S&P puts JLG on watch

Standard & Poor's put JLG Industries Inc. on CreditWatch negative including its $125 million 8.25% senior notes due 2008 at BB-, $175 million 8.375% senior subordinated notes due 2012 at B+ and $250 million revolving credit facility due 2004 at BB.

S&P said the CreditWatch listing follows the announcement that JLG plans to acquire OmniQuip, a business unit of Textron Inc., for $100 million. JLG will make the acquisition largely in cash raised from the issuance of $125 million of senior unsecured notes in May 2003.

The CreditWatch listing reflects the potential for lower ratings, because it appears the acquisition will postpone JLG's opportunity to reduce debt significantly with the proceeds of the debt issuance, S&P said.

OmniQuip brings little immediate EBITDA to the combined company, and JLG's near-term cash flow will be compromised, at least partly consumed in synergistic restructuring activities as the acquired entities are integrated into JLG's operations.

Strategically, the acquisition will produce a stronger business position for JLG, diversifying its customer base and product offerings, S&P noted. After the combination, JLG's exposure to the aerial work platform market will decline to 46% from 60%, and its presence in the telehandler market will increase to 32% from 13%. The telehandler market has been stronger than the aerial work platform market, with telehandler sales improving, year-over-year, and aerial work platform sales declining significantly for the first nine months of fiscal 2003.

S&P upgrades Dole Food notes

Standard & Poor's upgraded Dole Food Co. Inc.'s senior unsecured notes to BB- from B+ including its $175 million 7.875% debentures due 2013, $400 million 7.25% notes due 2009 and $475 million 8.875% senior unsecured notes due 2011 and removed them from CreditWatch positive. The corporate credit was confirmed at BB and senior secured debt at BB+. The outlook is negative.

S&P said the action reflects the improvement in residual coverage afforded the senior unsecured notes following the repayment of $400 million of senior secured debt from the proceeds of a senior unsecured debt offering.

Still, the senior unsecured notes are rated one notch below the corporate credit rating, reflecting their junior position to the remaining secured debt in the capital structure following the company's recent leveraged buyout, S&P said.

S&P added that Dole's ratings reflect high debt leverage related to the LBO and risk associated with the global fresh produce industry. Somewhat mitigating these concerns is the firm's leadership position in the production, marketing, and distribution of fresh fruit and vegetables.

Still, operating performance can be affected by uncontrollable factors such as global supply, political risk, currency swings, weather, and disease. These industry risks are somewhat reduced by the company's geographic diversity in both the sourcing and distribution of fresh produce.

Dole's credit measures are weak for the rating following the leveraged buyout. S&P said it expects that total debt to operating EBITDA will be at the high end of the 4.0x range for fiscal 2003. However, this will gradually improve as the company expects to reduce debt using proceeds from anticipated divestitures and land sales along with operating cash flow. S&P added that it expects that operating EBITDA coverage for fiscal 2003 will be in the low-2.0x range.

S&P confirms Jostens, off watch, rates loan BB-

Standard & Poor's confirmed Jostens Inc.'s ratings including its $150 million revolving credit facility due 2006, $95 million term A loan due 2006 and $330 million term C loan due 2009 at BB- and $225 million 12.75% notes due 2010 at B, and removed them from CreditWatch negative. S&P also assigned a BB- rating to its $125 million revolving credit facility due 2008 and $525 million term loan due 2010 and a B rating to its proposed $270 million senior subordinated increasing rate bridge loans due in 2004. The outlook is stable.

S&P put Jostens on watch on April 17 after the company said it had engaged investment banking advisers to assist in the possible sale or recapitalization of the company.

For the new loan (other than the bridge loan), S&P said the rating is the same as the corporate credit rating because in a stressed scenario it believes lenders could expect meaningful but less than full recovery of principal.

S&P said Jostens' ratings reflect its leveraged financial profile, somewhat narrow business focus, and the seasonal nature of demand for its products. These factors are somewhat mitigated by the company's defendable leading position in the mature school-related affinity products industry, favorable demographic trends, strong EBITDA margins, and stable cash flows.

Jostens has experienced stable organic growth in the past few years with sales growing at a compound annual growth rate of about 4% from 1995 to 2002. Furthermore, the company has managed to improve EBITDA margins from 16.5% in 1998 to more than 21% in 2002 by implementing continuous improvement processes, lean manufacturing, and the closure or consolidation of five manufacturing facilities, S&P said.

