S&P cuts Mirant to junk

Standard & Poor's downgraded Mirant Corp. to junk and assigned a negative outlook. Ratings lowered include Mirant's $370 million 5.75% convertible senior notes due 2007, $700 million 7.9% senior notes due 2009 and $750 million 2.5% convertible senior debentures due 2021, cut to BB from BBB-; Mirant Americas Generation Inc.'s $250 million unsecured facility B bank loan due 2004, $50 million unsecured facility C bank loan due 2004, $300 million 7.2% notes due 2008, $400 million 9.125% senior notes due 2031, $450 million 8.5% notes due 2021, $500 million 7.625% senior notes due 2006 and $850 million 8.3% senior notes due 2011, cut to BB from BBB-; Mirant Mid-Atlantic LLC's $454 million 8.625% passthrough certificates series A due 2012, $435 million 9.125% passthrough certificates series B due 2017 and $335 million 10.06% passthrough certificates series C due 2028, cut to BB from BBB-; and SEI Trust I's $300 million 6.25% trust preferred convertible securities, cut to B from BB.

S&P said it lowered Mirant because it expects the company's probable financial performance in the next two to three years will not support an investment-grade rating and that the combination of depressed power prices, high leverage, and weakening liquidity suggest the potential for greater financial uncertainty.

The company will likely experience reduced U.S. cash flows (about 51% of total flows) in the near term from lower market prices and from lower trading margins on declining electricity and gas volumes, S&P said. Increasing collateral requirements needed to maintain its trading operations following rating actions and market volatility are constraining liquidity. The company will have to either increase liquidity balances to maintain operations or reduce trading activity and attendant cash flows.

In the current environment, the company's large debt maturities through 2005, with $1.6 billion in gross maturities (bullet and amortizing) in 2003, and $2.65 billion in 2004 increase refinancing risk with the possibility of onerous terms that could further pressure credit, S&P said. The company also has a $1.125 billion four-year facility that comes due in 2005.

Liquidity could plummet by year-end 2004 if Mirant cannot refinance some of its debt, S&P warned. The company's preliminary liquidity plan relies on assets sales for which the proceeds are difficult to foresee, especially for U.S. assets. A number of uncertainties could easily disrupt execution.

S&P cuts TXU Europe

Standard & Poor's downgraded TXU Europe Ltd. and its Energy Group Ltd. subsidiary. Ratings lowered include Energy Group' $200 million 7.375% guaranteed notes due 2017 and $300 million 7.5% guaranteed notes due 2027, both cut to D from CC.

S&P said the action follows Energy Group's failure to pay interest due on its two series of bonds last week.

There is a 30-day grace period to make the payment but S&P said that under its rating criteria the nonpayment constitutes an event of default.

Moody's upgrades WCI notes

Moody's Investors Service upgraded WCI Communities, Inc.'s senior subordinated notes including its $350 million 10.625% notes due 2011 and $200 million 9.125% senior subordinated notes

due 2012 to Ba3 from B1 and confirmed its other ratings including its senior implied rating at Ba2. The outlook is stable.

Moody's said the action reflects WCI's shift away from a capital structured that consisted of substantial secured debt to one comprised largely of unsecured debt through replacing its $450 million secured bank credit facility with a new $350 million unsecured facility.

The confirmation of WCI's senior implied rating and stable outlook are supported by the company's 56-year history, valuable land holdings with market values exceeding current book values, stable amenities revenues and fee income from related service businesses, above-average industry margins, strong brand name recognition, seasoned management team, and declining balance sheet leverage coupled with a growing equity base, Moody's said.

At the same time, the ratings reflect the company's strategy of building master planned communities that creates a need for a long land supply, its geographic concentration in coastal areas of Florida (although it does conduct extensive out-of-state marketing), the rising number of competitors in its markets, and the cyclicality of the homebuilding industry, Moody's added.

The company's recent announcement that it would miss its third quarter earnings guidance is not expected to have a significant effect on WCI's financial condition or liquidity as it is expected to reduce or stretch out land purchases to offset the cash flow shortfall, Moody's said.

S&P lowers American Commercial outlook

Standard & Poor's lowered its outlook on American Commercial Lines LLC to negative from stable and confirmed its ratings including its senior unsecured debt and subordinated debt at CCC.

S&P said the action follows American Commercial Lines' weaker-than-expected operating performance and constrained liquidity.

