Moody's puts Westport Resources on review

Moody's Investors Service put Westport Resources on review for downgrade. Ratings affected include Westport Resources' $275 million 8.25% senior subordinated notes due 2011 and $125.7 million 8.875% senior subordinated notes due 2007 at Ba3 and convertible preferred stock at B1.

Moody's said the review is in response to Westport Resources announcement that it will buy multi-zone Uinta Basin (northeastern Utah) natural gas reserves and gas gathering and processing assets from El Paso for $502 million in cash.

The ratings will be downgraded or confirmed, depending on how certainly Westport Resources can issue very substantial equity in the near term, Moody's said. If downgraded, the senior implied rating would fall by one notch to Ba3, causing (per Moody's subordinated debt notching practice) the senior subordinated note ratings to fall two notches. If the senior implied rating is not downgraded, the subordinated note ratings could still be downgraded by one notch if the pro-forma debt structure contains substantial secured bank debt.

Though highly leveraged, the scale purchase of long-lived Rocky Mountain reserves with several years of identified relatively lower risk development activity addresses a core challenge, Moody's said. Westport Resources has not sustained production growth in the face of a short proven developed (PD) reserve life. In spite of $42 million of 2002 acquisitions through Sept. 29, 2002, third quarter 2002 production was just below fourth quarter 2001 and first quarter 2002 levels and down 5.6% from second quarter 2002. Rejuvenated prospects for growth would, if delivered, enhance financial flexibility after high leverage is reduced. The acquisition boosts the PD reserve life from a short 5.5 years to a still fairly short 6.7 years.

Pro-forma leverage would soar and liquidity tighten. Pro-forma for both acquisitions, and assuming an all-debt-funded acquisition, leverage surges to approximately $5.80/boe of PD reserves, up from an already full roughly $4.25/boe of PD reserves pro-forma for Smith and earlier 2002 acquisitions, Moody's said. Debt/capital was 38% at third quarter 2002 but rises to 53% pro-forma for the El Paso purchase.

Moody's upgrades Kazkommertsbank, Bank TuranAlem

Moody's Investors Service upgraded Kazkommertsbank, Bank TuranAlem and Halyk Bank in Kazakhstan with the bonds going to investment grade. The outlook is stable. Ratings raised include the senior unsecured notes of Kazkommerts International BV and TuranAlem Finance BV, guaranteed by Kazkommertsbank and Bank TuranAlem respectively, upgraded to Baa3 from Ba2.

Moody's said the upgrade reflects its belief that the largest banks in the system are likely to receive support from local authorities in case of distress, and follows the raising of the ceiling for foreign currency bank deposits in Kazakhstan to Ba1 from Ba3.

Moody's upgrades Graham Packaging liquidity

Moody's Investors Service upgraded Graham Packaging Company LP's speculative-grade liquidity rating to SGL-3 from SGL-3. The long-term debt was not affected by the action.

Moody's said the upgrade reflects its updated assessment of Graham's near-term liquidity position by recognizing the continued improvements in financial performance and the resulting enhancement in credit statistics - notably improved net cash generated by operations, better return on assets, and reduced financial leverage albeit remaining significant.

Moody's said it believes the company is poised to have positive free cash flow during fiscal 2003, primarily achieved with tight management of capital expenditures.

This should ease covenant compliance concerns for the period, Moody's noted.

S&P puts Satmex in watch

Standard & Poor's put Satelites Mexicanos, SA de CV on CreditWatch with negative implications including its $223 million floating-rate secured notes due 2004 at CCC+ and $390 million 10.125% notes due 2004 at CCC-.

S&P said the action follows Satmex's filing for a consent solicitation in order to amend its insurance covenant on its senior unsecured notes due 2004 to conform it to insurance coverage currently available on commercially reasonable terms in the space insurance market.

Additionally, the company filed a waiver solicitation to be able to amend the terms of the indenture of its senior secured floating-rate notes due 2004 and its revolving credit facility that restrict Satmex's ability to amend the insurance covenant in the senior notes indenture.

Although the delivery of the consent and waiver solicitations will not represent a discount on the existing bonds at maturity, if the consent and waiver are not received Satmex will not be able to obtain the required insurance upon expiration of its current policy on Nov. 29, 2002 and the company will default on its senior notes, S&P said.

If the solicitations are not approved, Satmex will default on its debt obligations and ratings will be lowered to D.

S&P cuts Quantum

Standard & Poor's downgraded Quantum Corp. and removed it from CreditWatch with negative implications. The outlook is stable. Ratings lowered include Quantum's $250 million 7% convertible subordinated notes due 2004, cut to B from B+, and $500 million unsecured revolving credit facility, cut to BB- from BB.

S&P said the downgrade reflects Quantum's deterioration in profitability over multiple quarters.