Pro forma for the transaction, Jostens will be highly leveraged, S&P noted. Lease-adjusted total debt and preferred stock will increase from about $668.8 million at March 29, 2003, to about $794.6 million at closing. Although the company will make a change of control offer to redeem the existing senior subordinated notes and the existing preferred stock, both at the redemption price of 101%, S&P said it does not expect these securities to be redeemed. Thus, the debt balance at closing will not reflect any incremental debt associated with potential change of control payments.

Lease-adjusted EBITDA for the 12 months ended March 29, 2003, was $153.6 million. Pro forma full-year cash interest expense is about $52.3 million and pay-in-kind (PIK) preferred stock dividends is about $13.2 million, S&P said. Lease-adjusted EBITDA to cash interest and PIK preferred stock dividends is about 2.3x. Lease-adjusted total debt and preferred stock will be about $794.6 million at closing. Lease-adjusted total debt and preferred stock to EBITDA will be about 5.2x at closing.

Moody's rates NBTY loan Ba2

Moody's Investors Service assigned a Ba2 rating to NBTY Inc.'s proposed $100 million guaranteed senior secured revolver due 2008, $50 million guaranteed senior secured term loan due 2009 and $225 million guaranteed senior secured term loan B due 2009 and confirmed its $150 million senior subordinated notes due 2007 at B1. The outlook is stable.

Moody's said the ratings are supported by the fact that NBTY's pro forma credit metrics, adjusted for the proposed debt and Rexall acquisition, are still strong. The ratings are also supported by NBTY's dominant competitive position in the vitamin, mineral, and nutritional supplement industry, vertical integration, success in integrating previous acquisitions, favorable demand fundamentals with the aging of the U.S. and European population and the relative diversity of its customers and products.

The ratings, however, reflect potential challenges integrating the Rexall business, intense competition within the fragmented VMS industry, significant acquisition risk, the weak performance of NBTY's U.S. retail business, stagnant growth in the Puritan's Pride/Direct Response business, and the potential for increased government oversight of the industry.

The stable outlook incorporates Moody's expectation that NBTY will improve the performance of the Rexall business, that pro forma credit metrics will remain stable or only slightly worsen in the near-term and that the company will not make any more significant debt-financed acquisitions over the intermediate term.

S&P upgrades Dayton Superior loan

Standard & Poor's upgraded Dayton Superior Corp.'s bank loan rating including raising its $50 million revolving credit facility due June 2006 to BB- from B+ and confirmed its other ratings including its senior second secured debt at B+ and subordinated debt at B-. The outlook is negative.

S&P said the action is in response to a shift in the composition of Dayton Superior's debt following completion of its recent refinancing, which substantially reduced the amount of debt secured by first-priority liens. Consequently, the bank loan rating is now one notch higher than the corporate credit rating.

For the remaining loan, S&P said there is a strong likelihood of full recovery in the event of default or bankruptcy.

S&P added that Dayton Superior's ratings reflect its leading positions in niche construction products markets and its favorable cost structure, offset by industry cyclicality and very aggressive financial policies.

Despite difficult industry conditions, debt of $330 million at the end of March 2003 was only modestly higher than a year ago, S&P noted.

Still, the capital structure remains very aggressive - debt to EBITDA of 5.6x currently - which is keeping cash flow protection measures weak, S&P added. EBITDA interest coverage is currently 1.7x, with funds from operations to debt below 5%, subpar for the ratings. In addition, debt will rise somewhat following completion of the company's pending acquisition of Safway Formwork System LLC, a manufacturer of concrete forming and shoring systems. However, Dayton Superior's equity sponsor, Odyssey Investment Partners Fund LP, is expected to contribute some equity to finance this transaction.

S&P says PolyOne unchanged

Standard & Poor's said PolyOne Corp.'s ratings are unchanged including its corporate credit at BB- with a negative outlook following the company's recent announcement that it expects to report a net loss of 7 cents to 10 cents per share for the second quarter of 2003.

The loss includes special items, primarily restructuring costs, that account for about 3 cents to 4 cents per share.

The weak earnings are the result of sluggish demand and high raw material costs, S&P noted.

Given recent trends in industrial production, the earnings warning is not surprising, S&P said.

Ratings could still be lowered if the firm is unable to restore credit protection measures to targeted levels in the intermediate term, S&P said but added that ratings are supported by the company's good market positions in vinyl plastic and rubber compounding, color and additive concentrates, and plastic resin distribution. In addition, S&P said it recognizes the company's satisfactory liquidity position and its intentions and efforts to reduce costs, reduce debt, and manage cash flow.

Moody's rates Wabtec notes Ba2

Moody's Investors Service assiend a Ba2 rating to Wabtec (Westinghouse Air Brake Technologies Corp.)'s proposed $150 million senior unsecured notes due 2013. The outlook is stable.