Poor weather conditions and the economic downturn have negatively affected American Commercial Lines' earnings over the past few years, S&P said. Although the company was recently acquired by Danielson Holding Corp. and recapitalized again in conjunction with the acquisition, it is still highly levered. Debt/EBITDA is currently estimated to be over 6.5 times. The company's heavy debt burden makes it especially vulnerable to current industry pressures.

Liquidity is currently very constrained, S&P added. At June 30, 2002, the company had nothing available under its bank facilities and $16.2 million in cash. The company's bank agreements contain various covenants including leverage ratios and interest coverage ratios. In its second-quarter Form 10-Q, the company stated that it believed it was in compliance with covenants at June 30, 2002, but that it was reasonably possible that it would not be able to comply with covenants in the future.

S&P said it believes that covenant compliance will remain tight, and that the company may have to seek a waiver or amendment if market conditions remain weak.

S&P rates National Waterworks' loan BB-; subordinated notes B

Standard & Poor's rated National Waterworks Inc.'s $325 million secured bank credit facility BB- and proposed $200 million senior subordinated notes due 2012 at B. The outlook is stable.

The facility consists of a $75 million six-year revolver and a $250 million seven-year term loan. Security is a first-priority perfected lien on all material tangible and intangible assets. Under S&P's analysis, there would be a meaningful recovery of principal in a distressed situation.

Proceeds from the transaction will be used to purchase the assets of US Filter Distribution Group Inc., which will be renamed National Waterworks, for $660 million.

"The ratings reflect the company's average business position, its aggressive financial profile, and fair liquidity," S&P said.

The U.S waterworks market is expected to continue to grow modestly over the intermediate term due to the deteriorating water system infrastructure, S&P explained. Consolidation within the industry is also expected to grow due to the demand for distributors that can provide a full range of product offering and additional services to its customers.

The company's strengths include its market position as the largest distributor of water products used to build and repair water transmission systems in North America, its well-established network of branches, broad product offerings, diverse customer base, fully integrated IT system and the expectation that improving operating performance by leveraging its national presence and strengthening its working capital management will continue to be focused on, S&P said.

Pro forma for the closing of the transaction, total debt to EBITDA will be 4.9 times, S&P said. In the intermediate term, total debt to EBITDA is expected in the 4 times to 5 times range while EBITDA to interest coverage is expected at 2.5 times.

Moody's puts Cable Satisfaction on review

Moody's Investors Service put Cable Satisfaction International, Inc. on review for possible downgrade including its $150 million of 12¾% senior unsecured notes due 2010 at Caa2.

Moody's said it began the review after Cable Satisfaction said it is in discussions about additional financing alternatives given uncertainties with respect to the company's ability to further access its senior credit facility in January 2003.

Moody's said there is heightened uncertainty about the company's ability to secure a level of additional financing adequate to support its continued growth requirements and on terms that would allow for the ongoing debt service of the company's senior unsecured bonds.

This is particularly true when viewed in the context of Cable Satisfaction's depressed equity price and the continued negative sentiment toward the European cable sector by the financial community more broadly; notwithstanding the fact that company's shareholders have historically provided relatively strong financial support (including participation in the company's €55 million equity issuance in late 2001), Moody's said.

However the rating agency said Cable Satisfaction has continued to demonstrate strong subscriber, revenue and EBITDA growth over the past year. In the recent quarter ending June 30, 2002, revenue and EBITDA reached C$28.1 million and C$3.2 million, respectively versus C$10.2 million and negative C$1.8 million a year earlier.

Moody's rates Petco loan Ba3, upgrades notes

Moody's Investors Service assigned a Ba3 rating to Petco Animal Supplies, Inc.'s new secured term loan maturing 2008 and upgraded its $170 million 10.75% senior subordinated notes due 2011 to B2 from B3. The outlook is stable. The new term loan replaces previous credit facility which were rated B1. The company's $75 million revolving credit facility due 2006 is also rated B1.

Moody's said the ratings reflect its expectation that Petco will retain its prudent growth strategies and continue to improve operating performance, which would enable the company to finance new stores and reduce leverage from internally generated cash flow.

The ratings also recognize Petco's good market position and the tested stability of this retail model; recent reductions in debt from operating cash flow and cash received from its IPO; the expectation of higher returns on assets; and amendments to its bank facilities in the form of reduced interest rates which benefit the company, Moody's said.