EBITDA has fallen to between a loss of $10 million and slightly positive in each of the three quarters ending Sept. 30, 2002, from a high of $113 million in quarter ended March 31, 2001, S&P noted. The broad recession in enterprise IT investing continues to put pressure on the volumes of tape drives and systems shipped.

Losses in Quantum's drive and tape automation businesses are partially offset by revenues from tape media and royalties, which run $90-$100 million per quarter and which are highly profitable. Despite media contributions, overall profitability, cash-flow generation and debt protection measures have not remained at levels consistent with the rating, S&P said.

Quantum is taking steps to offset declining profitability including selling manufacturing assets and outsourcing drive manufacturing, reducing other operating expenses, and divesting its unprofitable network-attached storage business, S&P added. These actions are expected to reduce breakeven quarterly revenue levels to $230 million from $300 million currently.

S&P said it views these actions positively. Still, recovery to historical profitability levels will require an improvement in the IT spending environment to more normalized rates.

Fitch rates Dex Media loan BB-, notes B, B-

Fitch Ratings assigned a BB- rating to Dex Media East, LLC's $1.49 billion senior secured credit facility, a B to its $450 million of senior unsecured notes and a B- to its $525 million senior subordinated notes. The outlook is stable.

Fitch said it expects that the company will have the ability to reduce leverage using free cash flow to repay secured borrowings.

Fitch's ratings reflect the company's strong market position as the incumbent directory publisher within its service territory, the stability and consistency of its revenue stream, strong operating margins and anticipated free cash flow generation. The company's revenue stability is supported by a high advertiser retention rate and the contractual nature of the company's revenues. The contracts the company has with its advertiser base provide the company with significant revenue visibility as a large portion of the company's annual revenue is confirmed early in the year.

In Fitch's view, revenue generated by yellow page publishers is not as sensitive to cyclical economic conditions as other forms of advertising.

Fitch's ratings are further supported by the geographic and customer diversity of its revenue stream and the anticipation of low ongoing capital expenditures to support its business.

These rating considerations are balanced against the high degree of leverage used to finance the acquisition, and execution risks centered on operating as a stand-alone entity, Fitch said. Fitch recognizes the potential impact on the company's operating margins stemming from independent directory publishers that compete on price. New market entrants, however typically increase the market size as advertisers hope to increase exposure.

S&P puts Tucson Electric on watch

Standard & Poor's put Tucson Electric Power Co. on CreditWatch with negative implications. Ratings affected include Tucson Electric's $100 million bank loan due 2002, $140 million letter of credit facility due 2006, $200 million letter of credit facility due 2007, $341 million bank loan due 2002 and $60 million revolving credit facility due 2003 at BB+ and its $140 million 7.5% first collateralized bonds obligations series A due 2008 and 8.5% first mortgage bonds due 2009 at BBB-.

S&P said the action follows parent UniSource Energy Inc.'s announcement of an agreement to purchase certain gas and electric transmission and distribution assets in Arizona from Citizens Communications for $230 million.

The CreditWatch listing reflects current uncertainty about the effect on Tucson Electric's credit quality after the transaction, including the ultimate financial structure of the acquisition, the cash generating capacity of the new properties, and decisions by the Arizona Corporation Commission (ACC) with respect to ratemaking, S&P said.

It is also important to note that UniSource has negotiated a walk-away provision for a modest penalty of $25 million, exercisable under certain conditions, including unsatisfactory rate relief. Although initial public indications by commissioners appear to back UniSource's acquisition, the company can elect not to complete the purchase if, among other considerations, final decisions regarding cost recovery are unsupportive of credit quality.

The addition of about 76,000 electric customers and 120,000 gas customers will represent an increase of 50% to Tucson Electric's customer base.

Despite improving cash flow and active efforts to decrease leverage at the utility over the past few years, Tucson Electric's debt levels remain exceptionally high, S&P said. Initial projections indicate that the equity infusion from Tucson Electric should not impair management's stated goal of applying approximately $30 million-$50 million annually of excess cash flow at Tucson Electric to the early retirement of debt. Year to date, Tucson Electric has purchased back lease debt of approximately $130 million.

S&P takes Mississippi Chemical off watch

Standard & Poor's confirmed Mississippi Chemical Corp. and removed it from CreditWatch with negative implications. The outlook is negative. Ratings affected include Mississippi Chemical's $200 million unsecured revolving credit facility due 2002 at CCC+ and $200 million 7.25% senior notes due 2017 and $200 million 7.25% senior notes due 2017 at CCC.

S&P said the action follows the announcement that Mississippi Chemical and its bank group have agreed to extend the maturity date of the company's bank credit facility to November 2003.

This extension reduces the immediate refinancing risk facing the company - the bank facility currently matures in November 2002 - and increases the likelihood that the company will make its upcoming Nov. 15, 2002 bond coupon payment, S&P added.

