S&P puts Hollinger on watch, rates new loan BB-, notes B

Standard & Poor's put Hollinger Inc. on CreditWatch with negative implications. Ratings affected include Hollinger's C$104.62 million 7% preferred shares due 2004 at B-, Hollinger International Publishing Inc.'s $250 million 9.25% subordinated notes due 2006 and $290 million 9.25% senior subordinated notes due 2007 at B and Hollinger Participation Trust's $490 million 12.125% senior notes due 2010 at B-. S&P also assigned a BB- rating to Hollinger International Publishing's new $40 million senior secured revolving credit facility due 2008, $40 million amortizing term loan A due 2008 and $220 million amortizing term loan B due 2009 and a B rating to its $300 million senior unsecured notes due 2010. Ratings on Hollinger International Publishing's $50 million revolving credit facility due 2008, $50 million term A loan due 2008 and $250 million term B loan due 2009, previously at BB-, were withdrawn.

Net proceeds from the new issuances will be used to refinance outstanding indebtedness, including the remaining $240 million 9.25% senior subordinated notes due 2006 and $265 million 9.25% senior subordinated notes due 2007, repay $90 million of debt at Hollinger International, and for general corporate purposes.

S&P said it put Hollinger's ratings on watch because of the limited financial flexibility at the Hollinger Inc. holding company level.

Of particular concern is the C$90.8 million credit facility due on Feb. 28, 2003, S&P added. Hollinger Inc. is required to makes a partial repayment of its bank facility by the end of February 2003, at which time the remaining bank loan will be extended until December 2003.

Hollinger Inc.'s ability to make the required reduction is largely dependant on the completion of announced refinancing at its U.S. subsidiaries or on other financial alternatives, including the sale of assets.

The resolution of the CreditWatch placement is dependant upon the successful completion of the announced transactions and the refinancing and/or reduction of Hollinger Inc.'s bank debt by Feb. 28, 2003, after which the ratings will be affirmed at 'BB-' with a negative outlook, S&P said.

The anticipated negative outlook following the CreditWatch resolution reflects Hollinger's financial profile and policy that remains aggressive for the rating category, S&P added.

Moody's confirms Hughes, PanAmSat

Moody's Investors Service confirmed Hughes Electronics Corp., including its senior secured debt at Ba3, and PanAmSat Corp., including its senior secured debt at Ba2 and senior unsecured debt at Ba3. The outlook is stable.

Moody's said it confirmation follows the announcement that General Motors Corp., its subsidiary Hughes and EchoStar Communications Corp. have reached a settlement to terminate the proposed merger of Hughes and EchoStar, effective immediately. Under the terms of the settlement, EchoStar has paid to Hughes $600 million in cash, and Hughes will retain its 81% ownership position in PanAmSat.

With uncertainty surrounding Hughes' proposed merger with EchoStar now removed, the credit focus turns to liquidity and permanent financing for the company's long-term needs, Moody's said.

The recent bank loan refinancing along with the Echostar proceeds offer some temporary breathing room until August 2003, when the current bank facilities expire, the rating agency said.

An important consideration for the company's credit ratings was the expected payment by EchoStar to Hughes of the $2.7 billion purchase price of Hughes' interest in PanAmSat, which was intended to occur even in the event of regulatory objections to an EchoStar-Hughes merger, Moody's noted. Since that portion of the agreement is no longer a consideration, near-term refinancing risk is very high until more permanent financing is executed as expected.

The EchoStar proceeds are expected to be applied to Hughes' bank facility term loan as called for by the indenture, and current debt levels are not very high, Moody's said.

However, the company is still a net user of cash and therefore will steadily grow its debt levels for the foreseeable future and will likely more than double over the next year, Moody's added.

PanAmSat's ownership uncertainty is also cleared up for now, though as mentioned above, longer-term uncertainty is an issue, Moody's said. The current rating continues to be impacted and constrained by its ownership by its weaker credit-positioned controlling parent Hughes, although, it is reasonably ring-fenced by its bank covenants and restrictions. The company generates good free cashflow and is moderately leveraged.

