Moody's cuts Western Wireless

Moody's Investors Service downgraded Western Wireless Corp. including cutting its $2.1 billion senior secured credit facilities to B3 from B1 and $187 million 10% senior subordinated notes due 2006 and $196 million 10% senior subordinated notes due 2007 to Caa2 from B3. The outlook is stable.

Moody's said the downgrade is in response to the slowing subscriber growth experienced across the wireless industry and by Western Wireless in particular, the consequent slower cash flow growth, and the mounting debt service obligations of the company as bank debt amortization begins in the first quarter of 2003.

Moody's added that the stable outlook reflects its opinion that Western Wireless can remain liquid by maintaining access to undrawn amounts of its revolving credit portion of its secured credit facility, and that financial performance of the company will continue to improve.

After two very disappointing quarters in 2001, financial performance of the company has improved over the course of 2002, and these domestic operations have been generating free cash flow, Moody's noted. However, Western Wireless has been using some of that free cash flow to fund its unrestricted international operations, keeping debt levels high.

Further, while financial performance has improved, subscriber growth in the domestic properties has been very weak. At the end of the third quarter of 2002, the company had slightly fewer subscribers than at the beginning of the year, Moody's noted.

This weak subscriber growth will inhibit the cash flow growth the company requires to be able to meet the mounting principal amortization of its bank debt, Moody's said. Western Wireless is scheduled to repay $106 million of bank debt in 2003, $156 million in 2004, and $256 million in 2005. In order to meet this heavy burden, the domestic operations must substantially grow their cash flows, which in Moody's opinion, has become much less likely.

The company's financial flexibility is further constrained by having its public bond maturities in June 2006 and February 2007, which is about two years sooner than any of rural cellular carrier peers, Moody's added.

Moody's cuts Rural Cellular

Moody's Investors Service downgraded Rural Cellular Corp. including cutting its $1.1 billion senior secured credit facilities to B2 from Ba3, $300 million 9.75% senior subordinated notes due 2010 and $125 million 9.625% senior subordinated notes due 2008 to Caa1 from B3, $234 million 11.375% senior exchangeable preferred stock due 2010 to Caa2 from Caa1 and $189 million 12.25% junior exchangeable preferred stock due 2011 to Caa3 from Caa2. The outlook is stable.

Moody's said the downgrade reflects Rural Cellular's increased default risk as cash flow growth slows and debt service obligations increase.

While Rural Cellular has been increasing the amount of cash provided by operations, and controlling its capital expenditures in order to generate free cash flow, such amounts are going to become increasingly devoted to debt service as the company's two exchangeable preferred stock issues begin to require cash dividends, and the company's $777.7 million in term loans require increasing amounts of amortization beginning in the second quarter of 2003, Moody's said.

To support these cash obligations, Rural Cellular must continue to grow its cash flows, which Moody's believes has become more challenging and will continue to grow more difficult as the entire wireless marketplace in the U.S. matures, competition continues to intensify, and roaming yields decline while roaming minute growth flattens.

The stable rating outlook reflects Moody's opinion that the company should be able to maintain compliance with the leverage covenant contained in its secured credit agreement, which steps down to 5.0x total debt/EBITDA for the fourth quarter of 2002 from 6.50x at the third quarter of 2002. Rural Cellular is close to achieving this level currently, Moody's noted.

S&P says Cablevision unchanged

Standard & Poor's said Cablevision Systems Corp.'s ratings are unchanged at a BB corporate credit rating with a stable outlook on news that it will sell NorthCoast Communications LLC's PCS licenses to Verizon Wireless.

While the transaction will provide Cablevision with approximately $635 million of proceeds in 2003 that will be used to pay down bank debt, uncertainty still exists as to the level of external funding that will be required beyond 2003 for the company's operating and capital requirements, as well as the source of that funding, S&P said.

This will be especially problematic to the company's financial profile if it is not able to materially expand operating cash flows from its cable television businesses in the 2003 to 2004 time frame.

