent approximately $487 million related to maintenance, capital improvement and development, or about twice the amount of net cash flow from operations generated during that same period.

Moody's keeps Vivendi on review

Moody's Investors Service said Vivendi Universal SA remains on review for possible downgrade including its senior unsecured debt at B1 and Houghton Mifflin Co.'s senior unsecured debt at Ba2.

Moody's said Vivendi's recent announcements will have a positive announcement including its agreed asset sales for total proceeds of €1.1 billion, its commitment from a group of international banks to provide a new €3 billion facility to replace a €1 billion unsecured credit facility entered into in July, its goal of completing €5 billion of asset sales over the next nine months and expectations that it can extend a $1.6 billion bridge facility at its VUE subsidiary shortly.

However, Moody's said that until the end of October when documentation for the new €3 billion facility is expected to be finalized and/or until larger asset sales close (the latter being less likely in over the next few weeks), the company will have to carefully husband its cash resources to avoid pressure on its liquidity position.

Time for finalizing the VUE bridge financing is also very tight as the current facility runs out Nov. 2.

Against this background of Vivendi Universal remaining highly dependent on the continuing support and co-operation of its banks, all its ratings remain under review for possible downgrade, Moody's said.

Once facility documentation for the €3 billion facility at Vivendi Universal and the $1.6 billion facility at VUE has been finalized and Moody's is satisfied that terms and conditions will allow the facilities to be accessed by the respective borrowers, Moody's will consider confirmation of the rating.

S&P keeps Graham Packaging on positive watch

Standard & Poor's said it is keeping Graham Packaging Holdings Co. on CreditWatch with positive implications.

S&P said it originally put the company on positive watch on May 29, 2002 following the company's announcement that it had postponed the IPO of its common stock and a concurrently planned debt refinancing due to the adverse conditions in the equity market.

The positive watch reflects the potential improvement in Graham's financial profile following completion of the proposed IPO, proceeds of which will be used to reduce debt, S&P said.

S&P said it will monitor developments and will resolve the CreditWatch upon successful completion of the proposed IPO.

Still, market conditions have been far more challenging than previously expected, and could preclude Graham from successfully completing its proposed financing plan, S&P said. If the IPO and debt refinancings are not completed in the next few months, the existing ratings will affirmed and removed from CreditWatch.

In addition to the expected improvement to credit protection measures, the proposed debt refinancing will significantly extend Graham's debt maturities and improve liquidity, S&P noted. Subject to the transaction being completed as proposed, S&P said it will raise Graham's senior secured debt rating to B+ from B and subordinated debt to B- from CCC+.

Pro forma for the proposed transactions, total debt (adjusted for capitalized operating leases) to EBITDA is expected to improve to about 5 times, compared with 6x for the 12-month period ended June 30, 2002, S&P said. Financial flexibility would be aided by full availability under its proposed $150 million five-year revolving credit facility (at closing of the transaction) and no significant debt maturities until 2007.

S&P raises KoSa outlook

Standard & Poor's raised its outlook on KoSa BV to stable from negative and confirmed its ratings including its senior secured debt at BB+.

S&P said the revision reflects KoSa's improved operating performance and strengthened financial profile.

KoSa's management team is committed to preserving credit quality, and has taken steps to maximize cash flow for debt reduction, including aggressive cost and working capital controls, and the strategic refocusing of the business toward the most attractive opportunities in the polyester segment, S&P said.

S&P said it expects that the ratio of adjusted total debt to EBITDA will improve toward the appropriate 3 times level by the end of the current year (adjusted to capitalize operating leases and a receivable securitization program). Management is expected to limit capital expenditures and acquisitions to in order preserve appropriate credit protection measures.

S&P keeps United Air Lines on developing watch

Standard & Poor's said United Air Lines Inc. remains on CreditWatch with developing implications with a CCC corporate credit rating. The announcement was in response to news the company's unions offered the cost concessions that they said would save $1 billion annually for five years as part of a financial restructuring plan intended to secure a $1.8 billion federal loan guaranty and avoid bankruptcy.

he offered concessions fall short of the $1.5 billion annually over six years that management had earlier proposed, but exceeds savings previously negotiated with the pilots' union and non-contract employees (other unions had rejected any concessions), S&P noted.

The proposed labor cost savings are not as extensive proportionately as those agreed to at US Airways ($840 million annual average over six years, with no "snap-back" to previous wage levels), an airline about one-half United's size, S&P noted.

However, United, with its extensive route system, has more revenue generating potential, and thus may not need cost cuts as deeply as those at US Airways.

But S&P warned that negotiations with unions and the Air Transportation Stabilization Board's review of any revised loan guarantee application may be difficult to complete in the dwindling time before United's next large - $350 million - debt payment on Nov. 17.

S&P keeps US Airways on developing watch

Standard & Poor's said US Airways Group Inc., parent of US Airways Inc., remains on CreditWatch with developing implications for those obligations on which it has not yet defaulted. Both have a D corporate credit rating.