However, it faces the conflicting negative impact from its exposure to DLA as some of its revenues are derived from that Hughes business. Moody's believes that over the near-term, those revenues are likely to remain, but are significantly in question beyond the next 18 to 24 months, which could materially reduce free cashflows if those transponders cannot be leased to other customers at similar price levels.

S&P changes Hughes, PanAmSat to developing watch

Standard & Poor's changed its CreditWatch on Hughes Electronics Corp. and PanAmSat Corp. to developing from negative. Ratings affected include Hughes' $1.934 billion revolver due 2003 at BB- and PanAmSat's $125 million 6.875% debentures due 2028, $150 million 6.375% notes due 2008, $200 million 6% notes due 2003, $250 million 7-year revolver, $275 million 6.125% notes due 2005, $400 million term A loan due 2008 and $600 million term B loan due 2008 at BB- and $500 million 8.5% senior unsecured notes due 2012 at B-.

S&P said the action follows Hughes' and EchoStar Communications Corp.'s termination of their merger deal. As part of a negotiated resolution, EchoStar will pay Hughes a $600 million cash breakup fee, but will not be purchasing Hughes' PanAmSat stake as originally agreed.

Termination of the merger provides meaningful cash to Hughes and enables the company to freely pursue strategic alternatives to a combination with Echostar, S&P said.

Refinancing risk is also somewhat reduced on Hughes' recently amended and extended $1.9 billion credit facility that expires in August 2003. However, considerable uncertainty still surrounds the eventual ownership of Hughes given parent company General Motors Corp.'s continued interest in divesting this business, S&P noted.

S&P downgrades PerkinElmer, rates loan BB+, notes BB-

Standard & Poor's downgraded PerkinElmer Inc., removed it from CreditWatch with negative implications and assigned a BB+ rating to its new $100 million 5-year revolving credit facility and $345 million 6-year term B loan due 2008 and a BB- rating to its $225 million senior subordinated notes due 2012. Ratings lowered include PerkinElmer's $100 million revolving credit facility due 2002, $115 million 6.8% notes due 2005, $250 million 364-day revolving credit facility and $400 million zero-coupon convertible debentures due 2020, cut to BB+ from BBB-. The outlook is stable.

S&P said the rating action reflects weak credit measures for the rating and sub-par operating performance in 2002.

Ratings previously incorporated the expectation that management would divest its Fluid Sciences business and use proceeds from the sale to reduce debt and improve credit measures, S&P said. Management decided to retain that business.

Management's refinancing actions provide the benefit of extending potential near-term maturities and enhancing liquidity but they do not materially improve credit measures, S&P said. Proceeds from the proposed debt issue and term loan portion of the credit facilities will be used to repay amounts outstanding under the existing credit facility, repurchase outstanding LYONs notes, and repurchase outstanding senior notes.

Operating margins are likely to fall to about 11% in 2002 from about 18% 2001. Pro forma for the refinancing actions, debt to EBITDA for the 12 months ended September 2002 is likely to be about 3.5x, with EBITDA interest coverage in the 4x range, S&P said.

S&P confirms Roundy's

Standard & Poor's confirmed Roundy's Inc.'s ratings including its senior secured bank loan at BB- and senior subordinated debt at B. The outlook is positive.

S&P noted that Roundy's plans to issue $75 million of senior subordinated debt as an add-on to its $225 million 8.875% senior subordinated notes due 2012. Proceeds will be used to fund the acquisition of Prescott Supermarkets Inc. and for general corporate purposes.

S&P said it confirmed Roundy's because of the company's stable sales and earnings performance despite a challenging operating environment and S&P's belief that Roundy's credit protection measures will not be greatly impacted by the additional debt.