Negatives include high effective leverage and relatively low fixed charge coverage levels for its rating category; thin asset coverage for all debt; a large and diversified group of direct and indirect competitors which could affect Petco's market position or profitability; and the potential for store productivity to fall based on growth of competitors or of Petco's own stores, Moody's added.

The Ba3 ratings on the new secured credit facilities reflects their seniority in Petco's rating structure as a result of their collateral package, which consists of essentially all of the company's assets, Moody's said.

Moody's cuts Dayton Superior

Moody's Investors Service downgraded Dayton Superior Corp. and changed the outlook to negative. Ratings lowered include Dayton Superior's $202 million senior secured bank facility due 2006-2008, cut to B2 from Ba3, and $170 million of 13% senior subordinated notes due 2009, cut to Caa2 from

B3.

Moody's said the action reflects the slowdown in Dayton Superior's commercial construction markets, margin pressures, weakened debt protection measures, and the greater proportion of secured debt in its capital structure combined with weakened asset coverage.

The company also has heavy debt leverage, event risk and integration risk associated with its acquisition growth strategy, and the likelihood that future transactions will rely on substantial debt financing (the company has a $21 million remaining balance on an acquisition facility), Moody's added.

Positives include Dayton Superior's leading market share position in its three core product lines (concrete accessories, concrete forming systems, and paving products), considerable product breadth, low cost structure and national distribution system, significant purchasing power as the leader in the markets it serves, and its 78-year history.

Despite a weak economy and a protracted downturn in non-residential construction, the company has been able to maintain sales and EBITDA, helped in part by the contribution from acquisitions,m Moody's said. However, as debt has increased, largely for acquisitions, the company's debt protection measures have suffered. EBIT coverage of interest, which was 3.3x in 1999 (pre-recapitalization) and 1.9x in 2000, was 1.2x for the trailing 12 months ended June 28, 2002, the rating agency said. Coverage of interest by EBITDA after capital spending was 0.9x for the same period. Total debt/EBITDA, which was 2.0x in 1999 and 4.1x in 2000, was over 5x for the period.

Although this is a seasonal peak, Moody's said it believes that leverage will remain near 5x for the balance of the year.

Moody's rates Nortek loan Ba3

Moody's Investors Service assigned a Ba3 rating to Nortek, Inc.'s $200 million senior secured revolving credit facility due 2007 and confirmed its existing ratings including its $175 million of 9.25% senior notes due 2007, $310 million of 9.125% senior notes due 2007 and $210 million of 8.875% senior notes due 2008 at B1, and $250 million of 9.875% senior subordinated notes due2011 at B3.

Moody's said the revolver is rated one notch above Nortek's senior implied rating, reflecting the strong asset protection, the guarantees provided by the company's principal operating subsidiaries, and the revolver's relatively small proportion within the overall capital structure.

The ratings and outlook confirmation recognize the company's well established brand names and market position across a broad array of building products, the sizable proportion of its business that is related to the less cyclical replacement and remodeling segments of the market, and the adequate liquidity, even after approximately $180 million of company cash is used to consummate the Kelso transaction, Moody's said.

At the same time, the ratings reflect the company's historical acquisition-based growth strategy, which has kept debt leverage high and left the company with negative tangible equity of $370 million at June 29, 2002, Moody's added. The ratings also consider the intense competition in the company's markets and the cyclicality of the industries to which it sells.

Moody's rates National Waterworks loan B1, notes B3

Moody's Investors Service assigned a B1 rating to National Waterworks, Inc.'s planned $75 million senior revolving credit facility due 2008 and $250 million senior secured term loan B due 2009 and a B3 rating to its planned $200 million senior subordinated notes due 2012. The outlook is stable.

Proceeds from the proposed new debt offerings will be used to purchase the assets from U.S. Filter Distribution Group, a subsidiary of United States Filter Corp. and for general corporate purposes. The company will be owned by J.P. Morgan Partners, H. Lee Partners, and management.

The ratings recognize National Waterworks' competitive position as the largest distributor of waterworks transmission products in the United States and the company's balanced and highly diversified customer mix in the residential and municipal waterworks arena, Moody's said.

The rating agency added that it expects the company will continue to grow organically and through small acquisitions.

However, maintenance of the rating will depend on the strength of the cash flows each acquisition brings, relative to the capital funds required, Moody's said.

