Moody's downgrades Kmart

Moody's Investors Service downgraded Kmart Corp.'s senior unsecured ratings. The outlook remains negative. Affected ratings include Kmart's senior unsecured debt, medium term notes and industrial revenue bonds, lowered to Ca from Caa3. Kmart's lease certificates were confirmed at C as were industrial revenue bonds already at C.

Moody's said its action follows Kmart's filing for Chapter 11 bankruptcy and noted "the uncertainty surrounding the company's operating plan, its plan for operations upon an emergence from bankruptcy and the implications of these events on the recovery value for unsecured note holders."

The downgrade follows a previous downgrade on Monday which included lowering its senior unsecured debt and medium term notes to Caa3 from Caa1; its lease certificates to C from Caa2; and its industrial revenue bonds to either Caa3 from Caa1 or C from Caa3.

S&P cuts Kmart to D

Standard & Poor's downgraded Kmart Corp. to D. Ratings affected include Kmart's debentures, lease certificates and notes, all previously rated CCC-, and its convertible trust preferred stock, previously rated C.

S&P said its action follows Kmart's filing for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

Fitch cuts Kmart to D

Fitch downgraded Kmart Corp. to D, including its bank facility, notes and debentures and lease certificates, all previously rated CCC; and its convertible preferred securities previously rated CC. A total of $3.8 billion of debt and $890 million of preferred securities are affected.

Fitch said its action follows Kmart's Chapter 11 filing.

"The new rating level reflects the limited recovery that can be anticipated by bondholders given the large amount of trade and other general unsecured claims coupled with a new $2 billion debtor-in-possession facility," Fitch said.

S&P puts Fleming on negative watch

Standard & Poor's put Fleming Cos. Inc. on CreditWatch with negative implications. Ratings affected include Fleming's $250 million 10.5% senior subordinated notes due 2004 and $250 million senior subordinated notes due 2007 and $250 million senior subordinated notes due 2011, all rated B+; its $600 million revolving credit facility due 2003 and $250 million term loan due 2004, both rated BB+; its $290 million senior unsecured medium-term note program rated BB-, its $355 million 10.125% senior notes due 2008 rated BB-, its $130 million 5.25% convertible senior subordinated notes due 2009 rated B+.

S&P said its action reflects uncertainty about the impact of Kmart Corp.'s bankruptcy filing on Fleming.

Among the uncertainties are by how many Kmart will reduce its stores and the impact that downsizing will have on Fleming's capacity utilization and profitability and what changes, if any, may be made to the existing supply contract between Kmart and Fleming, S&P said.

Although Kmart is Fleming's largest customer, closings are likely to be lower-volume stores, S&P noted.

Fitch puts Fleming on negative watch

Fitch put Fleming Cos., Inc. on RatingWatch Negative, including its secured bank credit facilities at BB+, its senior unsecured notes at BB and its senior subordinated notes at B+.

Fitch said its action follows Kmart Corp.'s Chapter 11. Kmart represents about 20% of Fleming's revenues.

Noting Fleming ceased shipments to Kmart after it missed a $78 million payment on Friday, Fitch said it expects shipments to resume following Kmart's receipt of a $2 billion debtor-in-possession facility. But Fitch added that the impact of expected Kmart store closings on Fleming's business remains uncertain.

Moody's puts Tyco, units on review following breakup news

Moody's Investors Service placed the long-term debt ratings of Tyco International Ltd. and its units, including ADT Operations Inc. under review with direction uncertain following the announcement that Tyco plans to separate into four independent companies with businesses in financial services, healthcare, fire protection and flow control and security and electronics. At the same time, Tyco's Prime-2 short-term debt rating was confirmed.

S&P puts Fleming on watch, negative, on Kmart bankruptcy

Standard & Poor's placed its ratings on Fleming Cos. Inc. on watch with negative implications, including the B+ rated convertible subordinated notes due 2009, reflecting uncertainty about the impact of Kmart Corp.'s bankruptcy filing. Uncertain issues include the extent of Kmart's downsizing of its store base and the resulting impact on Fleming's capacity utilization and profitability, and what changes, if any, may be made to the existing supply contract between Kmart and Fleming. Fleming's $4.5 billion 10-year supply chain agreement with Kmart Corp., effective June 2001, covers distribution of substantially all of Kmart's food and consumables products. Fleming has made good operational improvements in its core distribution business, including growing the base of non-Kmart customers. Fleming added $1.5 billion in gross annualized distribution sales as of Oct. 6, excluding the Kmart alliance. Still, Kmart represents a key business for Fleming, accounting for over 20% of revenues. Fleming has about $16 billion in annual revenues.

Moody's confirms Adelphia, rates mandatory convert at Caa1

Moody's Investors Service confirmed the existing ratings for Adelphia Communications Corp., including its convertible subordinated notes at B3 and convertible preferreds at Caa1, and its intermediate holding company subsidiaries, upgraded the subsidiary bank debt ratings and assigned a Caa1 rating to the company's $500 million of 7.5% mandatory convertible preferred stock due 2005. The rating outlook is now stable. The ratings continue to broadly reflect the company's still highly leveraged balance sheet, moderate coverage levels, ongoing capital needs for investment in plant infrastructure improvements and new product deployments and structural considerations with respect to debt composition and corporate governance. The risks are generally balanced, however, by the company's large size, well-clustered and technologically advanced cable systems, good prospects for cash flow growth once system upgrades are completed and strong access to the capital markets.