The company has also diversified into several ventures beyond cable operations, including investing in a satellite to be launched in 2003, continued ownership of The Wiz consumer electronics stores, and interests in the Madison Square Garden sports and entertainment business.

Moreover, Cablevision faces some near-term contractual overhang issues from its partnership with Fox, S&P noted. Fox can put its interests in several ventures to Cablevision. These options commenced in December 2002 and expire in January 2003. Cablevision has the option to settle the obligation with the issuance of a three-year note to Fox. Such an election would place additional pressure on the company's overall financial profile.

S&P cuts Wickes, on watch

Standard & Poor's downgraded Wickes Inc. and put it on CreditWatch with negative implications including Wickes' $100 million 11.625% notes due 2003, cut to C from CC.

S&P said the downgrade follows Wickes' announcement that it has commenced an offer to exchange an equal principal amount of its new senior secured notes due July 29, 2005 for any and all of its $64 million senior subordinated notes due Dec. 15, 2003.

Although the note holders would receive security and would maintain the same 11.625% cash coupon on the new notes along with a non-cash interest component from and after Dec. 15, 2003, without the extended maturity to 2005 from 2003, Wickes may not be able to meet all of its obligations as originally promised under the subordinated note issue, S&P said.

In addition, subordinated note holders that do not agree to the exchange will be disadvantaged over the holders of the new senior secured notes, who will be senior to them but junior to the bank facility.

If the transaction is completed, S&P said it will treat it as identical to a default.

If the exchange offer is completed, S&P will cut the notes to D.

Moody's raises Sinclair liquidity

Moody's Investors Service upgraded Sinclair Broadcast Group's speculative-grade liquidity rating to SGL-1 from SGL-2.

Moody's said the upgrade reflects Sinclair's very good liquidity position.

The improvement is based on the combined benefits of increasing cash flow over the course of 2002 and less debt.

Moreover, the company is expected to continue to report positive free cash flow over the next 12 months and maintains substantial availability under its revolving credit facility of $225 million, Moody's added.

S&P upgrades Denny's, rates loan BB-

Standard & Poor's upgraded Denny's Corp. and assigned a BB- rating to its new $125 million senior secured revolving credit facility due 2004. Ratings raised include Denny's $120 million 12.75% senior unsecured notes due 2007 and $592 million 11.25% senior notes due 2008, both upgraded to CCC+ from CCC. The outlook is stable.

S&P said the upgrade is in response to Denny's successful refinancing of its credit facility which eliminated a significant near-term concern.

The bank loan is rated BB-, two notches higher than the corporate credit rating. The facility is guaranteed by Denny's and its subsidiaries and is secured by substantially all of the company's assets, including first-priority mortgages on 246-owned restaurant properties. S&P said it believes Denny's would be reorganized under a default scenario rather than liquidated based on its established brand, previous history of reorganization after bankruptcy, and large amount of unsecured debt holders that would provide an impetus for reorganization. The loan represents about 20% of the company's total debt structure. Based on a simulated default scenario, S&P said the enterprise value would provide a very strong likelihood of full recovery of principal for the lenders.

S&P added that Denny's ratings reflect the challenges of improving the operations of Denny's restaurants amid a highly competitive restaurant industry, the company's weak cash flow protection measures, and its significant debt burden. These risks are somewhat offset by the company's relatively well-known brand name and regional market position.

Comparable-store sales in the first nine months of 2002 declined by 0.7% after rising 2.7% in all of 2001, S&P noted. The company's operating margin for the 12 months ended Sept. 25, 2002, increased to 18.5% from 16.3% in the same period of 2001. The improvement was due to the closure of underperforming stores, a higher percentage of franchised units in its system, and lower product and utility costs.

Leverage is high, despite using the $32.5 million proceeds from the divestiture of FRD Acquisition Co. to repay debt, with lease-adjusted total debt to EBITDA of more than 5.0x, S&P said. Cash flow protection measures are thin, with EBITDA covering interest by about 1.5x.

