S&P puts Millennium Chemicals on watch

Standard & Poor's put Millennium Chemicals Inc. on CreditWatch negative including Millennium America Inc.'s $250 million 7.625% senior debentures due 2026, $450 million 9.25% notes due 2008, $500 million 7% senior notes due 2006 and $125 million senior secured term loan due 2006 at BB.

S&P said the action follows Millennium Chemicals' unanticipated announcement that it expects to restate its financial statements. The restatement follows recently discovered errors in the accounting for deferred taxes relating to its Equistar investment, the calculation of pension liabilities and its accounting for a multiyear precious metals transaction. Millennium has stated that these issues are likely to result in adjustments to decrease shareholders equity by approximately $441 million to $491 million. The company's reported shareholders equity on March 31, 2003 was $389 million.

S&P said the watch placement reflects the unexpected deterioration of the company's already stretched financial profile.

The restatements will effectively eliminate the equity accounts of the company and substantially increase unsecured liabilities which could weaken creditors' recovery prospects and have adverse implications for Millennium's access to various sources of capital in the future.

However, the restatement will not affect reported cash flows and is not expected to result in an immediate breach of restrictive financial covenants associated with Millennium's committed revolving credit facility.

Still, the current announcement does elevate credit concerns, particularly given the recent earnings disappointment and the fact that financial covenants become more restrictive in the second half of 2003 and early 2004. S&P said it expects Millennium to be able to renegotiate these covenant levels but this process may prove more difficult in view of the recent deterioration to measures of credit strength.

S&P rates Cinemark's loan BB-

Standard & Poor's rated Cinemark USA Inc.'s proposed $165 million term loan C due 2008 at BB-. The outlook remains positive.

Proceeds will be used to repay the company's $125 million term B bank loan due March 2008 and $42 million 9.625% senior subordinated notes due August 2008. The maturity on the term loan will be automatically extended by one year if Cinemark's subordinated debt due in August 2008 is refinanced before May 31, 2007.

The proposed transaction will increase the size of the bank loan by 20% to $240 million, including the undrawn $75 million revolver, and increase the percentage of secured bank debt to total debt, on a fully drawn basis, by about 5% to 33%. Total debt for will remain relatively unchanged on a pro forma basis at about $665 million.

As a result of the refinancing, the size of the company's uncommitted incremental facility will decrease to $60 million from $100 million and the company's ability to repay subordinated debt will be reduced to $50 million from $100 million subject to Cinemark lowering its debt leverage below 3.5x from about 3.7x now, S&P said.

Ratings reflect the company's somewhat aggressive financial profile, quality theater circuit, favorable operating performance relative to its peers, profitable non-U.S. operations, and the mature and highly competitive nature of the motion picture exhibition industry, S&P said.

S&P confirms B/E, off watch

Standard & Poor's confirmed B/E Aerospace Inc.'s ratings and removed it from CreditWatch negative including its $100 million 9.875% senior subordinated notes due 2006, $200 million 9.5% senior subordinated notes due 2008, $250 million 8% senior subordinated notes due 2008 and $250 million 8.875% senior subordinated notes due 2011 at B- and $135 million five-year revolving credit facility due 2006 at BB. The outlook is negative.

S&P said it confirmed B/E Aerospace based on its adequate liquidity, signs of some stabilization of very difficult conditions in the airline industry (the firm's primary customer base) and expectations that the company's financial profile will gradually improve in the intermediate term to a level appropriate for the rating.

At June 30, 2003, B/E Aerospace had $70 million of cash and equivalents and $50 million available under its $135 million revolving credit facility. Except for the $15 million payment required under the facility in December 2004, there are virtually no debt maturities in the next few years.

Although conditions in the airline industry remain very challenging, there has been some recovery in air traffic from depressed levels in recent weeks, stemming primarily from the end of the Iraq war and the containment of the severe acute respiratory syndrome (SARS), S&P noted.

B/E Aerospace's reflect risks associated with very difficult conditions in the airline industry, high debt levels, unprofitable operations and poor credit protection measures, S&P added. Those factors are partly offset by the company's position as the largest participant in the commercial aircraft cabin interior products market, a leading share of that business on corporate jets, efficient operations and sufficient liquidity.

