Moody's rates new Starwood convert at Ba1

Moody's assigned a Ba1 rating to Starwood Hotels and Resorts Worldwide Inc.'s new $300 million guaranteed senior convertible notes due in 2023. Its other ratings were confirmed, including the 0% convertible senior notes at Ba1. The outlook remains negative.

The confirmation is based on the expectation that currently negative revenue per available room trends will stabilize in second quarter and that Starwood will make asset sales, which are expected to generate at least $600 million in proceeds that will be used to reduce debt and improve liquidity.

Moody's also expects that Starwood will take steps in second quarter to create more room under its financial covenants pursuant to its bank credit facilities. Proceeds of the notes will be used to repay amounts under the revolving credit facility, which will improve liquidity to some degree.

Starwood received an amendment to its leverage covenant for the first quarter and is likely to require additional amendments, Moody's noted.

Key concerns include significant exposure to owned hotel real estate, which makes earnings more sensitive to economic cycles given the high fixed cost nature of the business, and asset concentration in the upper upscale segment of the lodging industry.

The negative outlook reflects high leverage - about 5.0x at year-end, and 5.4x on a trailing 12 months basis - weak travel demand and higher operating costs.

Cash flow is more than sufficient to fund both maintenance and growth capital spending but will be insufficient in 2003 to fund near term debt maturities. Therefore, given the weak earnings outlook, it will be critical to use asset sale to satisfy near term maturities to maintain current ratings, Moody's said.

S&P rates Grey Wolf convert B+

Standard & Poor's assigned a B+ rating to Grey Wolf Inc.'s $150 million 3.75% convertible senior unsecured notes due 2023, and confirmed its other ratings.

Houston, Texas-based Grey Wolf has about $250 million of debt.

S&P expects the offering will improve credit quality by extending debt maturities while lowering fixed charges as interest costs will drop by about $9 million per year.

However, a ratings upgrade is not warranted presently, because financial performance in recent quarters has been poor due to a severe downturn in onshore drilling and the high debt, S&P said.

Intermediately, the drilling industry should benefit from higher demand, particularly for natural gas, accelerating well depletion rates.

Grey Wolf's 2003 financial results will be helped by the lower interest rate of the new convertibles and could achieve EBITDA interest coverage of about 2.4x rather than 2x without the refinancing.

Capitalization will be aggressive, though, as debt to EBITDA should remain in the mid-5x range, and debt leverage should be in the mid-50% range.

Liquidity at March 31, comprised $103 million cash and nearly $64 million available on its $75 million credit facility. Pro forma for the convertible and redemption of $165 million of its 8.875% notes, Grey cash on hand will drop to $73 million.

The outlook remains positive, reflecting strength in liquidity and the potential for an upgrade once the extent of the current industry downturn becomes clear, S&P said.

Moody's rates UnumProvident convert at Baa3

Moody's assigned a rating of Baa3 to UnumProvident Corp.'s new $500 million mandatory, with a negative outlook. Its other ratings were confirmed, also with a negative outlook.

The rating agency said it viewed the capital raising positively as proceeds to lower intercompany loans and make a $255 million capital injection to the life insurance companies, with $170 million retained by the holding company and to pay interest and common share dividends.

Also, Moody's cited as a positive step UnumProvident's move to cut the shareholder dividend, which will reduce cash demands.

The rating agency believes that UnumProvident faces a number of challenges in executing its business plan and strategy, hence the negative outlook.

Moody's said that UnumProvident's strengths include a leadership position in the group long-term and individual disability markets, access to a huge claims data base, focus on claims management and return-to-work programs, and a solid presence in the growing worksite marketing area.

Moody's cuts Apogent, rates new issue at Ba2

Moody's downgraded the senior unsecured ratings of Apogent Technologies Inc. to Ba1 from Baa3, including the 2.25% convertibles, and assigned a Ba2 rating to the proposed new $250 million subordinated debt offering.

The downgrade is based on the impact of cash flow relative to debt metrics near term as a result of the tender auction for up to 15% of its common shares and uncertainty regarding its strategy to reward shareholders, given slow organic growth rates and fewer external opportunities for acquisitions.

The negative outlook reflects challenges in meeting revenue and earnings targets, the possibility of additional shareholder value initiatives that could further weaken bondholder protection and potential further goodwill writedowns that could reduce book equity and lead to breaches of covenant compliance. In addition, Apogent faces a potential $300 million obligation in October 2004 when the convertible becomes putable, although Moody's notes that Apogent currently has nearly full capacity on its $500 million bank credit facility expiring in 2005.

S&P notes disappointing results from Interpublic

Standard & Poor's said that The Interpublic Group of Cos. Inc.'s (BB+/negative) poor financial performance in first quarter does not affect its ratings or outlook.

S&P had expected the recent record of weak profitability and disappointing operating performance to continue into 2003, given that the company is implementing a turnaround against the backdrop of a volatile economic environment.

Ongoing internal revenue declines underscore S&P's view that margins and cash flow growth are likely to remain under pressure in the near term.

There is a modest cushion in current ratings to absorb soft ad demand trends and increasing costs related to severance, as management strives to bring costs in line with unpredictable business levels.

The current rating and outlook incorporate the expectation that Interpublic will renew its $500 million revolving credit facility.

Moody's puts Interpublic on review for downgrade

Moody's placed The Interpublic Group of Cos. Inc.'s long-term ratings, including its convertibles, on review for possible downgrade. Ratings on review include Baa3 senior unsecured notes and Ba1 subordinated notes.

The review reflects concern over potential additional revenue, EBIT and free cash flow shortfalls relative to expectations.

Moody's anticipated the company would begin to benefit from significant restructuring efforts in 2002. Yet operating expenses are still increasing, in the face of continued advertising pressures, and therefore misaligning the cost structure even further.

As anticipated, the company addressed significant liquidity concerns with the new $800 million convertible in March, and Moody's expects further liquidity improvement and some debt reduction from the sale of NFO Worldwide, and a renewal of the $500 million 364-day revolving credit facility later this month.

Despite having taken more than $650 million in restructuring and other merger-related charges over the last two years, Moody's believes Interpublic will be forced to divert some free cash flow away from needed debt reduction toward more cash restructuring charges in order to reduce costs further.

Moody's keeps Ahold on review

Moody's confirmed the ratings of Koninklijke Ahold NV in the wake of its disclosure Thursday of a larger than expected overstatement of earnings at its US Foodservice operations, but said the ratings remain on review for downgrade.

Despite larger than anticipated earning adjustments, Moody's noted the ratings continue to depend largely on continued support from the lending banks. Moody's views positively the appointment of a new CEO with prior retail experience, and the leadership and experience of the recently appointed interim CFO.

However, there are continued concerns over the liquidity profile, significant refinancing risks and Ahold's ability to deleverage in the intermediate term.

Moody's believes significantly weaker operating metrics at the US Foodservice unit will constrain the group's capacity to generate free cash-flow and this in turn will affect its ability to improve its financial structure.

The liquidity profile is weak, due to the conditionality associated with accessing bank facilities, current debt maturities and the short tenor of the facility which matures in February 2004.

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