Moody's cuts Terex

Moody's Investors Service downgraded Terex Corp. affecting $1.6 billion of debt. Ratings lowered include Terex's $300 million senior secured revolving credit facilities due 2007, $375 million senior secured term loan B due 2009 and $210 million senior secured term loan C due 2010, cut to B1 from Ba3, and its $300 million 10.375% senior subordinated notes due 2011, $200 million 9.25% senior subordinated notes due 2011, $100 million 8.875% senior subordinated notes due 2008 and $150 million 8.875% senior subordinated notes due 2008, cut to B3 from B2. The outlook is stable.

Moody's said the downgrade reflects its believe that the challenging economic environment and continuing weak demand for construction and mining equipment are likely to further pressure Terex's already weakened operating performance and credit profile over the near to medium term.

The rating action also reflects concerns over Terex's growing debt level and increasing financial leverage, integration risks from its recent spate of acquisitions, and the highly cyclical nature of its construction and mining equipment business, Moody's added.

Positives include the company's strengthened market position in a number of key end-markets, increasing scale and diversification of product offerings and geographic presence, its continuing cost-saving and restructuring efforts, and its lower-than-average cost structure.

The rating outlook reflects Moody's expectations that current weakness in most of Terex's end-markets is likely to continue into 2003, which may be partially offset by the company's heightened focus on working capital management and other cost-saving efforts.

As a result, at the lower rating level, Terex's financial performance and credit profile should be able to withstand a flat to slightly down construction market over the next 12-18 months, Moody's said. However, to the extent that weakness in the economy and in construction and highway spending becomes more severe and protracted, the ratings and outlook would be under further downward pressure.

Moody's raises Winn-Dixie outlook

Moody's Investors Service raised its outlook on Winn-Dixie Stores, Inc. to stable from negative and confirmed its ratings including its $519 million senior secured credit facility at Baa3 and $300 million 8.875% senior notes due 2008 at Ba2.

Moody's said the outlook revision was prompted by its expectation that Winn-Dixie will continue to modestly improve its financial and operational profile.

In 2002, the company reduced debt through prepayment of $250 million of bank debt and improved store revenue and margins.

The stable outlook reflects improvement in leverage and our opinion that the company has stabilized operating performance, Moody's added. The rating agency said it anticipates that the revolving credit facility will only fund temporary cash flow timing differences and that capital for investment will come from free cash flow.

Ratings would be negatively impacted if Winn-Dixie loses market share to supermarket or supercenter operators, the initiative to increase store count does not prove profitable, or the dividend payout ratio substantially increases.

S&P confirms Phillips-Van Heusen

Standard & Poor's confirmed Phillips-Van Heusen Corp. including its senior secured debt at BB and subordinated debt at B+. The outlook is stable.

S&P's confirmation is in response to Phillips-Van Heusen's announcement it will acquire Calvin Klein Inc. for total consideration of between $550 million and $600 million.

S&P said it believes the acquisition of Calvin Klein represents a unique opportunity for Phillips-Van Heusen and that credit measures will be restored within a year of the acquisition.

Calvin Klein, together with its network of licensing partners, generates over $3 billion in annual retail sales worldwide, and the royalty stream is estimated to be $120 million.

In recent years, Phillips-Van Heusen has been successful at developing acquired brands by leveraging its strong position in dress shirts to expand its penetration in department stores and utilizing its good infrastructure (sourcing, information technology, logistics, and warehousing). Phillips-Van Heusen should be able to grow Calvin Klein's existing business and has plans to launch better men's and women's sportswear and accessories lines under the Calvin Klein name, S&P noted.

Pro forma for the transaction, leverage is high; Phillips-Van Heusen's total debt to EBITDA rises to 4.9x from 4.1x at the end of the third quarter of 2002, S&P said. Credit protection measures should also deteriorate in 2003 as the acquisition is expected to be dilutive in the first year. But S&P said it expects Phillips-Van Heusen's credit profile to improve in 2004 as Calvin Klein is integrated into its infrastructure and cost savings are achieved.