Roundy's ratings reflect its participation in the highly competitive food wholesale and retail industries, in which it competes with much larger operators, and a limited history in operating a significant retail store base, S&P added. These risks are somewhat mitigated by the company's leading retail market position in the greater Milwaukee, Wis. market, and stable operating performance in its food wholesale segment.

Roundy's retail operations have increased significantly over the past two years through the acquisition of 24 Pick 'n Save stores in 2000, 21 Copps stores in 2001, and 11 Pick 'n Save stores in 2002, S&P said. Through these acquisitions, Roundy's established the leading retail market position in the Milwaukee market, with a 40% share (including licensed Pick 'n Save stores) according to the 2002 Market Scope. Same-store sales were up 1.5% through the first nine months of 2002, down from the mid-single digit area in previous years, due to current industry trends.

Retail margins are expected to improve over the next three years through more efficient labor management, greater emphasis on higher-margin perishable product sales, and cost leveraging through new store openings. S&P expects Roundy's will increase its store base, adding five to seven stores annually over the next three years through either new stores or fill-in acquisitions.

Pro forma lease-adjusted EBITDA coverage of interest is 2.4x. Operating margins of 4.3% in 2001 could increase to about 5.0% over the next three years as the company focuses on improving and expanding its higher-margin retail operations, S&P said.

Moody's rates Roundy's add-on B2

Moody's Investors Service assigned a B2 rating to Roundy's, Inc. planned $75 million add-on to its senior subordinated notes due 2012 and confirmed its other ratings including its $375 million secured bank facility at Ba3 and $225 million 8 7/8% senior subordinated notes due 2012 at B2. The outlook is stable.

Moody's said it confirmed Roundy's in spite of an accelerated acquisition pace because of the company's good operating performance during the current period of revenue and margin pressures across the supermarket industry.

In addition, Moody's expects that the 11 acquired stores will soon prove modestly accretive.

The incremental debt will fund the pending acquisition of 7 stores for $49 million and restore the company's cash balance after the October 2002 acquisition of 4 stores for $26 million.

Roundy's ratings are constrained by the company's leveraged financial condition, the exposure to the economic fortunes of a narrow geographic region (Wisconsin and contiguous areas), and the scale of the company's operations relative to potential competitors in the consolidating supermarket industry, Moody's said.

Moody's belief that the company will continue purchasing supermarkets also affects its views of the challenges facing the company. However, the ratings recognize the company's position as the leading supermarket operator and grocery wholesaler in Wisconsin, the relatively modern condition of the company's store base, and the long-term stability of operating management.

Moody's confirms Westport, rates notes Ba3

Moody's Investors Service confirmed Westport Resources ratings, ending a review for downgrade, and assigned a Ba3 rating to its new $300 million senior subordinated notes due 2011. Ratings confirmed include Westport's $275 million of 8.25% senior subordinated notes due 2011 and $126 million of 8.875% senior subordinated notes due 2007 at Ba3 and $75 million convertible preferred stock at B1.

Moody's noted that the subordinated note ratings are one notch below the Ba2 senior implied rating but that Westport's bank agreement calls for its banks to become secured by virtually all of its oil and gas reserves if its senior implied rating is not upgraded to Ba1 by year-end 2003. It is thus highly possible the note ratings would be notch down by one rating level to B1.

Moody's began the review on Nov. 8 after Westport announced it a $520 million acquisition of Uinta Basin (northeastern Utah) natural gas reserves, gathering and processing assets, and exploration acreage from El Paso.

The purchase is a potentially transforming transaction, adding a new core area of large scale, concentration, and considerable exploitation potential, Moody's said. It adds visibility to production replacement, lengthens the proven developed (PD) reserve life, and reduces Westport's reliance on short-lived Gulf of Mexico (GOM) and South Texas production.

The issue of $250 million of gross equity this quarter funds almost 50% of the purchase price and properly shifts a large amount of the fully-priced acquisition's substantial development, exploration, and regional price risk to the most junior level of capital, Moody's said. Westport's basis risk and price risk hedging program protects 2003 realized prices.

