S&P puts Wesco on watch

Standard & Poor's put Wesco Distribution Inc. on CreditWatch with negative implications including its $400 million 9.125% subordinated notes due 2008 at B.

S&P said the action is in response to continued weakness in Wesco's industrial, building construction and electric utility markets which has more than offset management's efforts to restructure operations to improve operating performance.

The timing of a turnaround of the industrial economy, which has been soft since mid-2000, is uncertain, S&P noted.

EBITDA for 2002 declined 22% from 2001 and 37% from the peak recorded in 2000. Total debt (adjusted for an accounts receivable securitization program and the present value of operating leases) to EBITDA for 2002 stood at 7.6x, well above S&P's expectation of 5x-5.5x. EBITDA interest coverage was a subpar 1.8x.

Moody's cuts Guacolda

Moody's Investors Service downgraded Empresa Electrica Guacolda's senior secured certificates to Ba1 from Baa3. The outlook is stable.

Moody's said the downgrade reflects projected lower cash flow, possibly weaker demand growth, the approaching expiry of several sales contracts, reduced power sales volumes under an existing contract and higher market prices for petroleum coke.

Moody's said it believes that these factors could moderately reduce earnings and cash flow over the next few years.

In addition Guacolda faces significant debt maturities in April of this year, the refinancing of which might result in higher interest expenses and lower coverage measures going forward. Depending upon the structural protections, a rating of new debt could differ from the rating of the senior secured certificates, Moody's added.

Moody's upgrades Di Giorgio

Moody's Investors Service upgraded Di Giorgio Corp. including raising its $148 million 10% senior notes due 2007 to B2 from B3. The outlook is stable.

Moody's said the upgrade is prompted by its belief that the company's history of consistent improvements in operating performance and debt protection measures will continue, grocery market share gains around the New York Metro area by Di Giorgio's customers, and the company's strong liquidity position.

The ratings reflect the company's modest free cash flow margins (defined as EBITDA less cash outflows for interest expense, taxes, working capital, and maintenance capital expenditures), high customer concentration (with 54% of revenue from the 5 largest customers), and the tendency to pay out as dividends a substantial fraction of net income, Moody's said. Exposure to the economic fortunes of a single region, intense supermarket competition around New York City, and uncertainty related to resolution of the company's ownership also adversely affect Moody's opinion of the challenges facing Di Giorgio.

However, supporting the ratings are Di Giorgio's established position as the leading independent wholesaler to New York metro area grocers, the lengthy history of net profitability, and the consistent trend of small annual improvements in operating performance and debt protection measures, Moody's added. In addition, while the company has a relatively small revenue base, the focus on a single region provides efficiencies in areas such as distribution and purchasing.

The stable outlook anticipates that, in spite of the high level of grocery competition around Metro New York, the company will continue the pattern of modestly improving operating results as revenue slowly grows and that the company's customers will not collectively lose grocery market share, Moody's said.

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