S&P's comment came after US Airways agreed to accept a $240 million investment from the Retirement System of Alabama in exchange for a 37.5% stake in the reorganized company, replacing a previously accepted $200 million investment by Texas Pacific Group's TPG Partners III LP and affiliates.

S&P said US Airways' paying obligations could be raised if the company makes progress toward reorganizing, or lowered if reduced liquidity endangers its continued operation or if particular obligations are rejected by the company in bankruptcy.

S&P puts JLG on negative watch

Standard & Poor's put JLG Industries Inc. on CreditWatch with negative implications. Ratings affected include JLG's $250 million revolving credit facility due 2004 at BBB- and $175 million 8.375% senior subordinated notes due 2012 at BB+.

S&P said the action is in response to concerns over the intermediate-term prospects for continuing weak earnings and cash flow generation caused largely by the difficult economic environment, and weaker-than-expected credit protection measures.

JLG's sales and EBITDA declined in fiscal 2002 (ended July) because the private non-residential construction industry experienced the largest contraction in several decades, S&P noted

S&P puts Petroleum Geo-Services on developing watch

Standard & Poor's put Petroleum Geo-Services ASA on CreditWatch with developing implications. Ratings affected include Petroleum Geo-Services' $360 million 7.5% notes due 2007, $200 million 6.625% senior notes due 2008, $450 million 7.125% senior notes due 2028, $250 million 6.25% senior notes due 2003 and $200 million 8.15% senior notes due 2029, all at B+.

S&P said the CreditWatch listing is in response to the scheduling of an extraordinary meeting for Sept. 27 at which Umoe AS, a Norwegian investment company that now owns more than 10% of Petroleum Geo-Services, will nominate a new board of directors and propose an authorization to increase the share capital of the company; news that Compagnie Generale de Geophysique now holds a 7.5% stake in Petroleum Geo-Services and will back Umoe's plan; and S&P's ongoing concerns about the company's liquidity and debt-refinancing challenges and uncertainty as to how Umoe will address them.

While a change in corporate management could result in an improvement in Petroleum Geo-Services' viability, S&P said it is also concerned about the current financial condition of Petroleum Geo-Services, given the strains of operating as a distressed enterprise.

S&P puts Town Sports on watch

Standard & Poor's put Town Sports International Inc. on CreditWatch with negative implications. Ratings affected include Town Sports' $155 million 9.75% senior notes due 2004 at B and $25 million revolving credit facility due 2004 at B+.

S&P said the action follows Town Sports' disclosure that it plans to refinance some or all of its debt and preferred securities with new debt.

S&P said it is concerned the company could potentially increase its debt leverage by replacing preferred stock with debt. The recapitalization will be used to refinance significant maturities due in 2004 and is expected to be in the form of new senior and senior subordinated debt.

Town Sports' financial risk is high, elevated by the relatively small cash flow base, capital spending-related discretionary cash flow deficits, and ongoing expansion plans, S&P said. Liquidity and access to capital have also been of some concern. These are balanced by good comparable club revenue growth, driven by increasing membership, dues, and ancillary services.

S&P keeps Tyco on watch

Standard & Poor's said Tyco International Ltd. remains on CreditWatch with negative implications including its corporate credit rating at BBB-.

The announcement follows disclosures made by the company in a conference call on Sept. 25.

During the call, the company announced an estimated $2.5 billion write-down in its telecommunications business. Of this amount, $400 million to $500 million will be cash outlays over an 18-month period. The company also lowered its earnings guidance for the current quarter.

S&P said Tyco's ratings could be lowered if there are significant negative developments in connection with the internal accounting investigation or ongoing investigations by law enforcement and regulatory agencies or debt is not refinanced in a timely manner.

S&P lowers Micron outlook

Standard & Poor's revised its outlook on Micron Technology Inc. to negative from stable. Ratings affected include Micron's corporate credit rating at BB-.

S&P said the outlook revision is in response to Micron's announcement that pricing pressures in the semiconductor memory industry have accelerated.

Micron, the second-largest supplier of dynamic memory chips in the world, with about a 21% share, reported a substantial loss for the August 2002 quarter, including negative gross margins on an operating basis and also including a substantial cost-of-goods-sold adjustment to the carrying value of its inventories, S&P noted. Micron had $454 million of debt outstanding at Aug. 31, 2002.

Ratings continue to reflect Micron's position in the highly volatile semiconductor memory market, as well as the company's conservative financial policies, S&P said. Micron is expected to retain its strong position in the industry through the course of the business cycle.

Pricing pressures have been severe. Although Micron's sales in the August 2002 period were only 3% below the prior quarter, profitability declined because of price pressures on Micron's mainstream product, S&P said. The company reported a net loss of $587 million for the August 2002 quarter, including a $174 million inventory revaluation, compared to net income of $736 million in the August 2000 peak quarter, and a $24 million net loss in the May 2002 period.

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