Westport also says it will under-spend expected 2003 cash flow by $100 million and sell up to $100 million of non-strategic assets to further reduce debt, Moody's said.

S&P confirms Westport, rates notes B+

Standard & Poor's confirmed Westport Resources Corp.'s ratings, removed it from CreditWatch with negative implications and assigned a B+ rating to its new $300 million 8.25% senior subordinated notes due 2011. Ratings confirmed include Westport Resources' $275 million 8.25% senior subordinated notes due 2011 at B+, $600 million revolving credit facility due 2005 at BB and $75 million convertible preferred stock at B and Belco Oil & Gas Corp.'s $150 million 8.875% senior subordinated notes due 2007 at B+. The outlook is now stable.

S&P said the rating actions follow Westport Resources' successful pricing of a 10 million share common stock offering with net proceeds of roughly $188 million in combination with an already completed private placement of $50 million in equity that will bring Westport Resources' expected, year-end 2002 debt leverage down to the low-40% range from above 50%.

Also, the company intends to underspend cash flow by $100 million in 2003 to provide additional cash for debt reduction, S&P noted. Cash flow in 2003 is supported by natural gas price hedges at prices above $3.75 per million cubic feet on 100% of the projected production, from the acquired El Paso Corp. properties.

The ratings on Westport Resources reflect its midsize reserve base and moderate financial profile, reflected by its somewhat aggressive debt leverage, S&P said. The pending acquisition of properties from El Paso should give Westport Resources a backlog of over 2,000 exploitation projects, strengthen its position in the Rocky Mountains region, and further its diversification away from reliance on the Gulf of Mexico for production. These advantages are offset in part by high finding and development costs, with little near-term improvement expected.

S&P rates Owens-Brockway notes BB

Standard & Poor's assigned a BB rating to Owens-Brockway Glass Container Inc.'s $175 million senior secured notes due 2012 and confirmed parent Owens-Illinois Inc. and related companies including Owens-Illinois' senior unsecured debt and senior secured debt at B+ and preferred stock at B and Owens Illinois Group Inc.'s senior secured bank loan and senior secured debt at BB.

S&P said the confirmation incorporates expectations that the company's asbestos liability will remain manageable and that management's efforts to improve cash flow protection measures will be realized in the near to intermediate term.

The ratings on Owens-Illinois Inc. and its related entities reflect the company's aggressive financial profile and meaningful concerns regarding its asbestos liability, offset by an above-average business position and strong EBITDA generation, S&P said. Owens-Illinois' above-average business risk profile reflects the company's preeminent market positions (which are bolstered by superior production technology), operating efficiency, and the relatively recession-resistant nature of many of its packaging products.

Owens-Illinois' leading cost position is demonstrated by strong EBITDA margins averaging about 25%, a level that soundly tops its peer group.

Owens-Illinois has had to make sizable payouts for asbestos-related claims, with 2001 seeing the peak payout at $245 million, S&P noted. The acceleration in its asbestos payouts was due to increased levels of filings and management's proactive efforts to resolve claims. Net payouts in 2001 were reduced by proceeds from insurance settlements, however, the bulk of Owens-Illinois' insurance coverage has now been utilized.

The company took a charge of $475 million in the first quarter of 2002 to increase the reserve for estimated future asbestos-related costs to a total of $712.5 million, S&P said. The increase raises concern because the liability has exceeded earlier estimates and suggests that Owens-Illinois' obligations relative to asbestos is declining more slowly than previously expected. Still, Owens-Illinois expects that its asbestos-related cash payments in 2002 will be about 10% lower than 2001 payments and should continue to decline thereafter.

S&P said it views Owens-Illinois' asbestos litigation differently from many other defendants because the company exited the business several years earlier, has a much older claimant base (average age 76), and is receiving fewer claims.

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