Moody's said the ratings reflect Wabtec's moderate debt levels, its diversified revenue base in which it services both OEM and aftermarket rail markets, its relatively strong operating performance through the weak recent market environment and benefits from stability from sales to the transit sector.

Ratings also consider the level of Wabtec's exposure to rail car OEM's in a continued weak and generally cyclical market, a relatively small revenue base as a supplier of parts and services to the rail industry, potential increases in capital expenditures and the risk of unexpected liabilities arising from asbestos-related claims against the company.

The outlook incorporates expectations for near-term improvement in freight car production levels, and that the company could maintain or improve its margins throughout changing market conditions.

Despite the recent downturn in the freight car manufacturing sector, which represents about 64% of the company's 2002 revenue base, Wabtec has demonstrated the ability to maintain strong profit margins and cash flow generation through the recent weak market, Moody's noted. From 2001 to 2002, when freight car production fell by almost one-half, Wabtec revenues only fell 11%, from $784 million to $696 million. Throughout this period, the company maintained an EBIT margin of approximately 6.8% of revenue, while free cash flow was sufficient to repay approximately $47 million (19%) of total debt, which, Moody's believes, illustrates the company's ability to generate cash and repay debt even through difficult market periods.

Upon completion of the proposed notes transaction, Wabtec will carry a total debt of $196 million, with an additional $163 million of revolving credit available. This represents approximately 2.6x EBITDA for the 12 months to March 2003. Pro forma free cash flow for this period represents 19% of total debt. Interest coverage is strong, as EBIT for the 12 months to March 2003 covers pro forma interest about 4x.

S&P rates Wabtec notes BB

Standard & Poor's assigned a BB rating to Westinghouse Air Brake Technologies Co. (Wabtec)'s $150 million senior unsecured notes due 2013 and confirmed its existing ratings including its senior unsecured bank loan at BB. The outlook remains stable.

S&P said the ratings reflect Wabtec's somewhat aggressive financial policy, partly offset by its leading market position in the mature and cyclical rail products and services sector.

Although the freight and transit markets are both cyclical in nature, they generally move in independent directions, S&P noted. Transit generally lags the cyclical nature of the freight market, because of federal and state spending. The downturn in demand for new freight cars in North America over the past few years was severe and prolonged, but certain fundamentals are improving. Car loadings increased in the first quarter of 2003 compared to the year-earlier quarter.

Wabtec has a somewhat aggressive financial policy, which reflects a debt-financed acquisition strategy, S&P said. Despite an industry downturn, significant improvements to operating efficiency and asset sales have resulted in improved credit protection measures, including operating lease-adjusted EBITDA interest coverage of 4.9x and debt to EBITDA of 2.9x for the 12 months ended March 31, 2003.

While the company's growth strategy has included some debt-financed acquisitions, Wabtec has focused on cash management during this protracted decline in demand. Standard & Poor's expects the company will maintain EBITDA interest coverage of about 3x-4x and total debt to EBITDA of around 3x-3.5x, which takes into account a cushion for potential acquisitions without affecting the current ratings.

S&P lowers U.S. Oncology outlook

Standard & Poor's lowered its outlook on U.S. Oncology Inc. to negative from stable and confirmed its ratings including its corporate credit at BB.

S&P said the outlook change reflects concerns that certain operating challenges could compromise the financial insulation that underpins U.S. Oncology's current ratings.

Pharmaceutical sales represent about half of U.S. Oncology's revenues. But incurred costs are significant and rising, partly because of the greater prevalence of single-source boutique drugs, use trends, and practice management agreements that do not allow the pass through of price increases, S&P said. Pending changes in oncology drug reimbursement could also reduce government reimbursement rates. If this occurs and reimbursement for cancer care services is not raised, the financial impact could be material.

In late 2000, U.S. Oncology began renegotiating the terms of its practice management contracts. The changes have yielded greater operational focus, a leaner cost structure, and increased capital flexibility for business development, S&P noted. However, the new format also exposes the company to lower near-term fees, shorter contract terms, and non-cash impairment charges as the existing agreements convert. For the quarter of its contracts that have not converted, the company remains vulnerable to changes in third-party reimbursement policies (Medicare and Medicaid provide about 40% of revenues), rising drug costs, and labor constraints in the oncology field.

U.S. Oncology's moderate capital structure, with lease-adjusted debt to EBITDA averaging about 2x, provides near-term cushion against operating risks, S&P said. Absent significant changes in reimbursement and costs, profitability and cash-flow protection measures should remain in line with the rating category, with operating margins averaging in the mid-teens, return on capital in the low- to mid-teens, and EBITDA interest coverage well above 4x.

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