Moody's pointed first to the significant amount of equity and equity-like junior capital that has been raised over the last three months through multiple offerings of common stock and mandatory convertibles, which together come to around $2.4 billion. In addition, Moody's noted the continued sponsorship of the Rigas family, including contributions in November of $417 million in tack-on common and convertible preferred financings that had been previously subscribed to earlier in the year, notwithstanding the adverse movement in the company's common stock price from deal announcement to closing. Moody's also said it expects that the family will follow through on its commitment to contribute about $600 million of incremental capital in the form of additional tack-on convertible notes, common equity and mandatory convertibles this year ($400 million should have just come in), also as stipulated last year. The sum total of these proceeds will have the effect of dramatically improving the company's liquidity profile and enhancing financial flexibility as borrowings under bank lines are repaid even if only temporarily and the balance sheet is subsequently strengthened, which in turn should more comfortably facilitate the completion of requisite system upgrades, the financing of expenditures supporting the roll-out of new service offerings, and the repayment or more likely refinancing of near-term debt maturities.

With respect to Adelphia's contemplated asset sales, Moody's said it continues to question management's commitment to the ultimate sale of these assets and their ability to complete any such transactions on terms which would result in a meaningful de-leveraging of the consolidated balance sheet after accounting for the loss of cash flow related to the assets that might be sold. Rather, the asset sales were previously important to Moody's much more so in terms of enhancing the company's liquidity position so that its business objectives would be more readily achievable without potential interruption due to possible capital adequacy constraints. This continued to be an important factor in the rating consideration even after the November equity offerings given the very large capital needs of the business over the ensuing rating horizon in order to complete both the cable network infrastructure upgrade and the repayment/refinancing of maturing obligations. With the successful spin-off of ABIZ and the successful completion of the securities offerings, particularly the most recent transaction, Moody's noted that the company has gone a long way towards attending to the excessive financial leverage and liquidity shortfall concerns.

Total leverage has been reduced by more than two turns as measured against annual run-rate cash flow, resulting in a much more manageable level of about 8.2 times debt (net of cash and convertibles, including the ABIZ bank debt) to EBITDA that is more in line with that for its peers. Interest coverage has improved slightly, to 1.5 times from 1.4 times at the time Moody's initiated the review, with further improvements anticipated given the still declining interest rate environment and the likely opportunistic retirement of higher coupon obligations with low cost bank debt.

Fitch puts Fleming on watch, negative after Kmart bankruptcy

Fitch put Fleming Cos. Inc.'s BB+ rated secured bank credit facilities, BB rated senior unsecured notes and B+ rated senior subordinated notes on negative watch following the bankruptcy filing by Kmart Corp., which represents about 20% of Fleming's revenues. Fleming announced that it ceased shipments to Kmart after it missed a $78 million payment to Fleming on Friday. While Fitch said it expects shipments to resume following Kmart's receipt of a $2 billion debtor-in-possession facility, the impact of expected Kmart store closings on Fleming's business remains uncertain at this time. Fitch said it expects to meet with Fleming management in the next several weeks to discuss the ramifications of the Kmart bankruptcy filing as well as the long-term growth opportunities for the company. The analysis will include a review of the company's business model and the impact a downsized Kmart's business will have on Fleming's operating and financial profile.

Moody's put American Greetings on review for downgrade

Moody's Investors Service placed the long-term ratings of American Greetings under review for downgrade, reflecting concerns about the impact of Kmart's bankruptcy on the company. Kmart is a significant client for American Greetings, Moody's said, adding that sales lost from the possible closing of Kmart stores might not be offset by increased volume at neighboring stores of other retailers. Additionally, these challenges are occurring at a time when American Greetings is still in the process of re-engineering most aspects of the way it goes to market, Moody's said. However, Moody's noted that the now almost complete implementation of scan-based trading has led to a significant reduction in accounts receivable owed by Kmart to American Greetings and that American Greetings has significant availability under its bank facilities.

Fitch affirms Allergan convertibles at A

Fitch affirmed Allergan Inc.'s senior unsecured debt rating at A+, subordinated zero-coupon convertible debt rating at A and commercial paper rating at F1, and said the rating outlook is stable, following the company's request for a ruling with the IRS for the spin-off to common shareholders of its optical medical device business consisting of the eye care surgical and contact lens care businesses, culminating an effort to solidify its position as a pure-play specialty pharmaceuticals concern. The spun-off businesses represent about 33% of current revenues but with declining or slow top line growth rates, Fitch said. Fitch's primary concerns center on the loss of revenues from the spun-off entity and the dependence of pro forma Allergan revenues on two product franchises, namely BOTOX and Alphagan/Alphagan P. Those are key pharmaceutical products for Allergan, generating some 49% of total revenues.

Moody's confirms Allergan long-term A3 rating

Moody's Investors Service confirmed the A3 long-term and Prime-2 short term debt ratings of Allergan Inc., following the company's announcement that it intends to spin-off its eye care surgical and contact lens care businesses. Although the spin-off will result in a smaller company with reduced revenue diversity, Moody's said it believes that the remaining company continues to possess healthy revenue outlook, rising operating cash flow, and a strong balance sheet. The rating outlook remains positive. Moody's said it assumes that none of Allergan's existing debt will be transferred to the new entity, and added that any such debt would likely be subject to a ratings downgrade.

S&P affirms Allergan senior unsecured debt at A

Standard & Poor's affirmed its A senior unsecured debt and corporate credit ratings, and A- subordinated debt rating on Allergan Inc., following the announcement of a proposed tax-free spin-off of its surgical eye care and contact lens care businesses. At the same time, S&P affirmed its A-1 short-term corporate credit and commercial paper rating on Allergan. The rating remains stable, as S&P expects that any share repurchases and capital investment undertaken by Allergan will not compromise its historically strong financial position.

S&P rates new Wind River convertible B-

Standard & Poor's assigned a B- rating to Wind River Systems Inc. recent sale of $150 million 3.75% convertible subordinated notes due 2006.

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