Moody's said National Waterworks' financial stability benefits from customer and geographic diversity. National Waterworks' revenues for 2001 were about evenly split between publicly-funded and privately-funded sales.

However, the ratings are affected by the potential challenges that the company will face in customer retention and in business expansion due to its new name and lack of deep-pocketed parent, Moody's added.

Moody's said it anticipates that the company's EBITDA margin, excluding the amortization of intangible assets, should remain near the current levels of 7.9% as reported for the 12 months through June 30, 2002. Moody's also expects the company's total debt to EBITDA on a pro forma basis for the new debt to be in the area of 4.9x for 2002 while revenues are anticipated to grow by approximately 4% annually.

Moody's cuts American Plumbing

Moody's Investors Service downgraded American Plumbing & Mechanical, Inc. including cutting its $95 million 11.625% senior subordinated notes due 2008 to Caa1 from B3. The outlook is negative.

Moody's said the action is in response to American Plumbing's significantly weaker than expected first half 2002 operating results and Moody's expectation that the company's commercial construction business will face continued weakness well into 2003.

In addition, the company's potential liquidity was affected, as it was obliged (as part of its having to seek two separate amendments from its bank group) to accept a reduction in its bank credit facility, from $95 million to $90 million through year-end 2002, to $85 million in 2003, and to $80 million in 2004, Moody's noted. With borrowings of $72 million under the line as of June 30, 2002, American Plumbing has $18 million of available borrowing capacity for the balance of this year and reduced capacity thereafter.

Begun in 1999 as a combination of 10 individual founding companies and having subsequently acquired four additional companies, American Plumbing has been experiencing ongoing integration problems, particularly in its commercial construction business, Moody's said. Once accounting for nearly 30% of total company revenues, this unit has been reduced to 10% of the company mix and will be managed largely for cash flow going forward. However, during late 2001 and early 2002, this unit managed to engage in significant underbidding on various contracts, which led to a $7.3 million pretax write off, the closing of various commercial locations, and the necessity of renegotiating American Plumbing's bank covenants.

S&P takes International Multifoods off watch

Standard & Poor's confirmed International Multifoods Corp.'s and removed them from CreditWatch with developing implications. Ratings affected include International Multifoods' $100 million revolver bank loan due 2006 and $200 million term loan B due 2008 at BB+. The outlook is stable.

S&P said the action follows the completion of International Multifoods' divestiture of its food service distribution business to private equity firm Wellspring Capital Management LLC for about $166 million. The net proceeds from the transaction (about $164 million) and cash on hand were used to repay borrowings under the bank credit facilities. As a result of the September 2002 senior debt prepayment, the company had about $350 million of debt outstanding.

While the company has somewhat improved its financial profile, International Multifoods now focuses solely on the highly competitive U.S. packaged food industry, S&P said.

Furthermore S&P said it expects the company to be acquisitive in the intermediate term after completing the integration of the Pillsbury brand.

Pro forma for the foods service distribution business divestiture and reduced senior debt, total debt to EBITDA will be about 3.2 times and EBITDA coverage of interest is expected to be about 3.5x, S&P said. In addition, the company's operating margins (before D&A) as a percent of sales will improve to the low teens, absent the very low margin food service distribution business. Future debt reduction should be fairly rapid, given expected moderate free cash-flow generation, mandatory excess cash flow sweep requirements, and the expectation that the company's pension plan will remain overfunded. Adequate financial flexibility is provided by a $100 million revolving credit facility, which should remain substantially available (after considering seasonal peak borrowing needs).

S&P puts Trenwick on watch

Standard & Poor's put Trenwick Group Ltd. on CreditWatch with negative implications. Ratings affected include Trenwick America Corp.'s $75 million 6.7% notes due 2003 at BB and Trenwick Capital Trust I's $110 million 8.82% subordinated capital income securities (SKIS) at B.

S&P said the action follows a covenant breach under Trenwick's credit agreement amended and restated as of Sept. 24, 2000, under which letters of credit in the amount of $230 million are issued and outstanding in favor of Lloyd's. The letters of credit expire on Dec. 31, 2005.

Unless renewed or replaced, Trenwick will no longer be able to collateralize its capital requirements to continue operating at Lloyds for the 2003 year of account, S&P said. Should the letters of credit be drawn down by Lloyds, repayment in full by Trenwick to the banks would be due immediately. Under the events of default to the agreement, the banks may also call for full collateralization of the outstanding $230 million letters of credit.

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