As part of the agreement with the banks, the credit facility will be reduced to $165 million from $200 million.

Still, the ratings incorporate S&P's recognition of deterioration in the company's credit profile resulting from a sizable debt burden and disappointing operating results.

Mississippi Chemical's liquidity position is very weak, S&P continued. At June 30, 2002, the company had about $2 million in cash. The company's bank facility will be reduced to $165 million ($119 million is outstanding as of Nov. 7, 2002), an amount which will provide little excess room as the company's working capital use increases over the next few months.

Moody's puts McDermott on review

Moody's Investors Service put McDermott Inc. and J. Ray McDermott, SA on review for possible downgrade including McDermott's senior unsecured notes and medium-term notes at B2.

Moody's said its review will focus on continuing operating problems at J. Ray McDermott, a continuing lack of liquidity, as well as uncertainties surrounding the ultimate settlement amounts related to asbestos litigation.

The combination of deteriorating cash flow from J. Ray McDermott and tightening liquidity has increased the risk associated with renewing McDermott's and J. Ray McDermott's credit facilities, both of which mature in February 2003.

Moody's noted that near-term liquidity is not an immediate problem, as McDermott currently has unencumbered cash on hand of approximately $63 million and $144 million of availability under its and J. Ray McDermott credit facilities.

S&P confirms Time Warner Telecom, off watch

Standard & Poor's confirmed Time Warner Telecom Inc. and removed it from CreditWatch with negative implications. The outlook is negative. Ratings affected include Time Warner Telecom's $400 million senior notes due 2011 and $400 million 9.75% senior unsecured notes due 2008 at CCC+ and Time Warner Telecom Holdings Inc.'s $225 million term loan A due 2007, $300 million term loan B due 2008 and $475 million revolving credit facility due 2007 at B.

S&P said it put Time Warner Telecom on CreditWatch on Sept. 24 due to concerns about the company's ability to meet bank loan covenants in 2003.

The confirmation and removal from CreditWatch followed the company's announced amendments to its bank loan agreement, which loosens the debt to EBITDA and EBITDA interest coverage maintenance tests during 2003, S&P said. This provides Time Warner Telecom additional financial cushion, with the expectation that the company can meet these revised covenants at the current operating cash flow run rate of about $40 million per quarter.

As part of the bank loan agreement, the company drew a net additional amount under the term loans of $170 million, which provides the company with a cash balance of about $475 million as of Sept. 30, 2002, pro forma for the debt draw down, S&P said. Time Warner Telecom is also restricted from additional drawdowns under the revolving credit agreement until 2004. Absent a material drop in the current level of business, these cash balances, coupled with cash generated from operations, are expected to provide sufficient funding in 2003 to meet capital requirements.

However S&P said it is concerned that a decline in the business base and attendant operating cash flows in 2003 could result in the company's inability to meet the revised financial maintenance covenants under the bank loan. These include a maximum net debt (as defined in the bank loan agreement) to quarterly annualized EBITDA requirement of 7 times in the first quarter of 2003, declining to 6.75x in the second and third quarter, and 6.5x in the fourth quarter of 2003, and a minimum rolling four-quarter EBITDA interest coverage of 1.1x for the first half of 2003, increasing to 1.25x for the second half of 2003.

Moody's cuts American Lawyer

Moody's Investors Service downgraded American Lawyer Media Holdings, Inc. and assigned a negative outlook. Ratings lowered include American Lawyer Media's $175 million of 9.75% senior unsecured operating company notes due 2007, cut to Caa3 from B3 and $63.3 million face value 12.25% senior unsecured holding company notes due 2008, cut to C from Caa3.

Moody's said the downgrade reflects its concerns about American Lawyer Media's ability to service its debt as it becomes increasingly cash pay and will therefore need to pursue the restructuring of its balance sheet.

American Lawyer Media will have to begin paying cash interest on its discount notes in June 2003. Based on recent results and limited growth prospects, the company is expected to experience difficulty covering its interest expense with operating cash flow, Moody's said. Moreover, cash on the balance sheet of $2.1 million and availability under a subsidiary revolving credit facility of $9.3 million as of June 30, 2002, will not likely sustain the company through the rating horizon.

Based on American Lawyer Media's very high leverage, small size, and the continuing weak economic environment, the company will be challenged to attract additional capital, Moody's added.

Financial restructuring is the most likely remedy for the company to pursue in order to improve its capital structure, Moody's said. The Caa3 rating on the senior unsecured notes implies a high degree of default risk over the rating horizon and potentially substantial impairment of principal. The ultimate recovery on the operating company notes is expected to be between approximately 60% - 70%.

S&P cuts Doman

Standard & Poor's downgraded Doman Industries Ltd. to D including cutting its $125 million 9.25% notes due 2007 and $425 million 8.75% notes due 2004 previously at C and its $160 million senior secured notes due 2004 previously at CCC-.