The lower cost structure and stabilization of industry conditions should allow a small profit in the fourth quarter of 2003, after sizable losses in 2002 and 2003 to date; substantially better performance is likely once the market recovers, S&P said. Credit protection measures will be very weak in the near term, with debt to capital in the 95% area, net debt to EBITDA around 8x, and EBITDA interest coverage about 1.5x, with gradual strengthening over the intermediate term.

S&P says aaiPharma unchanged

Standard & Poor's said aaiPharma Inc.'s ratings are unchanged including its corporate credit at B+ with a stable outlook in response to the company's announcement that it intends to merge with CIMA Labs Inc.

CIMA has no debt and roughly $134 million of cash, cash equivalents and short and long-term available or sale securities. CIMA also generated roughly $18 million of EBITDA for the 12 months ended June 30, 2003.

While the merger suggests an improvement in aaiPharma's credit profile, S&P said it expects the company to remain aggressive, using debt to fund product acquisitions. Furthermore, in the near term, management will be challenged to focus and execute the proposed merger, advance internal development programs, and increase sales of its existing products.

S&P cuts Associated Materials, rates loan B+

Standard & Poor's downgraded Associated Materials Inc. including cutting its $165 million 9.75% senior subordinated notes due 2012 to B- from B and $125 million term loan due 2009 and $40 million revolving credit facility due 2007 to B+ from BB- and assigned a B+ rating to its planned $190 million term B loan due 2010. The outlook is stable.

S&P said the rating actions reflected a significant increase in debt in connection with Associated Materials' plans to acquire Gentek Inc. for $118 million in cash, to be financed with a new bank term loan.

S&P said the bank loan rating is the same as the corporate credit rating because it is not likely that a distressed enterprise value would be sufficient to cover the entire loan.

Associated Materials' ratings reflect its position as a medium-size manufacturer of exterior residential building products with limited product diversity, declining operating margins as a result of a changing product mix and some vulnerability to industry cyclicality and fluctuating raw material costs, as well as an aggressive financial profile, S&P said.

The Gentek acquisition adds complementary products, company-owned supply centers (in Canada and the mid-Atlantic coast of the U.S.), additional brands and about $10 million in purchasing and overhead cost reduction opportunities over a two-year period, S&P noted.

Pro forma for this transaction, annual sales of about $900 million will solidify Associated Materials' position among the top North American vinyl siding manufacturers (although window markets remain highly fragmented). Sales will be roughly 63% to repair and remodeling applications and 37% to new construction compared with about 70% repair and 30% new construction for Associated Materials currently. Repair and remodeling outlays tend to be less susceptible to economic cycles, although large remodeling jobs can also be deferred in bad times, which is the suspected reason for the recent decline in vinyl siding market volume.

Company-owned distribution is a key strength, as it insulates the firm somewhat from competition with larger, more diversified rivals by giving it greater control over product delivery. Although vinyl extrusion capability lowers costs, operating margins are somewhat vulnerable to raw material cost swings.

Pro forma for the transaction, debt leverage (including about $58 million in capitalized operating leases) will be aggressive in the upper-4x area, S&P said. Although this is only about half a turn above the company's current leverage ratio, and capital spending needs are modest, S&P said it Poor's believes this transaction signals a shift to more aggressive financial policies than were factored into the previous ratings, and significant deleveraging is no longer expected.

Moody's rates Williams Scotsman notes B2

Moody's Investors Service assigned a B2 rating to Williams Scotsman's proposed $150 million senior secured notes.

The proceeds are being used to repay a portion of the firm's existing $700 million bank credit facility.

Moody's rating reflects the secured notes' second lien position on Williams Scotsman's core assets, along with its property, equipment and other receivables. In a recovery scenario, the second lien feature effectively places these investors behind the existing secured debt investors, and results in a potentially greater severity of loss.

Williams Scotsman has also proposed to amend the financial covenants on the senior secured credit facility in connection with this issuance to provide the company with some additional financial flexibility.

Williams Scotsman has built a well-established franchise in the mobile office leasing industry, benefiting from an increasingly diverse customer base spread across a wide geographic region, an experienced management team and historically strong cash flows, Moody's said.

Offsetting these strengths, however, the rating also considers Williams Scotsman's most recent operating and financial challenges, defined by particularly weak earnings, continued economic softness in key markets where it serves and a significantly high debt burden relative to capitalization. Utilization rates also remain at unprecedented lows, but this trend is expected to reverse as the economy recovers, Moody's added.

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