Moody's puts Consolidated Container on review

Moody's Investors Service put Consolidated Container Co. LLC on review for downgrade including its $415 million secured credit facility at B2 and $185 million 10.125% senior subordinated notes due 2009 at Caa1.

Moody's said the review is in response to lingering concerns about the Consolidated Container's near-term liquidity, which includes refinancing risk, payment of bond interest in mid-January, and general working capital funding.

Covenant relief as well as amortization forbearance are critical to the company's near term financial position, Moody's said. Moody's preliminary sense of the progress in bank negotiations is favorable, however, the outcome is uncertain.

Moody's said it believes that despite showing some signs of improvement, operations remain impaired by weak infrastructure, manufacturing inefficiencies, and slow end-use product demand.

Moody's expects that fiscal 2002 results are likely to be below its expectations.

S&P says Solectron unchanged

Standard & Poor's said Solectron Corp.'s ratings were unchanged at a corporate credit rating of BB with a negative outlook after the company said it repurchased $219 million in long-term debt and repaid about $85 million of short-term bank debt, while maintaining a cash position of almost $2 billion in the fiscal first quarter, ended Nov. 29, 2002.

Sales were within expectations, but profitability, although somewhat improved, remains severely depressed, and cash flow generation was weak.

S&P said credit measures are very weak for the rating with total debt to EBITDA for the 12 months ended Nov. 29, 2002 of more than 6x. This is only partially offset by expected long-term debt reduction (as much as 20% by mid 2003) with free cash flow from operations, anticipated profitability improvement, and a solid cash balance.

S&P puts Starwood on watch

Standard & Poor's put Starwood Hotels & Resorts Worldwide Inc. on CreditWatch with negative implications. Ratings affected include Starwood's $244.2 million zero-coupon series A convertible notes due 2021, $571.7 million zero-coupon series B convertible notes due 2021, $700 million 7.375% senior unsecured notes due 2007, $800 million 7.875% senior unsecured notes due 2012 and ITT Corp.'s $150 million 7.75% debentures due 2025, $250 million 6.75% senior unsecured notes due 2003, $450 million 6.75% notes due 2005 and $450 million 7.375% debentures due 2015, all at BBB-.

S&P said the watch placement is in response to Starwood's lack of progress in improving credit measures during 2002 and S&P's expectation that these measures will not improve to levels more consistent with the ratings by the end of 2003 without significant asset sales.

Performance of the lodging industry has been weaker than expected in 2002, and Starwood's hotel portfolio, which is primarily comprised of upscale properties in urban locations, has been more deeply affected than the portfolios of many of its peers, S&P noted.

Moreover, Starwood's 2002 capital expenditures are expected to be above the level anticipated at the beginning of the year, further affecting the company's ability to reduce debt in line with S&P's expectations.

S&P added that it does not expect the lodging industry to grow quickly during 2003, as there are few catalysts to spur a rapid increase in demand. Given this expectation, Starwood will need to rely on asset sales to improve credit measures to levels that are in line with current ratings.

Starwood has announced that it is focused on selling at least $500 million of assets in 2003, particularly those hotels that make-up its CIGA portfolio.

S&P said it expects that Starwood will continue to make progress toward this end, and that proceeds will be applied toward reducing debt. Even with this progress, in order to preserve current ratings, asset sales must occur in the near term and must significantly exceed the $500 million level.

Fitch rates Alcatel BB-

Fitch Ratings assigned a BB- senior unsecured rating to Alcatel SA. The outlook is negative.

The rating reflects the significant deterioration and ongoing weakness in Alcatel's operating environment, the scale of business reorganization yet to be completed and the accompanying deterioration in the company's financial and credit risk profile, Fitch said.

While Alcatel commands a number of leading industry positions, a significant reliance on fixed line telecom markets leaves it exposed to extremely uncertain demand fundamentals, with very limited trading visibility and the prospect of a protracted downturn in a number of key segments, the rating agency said.