S&P said the action follows Doman's filing for protection under the Companies' Creditors Arrangement Act.

Fitch keeps Portland General on watch

Fitch Ratings confirmed Portland General Electric's ratings and kept it on Rating Watch Negative including its senior secured debt at BB+, senior unsecured debt at BB- and preferred stock at B.

Fitch said the rating confirmation reflects Portland General's recently improved near-term liquidity position but also the continuing uncertainty pending resolution of Enron Corp.'s efforts to sell the company.

The ratings also consider the negative overhang from Enron's bankruptcy, contingent liability issues, and exposure to ongoing investigations into the manipulation of western energy prices, Fitch said.

Favorable considerations include Portland General's strong stand-alone credit profile, constructive regulatory relations, and certain ring-fence provisions that insulate the company from involuntary consolidation, Fitch said. In addition, the company has a 48% minimum common equity requirement by the Oregon Public Utility Commission.

Although Portland General's liquidity appears adequate through May 2003, when $142 million of Pollution Control Revenue Bonds become putable to the company, Fitch said the company's ability to refinance $222 million of secured revolving credit facilities, which mature in June ($72 million one-year revolver) and July of 2003 ($150 million three-year revolver), and $40 million of first mortgage bonds, which mature in August 2003, is a significant concern given the bankruptcy overhang and a difficult industry financing environment.

Fitch puts Xcel on watch

Fitch Ratings put Xcel Energy Inc. and its subsidiaries Northern States Power Co. MN, Northern States Power Co. WI, Southwestern Public Service Co. and Public Service Co. of Colorado on Rating Watch Negative. Ratings affected include Xcel Energy's senior unsecured debt at BB+, Northern States Power MN's first mortgage bonds and secured pollution control revenue bonds at BBB+, senior unsecured debt and unsecured pollution control revenue bonds at BBB and trust preferred stock at BBB-, Northern States Power WI's first mortgage bonds at BBB+ and senior unsecured debt at BBB, Southwestern Public Service's first mortgage bonds at BBB+ and senior unsecured debt at BBB, Southwestern Public Service Capital I's trust preferred stock at BBB- and Public Service of Colorado's first mortgage bonds at BBB+, senior unsecured notes at BBB and preferred stock at BBB-.

Fitch said the action is in response to concerns over Xcel's short-term liquidity, following the maturity of its $400 million bank revolving credit line due Friday, which was paid down and not renewed.

Fitch notes that Xcel continues to have several avenues available to increase liquidity, and benefits from its ownership of subsidiaries with a strong regulated utility base, but will monitor the parent's ability to attract funding to replace the depletion of available liquidity.

Xcel has indicated that liquidity needs over the next month are modest, primarily a $25 million interest payment due in early December 2002, Fitch noted. Xcel has stated that it does not see significant additional near-term liquidity needs in collateral for its own trading business or as a result of the guarantee extended to coal and gas purchase arrangements at troubled subsidiary NRG Energy.

The settlement of a restructuring of NRG Energy Inc. may, however, involve an injection of up to $300 million by Xcel as part of the settlement with creditors, Fitch added. While any such payment, were it to be made, would likely fall in 2003, the overhang of this potential obligation will continue to pressure liquidity at the holding company, not least as Xcel seeks to access new sources of capital.

Fitch rates CenterPoint Houston loan BBB

Fitch Ratings assigned a BBB rating to CenterPoint Energy Houston Electric, LLC's $1.3 billion senior secured term loan due November 2005. Fitch also confirmed CenterPoint Energy Houston's first mortgage bonds at BBB+. The outlook is negative.

The outlook for both CenterPoint Energy Houston and its parent CenterPoint Energy, Inc. (senior unsecured at BBB-) remains negative due to ongoing debt refinancing pressures at CenterPoint over the next six to nine months, Fitch said.

Although the new financing at CenterPoint Energy Houston satisfies a condition under CenterPoint's bank credit facilities requiring CenterPoint and/or CenterPoint Energy Houston to raise $400 million of external capital by Nov. 15, CenterPoint's remaining $3.85 billion of fully drawn bank credit facilities are subject to mandatory commitment reductions of $600 million each in February 2003 and June 2003.

Given the low risk nature of CenterPoint Energy Houston's operations combined with its relatively conservative capital structure (approx. 50% debt/capital) cash interest coverage is expected to range above 2.5 times over the next several years even after factoring in the significantly higher financing costs associated with CenterPoint Energy Houston's new borrowing arrangements (Libor + 975 basis points), Fitch said. However, despite its relatively stable standalone credit profile, CenterPoint Energy Houston's debt ratings are constrained due to high projected leverage and ongoing refinancing risk at CenterPoint.

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