S&P lowers Kerzner outlook

Standard & Poor's lowered its outlook on Kerzner International Hotels Ltd. to negative from stable and confirmed its ratings including its corporate credit at BB.

S&P said the outlook revision follows the company's announcement that it has signed an agreement to form a joint venture with Nakheel LLC, an entity owned by the Government of Dubai, to develop Atlantis, The Palm. The first phase of the project is expected to cost $650 million, and include a 1,000-room resort and an extensive water theme park situated on 1.5 miles of beachfront. Kerzner and Nakheel have jointly agreed to invest a total of $120 million in the form of equity financing to the project. The balance of the financing will be raised at the joint venture level, and is expected to be non-recourse to Kerzner.

Still, given the high profile nature of this project which will carry Kerzner's most important brand name (Atlantis), the company's significant cash investment and its role as developer, S&P said it believes that there may be sufficient strategic incentive for the joint venture partners to further support the project if construction costs rise, or if the opening is softer than expected. (The company is limiting investment to $60 million).

This development opportunity follows the company's announcement last week that it will purchase Club Mediterranee Ltd. on Paradise Island for $40 million and its May 2003 announcement that it will further expand its Paradise Island resort for $600 million. In addition, the company announced that it has entered into an agreement that allows the company to participate in the development of a new project in the greater London area through a joint venture.

While all of these investments will be made over time, collectively, they utilize a significant portion of Kerzner's debt capacity within the current rating, S&P said. Assuming modest cash flow growth, total debt to EBITDA is now expected to approach 5x by 2006.

S&P says Hornbeck unchanged

Standard & Poor's said Hornbeck Offshore Services Inc.'s rating is unchanged including its corporate credit at B+ with a stable outlook following the company's filing of a registration statement with the SEC for an IPO.

Future rating actions, if any, will depend on the company completing the IPO, the proceeds received and S&P's evaluation of the planned use of proceeds.

S&P says Georgia-Pacific unchanged

Standard & Poor's said Georgia-Pacific Corp. ratings are unchanged including its corporate credit at BB+ with a negative outlook following the company's announcement that it is exploring strategic alternatives for its building products distribution business, including its possible sale.

This unit, which is distinct from Georgia-Pacific's building products manufacturing business, is the largest building products distributor in the U.S. with 2002 sales of $3.77 billion, operating profit of $50 million and depreciation and amortization of $22 million. The distribution business purchases less than 30% of its supply from Georgia-Pacific, which expects to maintain its supplier role.

The possible divestiture is in keeping with Georgia-Pacific's strategy to focus on its more stable, consumer-oriented businesses and proceeds would be used for debt reduction, S&P noted.

Depending on the price, the sale of this business would probably be neutral to slightly positive for Georgia-Pacific's credit profile. However, it is unlikely that related debt reduction would be significant enough to cause S&P to change its ratings or outlook on Georgia-Pacific.

Following a series of debt-financed acquisitions and a few years of cyclically weak market conditions for many of its products, the company's financial ratios - including debt to EBITDA of nearly 6x and funds from operations to debt below 15% - remain stretched for the ratings, S&P added. The benefits of any debt reduction would also have to be weighed against developments related to the company's asbestos, pension and environmental liabilities.

S&P raises Willis to investment grade

Standard & Poor's upgraded Willis Group Holdings Ltd. to investment grade including raising its counterparty credit rating to BBB- from BB+, Willis North America Inc.'s $150 million revolver and $450 million term loan to BBB- and BB+ and $550 million notes due 2009 to BB+ from BB-. The outlook is stable.

S&P said the upgrade is based on Willis's consistent and improved operating performance across its main business segments, significantly improved operating fundamentals as measured by cash flow from operations and expense discipline, and continued improvement in coverage and leverage measures following the company's IPO in June 2001.

Offsetting, these strengths are the lack of earnings diversification outside of traditional insurance brokerage revenues and lack of a sustained track record throughout the underwriting cycle.

Though Willis has benefited from the current hard property/casualty market, the company has exhibited improved fundamentals that have materially contributed to its improved operating performance, S&P commented.

S&P raises Univision to investment grade

Standard & Poor's upgraded Univision Communications Inc. to investment grade including raising its $1 billion senior unsecured term loan due 2006, $500 million revolving credit facility due 2006 and $500 million 7.85% senior unsecured notes due 2011 to BBB- from BB+. The outlook is stable.

S&P said the action follows regulatory approval for the company's merger with Hispanic Broadcasting Corp. in an all-stock transaction originally valued at approximately $3.5 billion.

The rating action recognizes that the combination of Univision's television broadcasting assets with Hispanic Broadcasting's radio operations creates a dominant Spanish-language broadcasting company with strong competitive positions in key markets, good margin potential and substantial free cash flow generating capabilities, S&P said.

The radio business's meaningful EBITDA, nominal debt and healthy free cash flow conversion are important factors that improve the company's financial profile.

From a business perspective, the merger enhances the company's cash flow diversity and could help attract advertisers, who can test Spanish-language media in radio and build integrated television and radio media budgets.

Overall performance is expected to remain in line with S&P's target debt to cash flow in the low-3x area for the company at the BBB- rating level. While there is some cushion in the rating, preserving debt capacity is important given that the longer-term trends in Spanish-language advertising growth and Hispanic household TV viewing characteristics are somewhat uncertain.

Moody's rates FMC liquidity SGL-3

Moody's Investors Service assigned an SGL-3 speculative-grade liquidity rating to FMC Corp.

Moody's said the SGL-3 reflects the company's adequate liquidity with a good cash balance and partially drawn revolver. The rating is tempered by substantial short-term cash obligations and significant seasonality stemming from the agricultural business. Additionally, spending for environmental remediation will continue to pressure cash flow.

FMC's cash balance stood at $94 million as of June 30. FMC has adequate lines of credit consisting of a $250 million revolver, which had $75 million drawn as of the same date. Moody's expects that FMC will pay a large portion of the outstanding balance during the third quarter of 2003 based on seasonally stronger earnings, favorable working capital movements, as well as one-time cash receipts during the quarter.

However, Moody's noted that certain mandatory cash obligations will significantly diminish the company's cash balance during the fourth quarter of 2003. First, the company is required to make a contingent payment of approximately $35 million in connection with its acquisition of Tg Soda Ash, Inc. from Elf Atochem North America, Inc. in June 1999. The payment is due on Dec. 31, 2003. Second, the company expects to make third and fourth quarter keepwell payments in support of Astaris LLC (a 50%-owned unconsolidated joint venture with Solutia, Inc.) totaling over $30 million. The amount of keepwell payments in 2004 will depend on the financial restructuring actions and refinancing plans of Astaris. Finally, the company also has $20 million of medium-term notes due on Dec. 31, 2003, which will not be funded through restricted cash (restricted cash was used to fund $125 million of remaining unsecured debentures due September 2003).

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.