The company has so far performed well in resizing its cost base and managing down a high working capital position, although revenue break-even targets continue to move down as market conditions worsen.

These actions have enabled the company to materially reduce operating expenses, with three of its four core divisions operating at or close to break-even in the third quarter of 2002, Fitch noted.

Net debt at September 2002 stood at just over €1.0 billion, comprised of total debt of €6.1 billion and cash and equivalents of €5.1 billion.

Bonds maturing in 2003 of about €1 billion are expected to be settled through cash balances, which also provide some protection for €800 million of bonds maturing in 2004, subject to current restructuring targets being achieved and the extent of further deterioration in demand conditions, Fitch said.

With sizable debt maturities in 2005 and beyond however, the company clearly requires signs of stability to return to its markets, albeit with demand at substantially lower levels, along with continued progress in restructuring its costs base, for greater assurance over the refinancing risk of these maturities, Fitch added.

Moody's cuts Metris

Moody's Investors Service downgraded Metris Companies Inc. including cutting its senior unsecured notes to B3 from B1 and secured credit facilities to B2 from B1. The action ends a review for downgrade begun on July 18. The outlook is negative.

Moody's said it cut Metris because of concerns about the company's weakened asset quality and earnings as well as its funding profile.

Earlier this year Metris entered into a regulatory agreement regarding the operation of its bank subsidiary, Direct Merchants. In response to this agreement, the company has been reducing the bank's loan portfolio and funding more of its loans through the parent company, Moody's noted. In doing so, the parent has relied upon securitization funding.

Furthermore, deterioration in the company's loan portfolio led to a recent ratings downgrade on several of the company's term securitizations, and has also led to the capture of cash flows within the securitization structures, Moody's added. These developments have reduced Metris' liquidity profile and funding flexibility.

The company faces a significant amount of financing maturities in both 2003 and 2004. In the current environment the company may have some difficulty replacing or renewing these, Moody's said.

The negative outlook mainly reflects the company's funding challenges, Moody's said. To the extent that the company can improve its earnings and asset quality, and further strengthen its funding position and liquidity profile, then the ratings outlook could improve. However, to the extent that Metris fails to demonstrate progress on strengthening its funding position and liquidity profile, then the ratings could go down.

Fitch cuts Metris, on watch

Fitch Ratings downgraded Metris Companies Inc. including cutting its senior debt and bank credit facility to B- from B+ and put it on Rating Watch Negative.

Fitch said the action reflects deterioration in operating performance where higher losses have negatively impacted earnings and profitability coupled with concerns regarding ongoing access to the term and conduit asset-backed securities markets.

Metris has a considerable portion of its conduit facilities that mature in the second quarter of 2003. Although Metris is actively engaged with various credit providers to ensure adequate conduit capacity, Fitch believes the challenges this presents has heightened the risk to the company.

Moreover, Fitch said it is concerned that Metris will need to rely on a surety provider to execute any term asset-backed issuance, which if attainable, is likely to be a more costly source of financing.

Fitch also noted that Metris will need to repay a $100 million term loan drawn under its bank credit facility that comes due in July 2003. Repayment of this loan could be more problematic unless additional financing is obtained or regulators approve a dividend from the bank to the holding company.

Fitch said it remains concerned with Metris' deteriorating operating performance in the face of difficult economic and industry conditions.

S&P rates Scientific Games loan BB-

Standard & Poor's rated Scientific Games Corp.'s $340 million senior secured credit facility at BB-. The facility consists of a $50 million revolver due 2006 and a $290 million term loan B due 2008. The outlook is stable.

The facility is guaranteed by all current and future, direct and indirect, wholly-owned domestic subsidiaries and is secured by a first priority security interest in all present and future tangible and intangible assets of those subsidiaries.

Proceeds from the new bank facility will be used to refinance outstanding debt under the company's existing bank facility.

"Standard & Poor's believes that in a severely distressed liquidation scenario, the collateral package may fall short of providing the lenders with full recovery of principal," S&P said. "Still Standard & Poor's expects that bank lenders would recover a meaningful portion of outstanding principal, probably over 50%."