Moody's lowers Penn Traffic outlook

Moody's Investors Service lowered its outlook on The Penn Traffic Co. to negative fro stable and confirmed its ratings including its $100 million 11% senior unsecured notes due 2009 at B3.

Moody's said the outlook revision is in response to increased operational pressures caused by heightened competition during the current economic slowdown, Moody's revised opinion that lease-adjusted leverage will increase over the medium term, and the necessary reduction in the pace of capital investment.

The negative outlook acknowledges the possibility that ratings may decline if leverage permanently increases, operating cash flow does not cover obligation such as capital expenditures and substantial pension contributions, or the competitive environment further adversely affects operating results, Moody's said.

Given the strength of its competitors, Moody's added that it believes that Penn Traffic's maintenance of a leading market position requires continued substantial investment.

Over the longer term, ratings could eventually move upward if operating performance significantly improves, debt protection measures become better, and grocery market share increases, Moody's said.

Fitch puts Citgo, PDV America on watch

Fitch Ratings put Citgo Petroleum Corp. and PDV America, Inc. on Rating Watch Negative including Citgo's senior unsecured debt at BBB- and PDV America's senior notes at BB+.

Fitch said the watch placement is in response to the heightened uncertainty related to the prolonged political crisis and national strike in Venezuela.

The Rating Watch Negative status reflects the interruption of crude oil supply from PDVSA and related entities as a result of the general strike in Venezuela, which began on Dec. 2. PDVSA is contractually obligated to supply approximately 50% of Citgo's feedstock requirements under long-term crude oil supply agreements.

Fitch said it believes that the supply interruptions from Venezuela will remain in place at least as long as the national strike continues unabated. The oil sector's overwhelming support for the three-week old strike has effectively shut down Venezuela's hydrocarbon industry, disrupting crude oil and derivative product export flows.

The continued sovereign uncertainty may result in shareholder interference with Citgo and PDV America, impairing their financial flexibility, Fitch added. A further deterioration in the credit quality of Venezuela and PDVSA could result in a multiple notch reduction in the ratings of PDV America and Citgo.

Citgo is actively acquiring crude to maintain refinery operations. To date, Citgo has been able to secure enough alternate crudes to maintain full operations through the middle of January. Citgo believes that it can secure adequate supply over the longer term.

However, the refinery's optimal performance is designed for the Venezuelan crude specifications, and as such, alternative crude slates may adversely impact Citgo's overall economics, Fitch said.

Moody's cuts Cluett American

Moody's Investors Service downgraded Cluett American Corp. including cutting its $50 million guaranteed senior secured revolving credit facility due 2004, $18.2 million guaranteed senior secured term loan A due 2004 and $43.1 million guaranteed senior secured term loan B due 2005 to Caa1 from Ba3, $112 million 10.125% guaranteed senior subordinated notes due 2008 to Caa3 from B3 and $50 million 12.5% cumulative exchangeable preferred stock due 2010 to Ca from B3. The outlook was lowered to negative from stable.

Moody's said the downgrade reflects continued weakness in operating profitability and liquidity concerns arising from a bank loan requirement to reduce senior funded indebtedness to $48 million as of March 30, 2003 from the Sept. 28, 2002 level of $93.1 million.

Also limiting the ratings are Cluett's customer concentration, high leverage, inclusive of approximately $80 million of exchangeable preferred stock, and insufficient interest and fixed charge coverage.

The ratings continue to recognize the sizable market share of the company's primary brands within the moderate price point category; and fashion resistance of the core products, which represent over 60% of total revenues, Moody's added.

The change in the rating outlook to negative from stable reflects the company's lack of financial flexibility in meeting its required principal reduction under its credit facility and the resulting probability of default under that credit facility as well as potential cross defaults under the senior subordinated notes indenture and the preferred stock, Moody's added.

S&P says Avaya unchanged

Standard & Poor's said Avaya Inc.'s ratings are unchanged at a corporate credit rating of BB- with a negative outlook after the company proposed an exchange offer for up to 70%, or $333 million, of its outstanding liquid yield option notes.

