Moody's cuts Solutia

Moody's Investors Service downgraded Solutia Inc. including cutting its $223 million guaranteed senior secured notes due 2009 to B3 from Ba3, $300 million senior unsecured debentures due 2027 and $150 million senior unsecured debentures due 2037 to Caa3 from B1, $300 million guaranteed senior secured revolver due 2004 to B2 from Ba2 and Solutia Europe SA/NV's €200 million guaranteed senior unsecured notes due 2005 to B3 from B1. The outlook is negative. The action completes a review begun on May 1.

Moody's said the downgrade reflects Solutia's high leverage with debt to latest 12 months EBITDA of 6.1 times, significant near-term financing requirements, weak operating performance stemming from soft demand and higher feedstock costs, near-term payments in support of off-balance-sheet obligations and continuing risks associated with PCB litigation.

Solutia is currently seeking to refinance its revolving credit facility, which expires August 2004. Refinancing the credit facility is the initial step in addressing significant intermediate-term debt maturities with the $150 million senior unsecured debentures putable in August 2004 and the €200 million senior unsecured notes due in February 2005.

The company has indicated that PCB litigation issues could make it difficult to refinance these debt obligations. Also, Solutia expects to make $30 to $35 million of keepwell payments to Astaris (a 50/50 joint Venture with FMC Corp.) during the second half of 2003.

Other factors that could complicate the refinancing include a large pension OPEB and environmental liabilities.

The negative outlook reflects uncertainty over Solutia's ability to refinance pending debt maturities, Moody's added. Moody's said it believes that there is significant pressure to refinance its existing debt structure.

The outlook also reflects Moody's expectation that litigation issues, raw materials pricing pressure, and continued weak industry conditions will continue to challenge the company's performance.

S&P cuts MMI Products

Standard & Poor's downgraded MMI Products Inc. including cutting its $11.3 million 13% senior subordinated notes due 2007, $188.7 million 11.25% subordinated notes due 2007 and $30 million 11.25% senior subordinated notes series C due 2007 to CCC from CCC+. The outlook is negative.

S&P said the action reflects deteriorating credit measures caused by depressed volumes, rising steel prices and lower product pricing that have squeezed MMI's operating margins during a period already challenged by the company's substantial restructuring and consolidation efforts.

The new ratings reflect the assumption that the company will be able to obtain a waiver of a second quarter financial covenant violation, which should leave it with enough liquidity to meet its operating, capital, and debt servicing requirements in the near term.

MMI's ratings reflect its high debt burden, its aggressive acquisition strategy, integration, consolidation, and restructuring risks, and volatile raw material costs partially offset by a leading market position in fencing and a national presence.

Although MMI increased its annual revenues to almost $500 million through a series of acquisitions over the past several years, it still must integrate and rationalize these operations in order to reduce overcapacity, S&P said. The company enjoys a solid market position in fencing and a broad distribution network, but its end markets, especially commercial and residential construction, are cyclical.

The company has a very aggressive capital structure, S&P said. Cash dividends have periodically been paid to its holding company parent to support the parent's debt obligation. Interest on parent company debt, which is held by an affiliate of MMI's equity sponsor, is payable in cash or in kind at the borrower's option. MMI paid dividends totaling $52.5 million to its parent during the past three years, but no payments are expected for the foreseeable future. Debt to EBITDA and EBITDA interest coverage, including holding company debt, are currently weak for the ratings, at 10x and 1x, respectively.

S&P confirms WHX, off watch

Standard & Poor's confirmed WHX Corp.'s ratings including its $300 million 10.5% senior notes due 2005 at CCC and removed them from CreditWatch developing. The outlook is negative.

S&P said the actions follow WHX's announcement that it has been relieved of any future cash obligations to its former subsidiary Wheeling-Pittsburgh Corp. and its affiliates, associated with Wheeling-Pittsburgh's Chapter 11 reorganization plan.

Wheeling-Pittsburgh recently completed its Chapter 11 plan of reorganization and is no longer a subsidiary of WHX. In addition, the Pension Benefit Guarantee Corp. also rescinded its pursuit of the involuntary termination of WHX's pension plan and agreed to withdraw its civil complaint devoid of any required cash outlays from WHX.

Despite this favorable outcome, concerns remain about WHX's significant refinancing risk, as the majority of its $254 million of debt matures in less than two years, S&P said.

In the quarter ended June 30, 2003, WHX's sales at its precious metal segment decreased to $83.5 million compared with $109.2 million in 2002, while sales declined by $4.8 million to $30.8 million at its wire and tubing segment.

WHX has taken actions to reduce its costs, including closing several facilities. However, S&P said it does not expect WHX to exceed breakeven on an operating income basis until its markets rebound, which is not expected before 2004. Despite its use of asset sale proceeds to reduce debt, the company's debt levels remain relatively high, considering it generated a loss of $5 million on an EBITDA basis for the 12 months ended June 30, 2003.

Moody's rates Haights Cross notes Caa1, loan B3

Moody's Investors Service assigned a Caa1 rating to Haights Cross Operating Co.'s new $140 million senior unsecured notes due 2011 and a B3 rating to its new $100 million second priority senior secured floating rate loan due 2008. Modoy's confirmed Haights Cross Operating Co.'s proposed $30 million senior secured credit facilities due 2008 at B2 and its existing $142 million senior secured credit facility at B2. The outlook is stable.

Moody's said the ratings reflect the company's high leverage, cash flow restraint caused by soft top line growth, and competition within the educational and library publishing and audio book sectors.

The ratings are supported by the publisher's diversified business base and recurring sales profile (especially of its Recorded Books division) that have helped to partially buffer Haights Cross from the full impact of the recent sales slowdown experienced by the educational publishing sector.

At the end of March 2003, Haights Cross recorded debt and preferred securities of $332 million, representing a fully levered profile of approximately 10 times GAAP EBITDA less cash pre-publication expenses.

Following the proposed financings, Moody's expects that this leverage measure will increase to over 11 times by late 2003, before commencing a gradual decline.

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