Ratings reflect the company's leading market position, long-term customer contracts, a diversified customer base and improved credit measures. These factors are offset by competitive market conditions and the mature nature and capital intensity of the lottery industry, according to S&P.

For the nine months ended Sept. 30, 2002 EBITDA was $93 million. Based on current operating trends, EBITDA coverage of interest expense and total debt to EBITDA are expected to be around 3 times for 2002.

Moody's cuts Northwestern, on review for downgrade to junk

Moody's Investors Service downgraded Northwestern Corp. and kept it on review for downgrade to junk. Ratings lowered include Northwestern's senior secured debt, cut to Baa3 from Ba11.

The rating downgrades reflect concerns about considerably lower than anticipated debt reduction to date as well as weaker than anticipated cash flow relative to the consolidated debt load and fixed obligations, Moody's said.

The rating downgrades also reflect Northwestern's recently announced expectations for lower than expected earnings and cash flow for 2002 due to ongoing challenges and disappointing results at its non-utility operations.

Moody's is continuing its review due to uncertainties surrounding the amount of the expected asset impairment and the impact that action will have on Northwestern's balance sheet.

The continuation of the review also takes into account the need to obtain regulatory approvals from the Montana Public Service Commission in order to post first mortgage bond collateral with the collateral agent related to the $390 million secured term loan credit facility entered into with Credit Suisse First Boston on Dec. 17, Moody's said. Posting of this collateral is necessary before Northwestern can access the funds under the new CSFB facility. Access to the funds would be a favorable development for the company since it would provide for refinancing of Northwestern's existing $280 million credit facility and reasonable liquidity for the company to go forward with a focus on opportunities in the core regulated electric and gas utility business.

Moody's puts JLG on review

Moody's Investors Service put JLG Industries, Inc. on review for possible downgrade including its $175 million senior subordinated notes due 2012 at Ba2 and $250 million senior secured revolving credit facility due 2004 at Baa3.

Moody's said it began the review because of concerns about continuing very weak demand for aerial work platforms, deteriorating financial conditions of the equipment rental sector (which represents about 80% of JLG's business), and the company's growing credit exposure to troubled rental companies through increased vendor financing activities.

The review will focus on JLG's ability to cope with a continued challenging operating environment and the potential impact on the company's operating performance and credit profile, Moody's said. It will also focus on the credit quality of its increasing vendor financing to the rental companies.

Fitch rates PerkinElmer notes BB-, loan BB+

Fitch Ratings assigned a BB- rating to PerkinElmer's $300 million 8.875% senior subordinated notes due 2013 and a BB+ rating to its new $100 million revolving credit facility expiring in December 2007 and a six-year term loan of up to $345 million. The existing bank debt and senior unsecured rating was confirmed at BB+ including its $115 million unsecured notes due 2005 and $404 million zero coupon convertible debentures due 2020. The rating were removed from Rating Watch Negative. The outlook is stable.

Since the placement on Negative Rating Watch on August 12, PerkinElmer has successfully executed steps to address immediate liquidity concerns by amending the credit facilities in September to avoid a possible violation in a financial covenant, re-negotiating the terms of the receivables securitization program to stop an accelerated termination, repaying operating leases due in February 2003, and refinancing the capital structure to pre-fund the zero convertible debt mitigating the probable exercise of an upcoming put option and to pay down the senior notes containing a restrictive covenant to be secured, Fitch said. These actions support Fitch's removal from Rating Watch Negative.

The company had cash and cash equivalents of approximately $97 million at the end of the third quarter, with additional liquidity from the proposed $100 million revolving credit facility, to be used for working capital needs, Fitch noted.

Leverage, determined by debt-to-EBITDA, is expected to increase over anticipated levels after completion of the refinancing transactions, but remains appropriate for the current credit rating, Fitch said. Fitch expects that improvement in credit metrics will occur in the intermediate term, as excess cash flows are applied to debt reduction.