Although the offer is at 20% below accreted value, S&P said it does not view the exchange as coercive to investors because Avaya would likely have the financial capacity to meet the October 2004 put of the notes at the then-accreted value of about $500 million.

A successful completion of the proposed exchange would strengthen Avaya's financial position, potentially reducing debt outstanding by $333 million while reducing cash balances by no more than $100 million due to the terms of the offer and funding from Warburg Pincus Equity Partners. This benefit is offset by continued depressed profitability and weak credit protection metrics, S&P said.

S&P lowers Texas Industries outlook

Standard & Poor's lowered its outlook on Texas Industries Inc. to negative from stable and confirmed its ratings including its corporate credit rating at BB+ and preferred stock at B+.

S&P said the outlook revision reflects its concern that currently difficult conditions in Texas Industries' structural steel and cement, aggregates and concrete markets may be prolonged and further strain the company's credit measures. Weak demand and excess supply have put significant pressure on structural steel prices and prevented the company from increasing its operating rate beyond 50% at its new Virginia steel plant. As a result, the plant has yet to turn a profit and will be further challenged by new capacity being brought on-line by new market entrant, Steel Dynamics Inc.

The steel beams segment has been challenged by a confluence of factors including excess supply from high imports earlier in the year (structural steel products were not included in the U.S. government's section 201 tariffs) and weak demand due to lower nonresidential construction activity, S&P said. A weakened U.S. dollar and low selling prices have subsequently helped to stem the tide of imports; however, lackluster demand together with the ramp-up of structural beam production at Steel Dynamics' new structural mill is likely to further disrupt the market by increasing supply and weakening prices. Scrap costs have also risen through November and are likely to remain at higher levels, putting additional pressure on margins.

Texas Industries has typically maintained a moderate financial profile, targeting total debt to total capitalization of 35%-40%. The company had breached these targets in the past couple of years, spending heavily on expansion programs and meaningfully increasing debt, S&P noted. Since completing its growth spending last year, the company has focused on reducing costs and generating excess cash flows to reduce debt.

From May 31, 2001, to Nov. 30, 2002, the company paid down debt by $180 million and restored its debt to capital to 40%, S&P said. However, despite these actions, the company's EBITDA interest coverage declined to 2.9x for the quarter ended Nov. 30, 2002, from 4.3x in the previous quarter ended Aug. 31, 2002, due to its weakened profitability levels.

Moody's puts Panhandle Eastern on uncertain review, keeps CMS unchanged

Moody's Investors Service put Panhandle Eastern Pipeline Co.'s ratings including its senior unsecured debt at Ba2 on review with direction uncertain, changed from review for downgrade. Moody's said CMS Energy Corp., including its senior unsecured debt at B3, is unchanged and remains on review for possible downgrade. Southern Union Co. was confirmed including its senior unsecured debt atBaa3.

The announcement follows news that CMS will sell Panhandle Eastern to Southern Union and American International Group, Inc.'s Highstar Capital, LP private equity fund.

Moody's said its review of Panhandle Eastern will focus on the probability of the transaction being consummated and the relative placement of Panhandle's securities in the combined corporate structure.

Panhandle is a natural gas transmission company that is expected to continue generating relatively stable cash flows, sufficient to cover its capital expenditure requirements, Moody's said. Any excess cash flow could be loaned or distributed to its shareholders in the form of dividends.

S&P cuts Focal

Standard & Poor's downgraded Focal Communications Corp. including lowering its $270 million 12.125% senior discount notes due 2008 and $275 million 11.875% senior notes due 2010 to D from C and its $300 million senior secured bank facility due 2007 to D from CC.

S&P said the action followed Focal Communications' Chapter 11 bankruptcy filing.

The company has reached an agreement with its senior bank lenders and senior secured convertible noteholders, whereby the senior secured convertible notes will be exchanged into new common equity and $65 million of redeemable preferred equity, and the company will prepay $15 million under its senior secured bank credit facility, S&P noted.