S&P says URS unchanged

Standard & Poor's said URS Corp. ratings are unchanged at a BB corporate credit rating with a stable outlook after the company said net income declined 67% to $6.6 million in its fourth quarter of 2002 ended Oct. 31 and that it now anticipates revenues of $3 billion (down from prior guidance of $3.25 billion), EBITDA of approximately $230 million (compared with prior guidance of $266 million), and net income of $60 million (versus prior expectations of $88 million) in fiscal 2003.

The downward revisions in expectations are a result of deteriorating conditions in the state and municipal markets, which are now expected to decline 15%-20% in 2003, and intense pricing pressures in the firm's commercial sectors, S&P said.

Nonetheless, given the firm's guidance of $130 million of cash flow from operations and capital expenditures of about $20 million, the firm expects to generate about $110 million of free cash flow, which is expected to be used primarily for debt reduction.

Presently, S&P's ratings do not incorporate capacity for additional debt-financed acquisitions or share repurchases.

The new forecast suggests that the firm will remain in compliance with all bank financial covenants, although there will be modest room for additional shortfalls, S&P added.

Over the business cycle, URS should be able to generate financial results consistent with current credit quality, with funds from operations to total debt in the 15% area, and total debt to EBITDA in the 3.5x area.

Moody's rates Gap liquidity SGL-2

Moody's Investors Service assigned a speculative-grade liquidity rating of SGL-2 to Gap, Inc.

Moody's said the rating reflects its expectation that Gap's existing cash balances of nearly $2.5 billion at the end of the third quarter on Nov. 2, 2002 will be sufficient over the next 12 to 18 months to fund capital expenditures, seasonal working capital needs and debt service.

The rating also reflects the fact that the company's committed bank agreement is heavily used as backup for trade letters of credit, and its assets are encumbered, Moody's added.

Moody's cuts Maxxim Medical

Moody's Investors Service downgraded Maxxim Medical, Inc. including cutting its $310 million senior secured credit facilities to Caa1 from B1 and $145 million senior subordinated discount notes due 2009 to Caa3 from B3. The outlook is negative.

Moody's said the downgrade reflects a significant deterioration in Maxxim's performance and credit metrics, and poor prospects for near term recovery.

Strong pricing pressure has led to a material decline in margins and cash flow and has left the company unable to fund its operations, capital expenditures and debt service requirements without reliance on additional outside sources, Moody's said.

In addition to the decline in performance, Moody's said the ratings reflect a weak balance sheet characterized by significant negative tangible equity, minimal asset protection for debt holders relative to outstanding debt, the company's poor liquidity position and a relatively competitive environment.

On Dec. 6, 2001, Maxxim completed an amendment to its credit facilities which provided the company with an additional credit line of $17 million. However, given the company's poor cash flow generation (negative for 2001 and for the first six months of 2002), without a dramatic turnaround in performance, the new availability is not likely to be sufficient to prevent a further liquidity crisis.

Maxxim has been able to access additional capital through the issuance of preferred stock and warrants at the end of calender 2001, Moody's said. The company sold $50 million in units, primarily to affiliates of its equity sponsor, Fox Paine & Co., LLC and to new investors. The cash has already been utilized to fund the company's operations and capital expenditures and to repay a short-term bridge loan provided to the company by a financial institution for interim liquidity. The company has also recently sold its BioSafety Division for $19.5 million, which may alleviate some pressure on the company's liquidity over the short term.

S&P takes Bear Island off watch

Standard & Poor's removed Bear Island Paper Company, LLC from CreditWatch with negative implications including its $100 million 10% senior notes due 2007 at CCC+, $25 million revolving credit facility and $70 million term loan at B- and Bear Island Finance Co. II's $100 million 10% senior notes due 2007 at CCC+. The outlook is negative.

S&P said the action follows the easing of immediate liquidity concerns.

Bear Island amended its bank credit facility to loosen financial covenants and to waive existing covenant violations, S&P noted. As a result, it is now able to access about $4 million of credit under its $25 million bank line that was unavailable while the company was in breach of covenants.