Moody's confirms Conseco

Moody's Investors Service confirmed Conseco, Inc. including its senior unsecured debt at Ca. The outlook is developing.

The confirmation follows Conseco's Chapter 11 bankruptcy filing.

Moody's said no adjustments to Conseco's ratings are necessary as Moody's ratings already reflected the agency's belief that Conseco would likely have to file for bankruptcy.

The rating agency added that the value received by banks and debt holders will depend heavily on the specifics of the capital structure of the company when it emerges from bankruptcy.

Moody's said it expects that bondholders will emerge from restructuring with a majority ownership of Conseco. In order to allow Conseco to operate more freely subsequent to a restructuring, it is likely that the company will have moderate post-restructuring leverage. The current bank lenders will likely hold the majority of debt post-restructuring given their senior position within the capital structure.

The value received by creditors will depend upon three major factors. First, it will depend on the successful disposition of Conseco Finance Corp., which has reached an agreement in principal to be acquired by CFN Investment Holdings LLC. Second, the company must stabilize its operating insurance subsidiaries with respect to sales of new business and surrender and lapse activity. Lastly, the present harsh and volatile capital market conditions create additional uncertainty that could further constrain the operating earnings of Conseco, Moody's said.

S&P confirms CMS, puts Panhandle on positive watch

Standard & Poor's confirmed CMS Energy Co. including its senior unsecured debt at B+ and Consumers Energy Co.'s senior secured debt at BBB- and senior unsecured debt at B+ and maintained its negative outlook. S&P also placed CMS Panhandle Pipeline Cos. on CreditWatch with positive implications including its $100 million 7.2% debentures due 2024, $100 million 7.875% notes due 2004, $100 million 7.95% debentures due 2023, $200 million 6.5% senior notes due 2009, $300 million 6.125% senior notes due 2004 and $300 million 7% senior notes due 2029 at BB.

S&P said the action follows the announcement that Southern Union Panhandle, a newly formed unit of Southern Union Co. and AIG Highstar Capital LP, will purchase CMS Panhandle Pipeline Cos.

S&P said the positive watch for CMS Panhandle reflects its potential higher credit ratings dependent on the ultimate financing strategy for Southern Union Panhandle.

The confirmation for CMS Energy and Consumers Energy reflects the company's dramatically improved liquidity position due to the sale of its CMS Panhandle Pipeline unit for nearly $1.8 billion, including the assumption of about $1.2 billion of debt, S&P said.

The Panhandle Pipeline sale will enable the company to adequately meet about $1.3 billion of debt and bank facility maturities in 2003.

The sale is consistent with the company's intent to improve its liquidity position and deleverage its balance sheet by selling assets to bolster its financial profile, S&P added. CMS Energy should be able to continue its financial improvement due to the recently announced sale of its natural gas trading book, as well as through additional planned asset sales. Once completed, the ultimate effect could be a stabilization in the company's credit profile.

S&P cuts XM Satellite, still on watch

Standard & Poor's downgraded XM Satellite Radio Holdings Inc. and kept it on CreditWatch with negative implications. Ratings affected include XM Satellite Radio Holdings' $125 million 7.75% convertible subordinated notes due 2006, cut to C from CCC-, and XM Satellite Radio Inc.'s $325 million 14% senior secured notes due 2010, cut to CCC- from CCC+.

S&P said the action is in response to XM Satellite Radio's proposed exchange offer for its $325 million 14% senior secured notes due 2010.

S&P said it views the terms and nature of the exchange offer to be tantamount to a default. Although the exchange offer will not alter the principal value of the notes or the interest rate, it will require noteholders to defer cash interest payments for a period of time, which is considered a material concession. In addition, if the offer is not accepted by the holders of at least 90% of notes, then XM will likely be precluded from completing two other financing agreements that are critical to its ability to continue as a going concern.

If the exchange offer is completed, the issue rating on the senior secured notes will be lowered to D, S&P said.

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