In addition, Bear Island's parent company, Brant-Allen Industries Inc., has agreed to make an additional $10 million available to the company. Brant-Allen had provided $5 million to the company to meet its June 2002 bond interest payment; Bear Island was able to make the December 2002 payment from its own resources.

Although Bear Island has achieved a $35 of a $50 per ton increase in newsprint prices, weak prices continue to adversely affect the company's profitability and cash flow. Demand for the company's newsprint is holding up relatively well, however, the timing of any meaningful market and price rebound is uncertain.

Although the company competes against much larger and financially stronger newsprint producers, it has seasoned management and fairly efficient operations, which have enabled it to survive previous industry downturns, S&P said.

Moody's cuts ABB

Moody's Investors Service downgraded ABB including lowering its senior unsecured debt at B1 from Ba2.

Moody's said the downgrade reflects the pressure on ABB's cash flow generation, onerous terms for the new $1.5 billion credit facility and the subordination of outstanding bonds to bank debt.

The conclusion of the new secured credit facility has added liquidity and extended the time frame for ABB to complete its restructuring, yet availability is tied to various milestones including cash flow targets and asset disposals, Moody's noted.

The Ba3 senior implied rating is based on ABB's reliance on a substantial recovery of its operating cash flows and conclusion of asset sales over the next 12 months in order to preserve financial flexibility and to reduce leverage to a more sustainable level, Moody's said.

The negative outlook reflects the execution risks related to ABB's restructuring programs and disposals, as well as the uncertainties around the resolution of the company's exposure to asbestos litigation.

Moody's cuts Ormet

Moody's Investors Service downgraded Ormet Corp. including cutting its $150 million 11% guaranteed senior secured notes due 2008 and $75 million guaranteed senior secured floating-rate notes due 2008 to Caa3 from Caa1. The outlook is negative

Moody's said the downgrade was prompted by Ormet's operating performance, which has not met Moody's expectations, as well as the company's constrained liquidity position and Moody's view that a protracted economic downturn will continue to negatively impact industry fundamentals and the company's operations over the intermediate term.

The persistent weakness in pricing for primary aluminum and fabricated products have significantly impaired the company's credit metrics and placed considerable strain on its liquidity position, Moody's commented.

Moreover, Moody's said it believes the company will need to take alternative steps to meet various cash obligations over the near term given its present liquidity position and various restrictions under its existing bank agreement that includes a borrowing base formula.

The negative outlook reflects Moody's view that a prolonged weakness in the pricing environment for the majority of Ormet's products, particularly primary aluminum, and soft demand will continue to stress Ormet's credit metrics and place additional strain on its liquidity position.

Moody's confirms American Seafoods

Moody's Investors Service confirmed American Seafoods Group's ratings including its $75 million senior secured revolving credit due 2007, $90 million senior secured term loan A due 2007 and $280 million senior secured term loan B due 2009 at Ba3 and $175 million 10.125% senior subordinated notes due 2010 at B3. The outlook is stable.

Moody's confirmation follows American Seafoods' announced acquisition of Southern Pride

Catfish Inc. for $43 million, net of cash received and inclusive of fees.

American Seafoods is adding $50 million to its term loan B to fund the acquisition and refinance a capital lease obligation.

The ratings confirmations reflect the moderate size of the acquisition relative to American Seafoods' existing operations and the minimal impact on American Seafoods' overall leverage, Moody's said.

The ratings outlook is stable, assuming leverage and secured debt are reduced over the near term through cash flow, Moody's added.

The Southern Pride acquisition increases the proportion of secured debt in the capital structure. If senior secured debt reduction is delayed, the notching up of the senior secured ratings could become pressured, Moody's added. Additional cash acquisitions/expansion activity in the absence of prior deleveraging or adverse changes in regulations governing the Bering Sea/Aleutian Island pollock fishery also could negatively impact the ratings.

Moody's puts Semco on review for downgrade to junk

Moody's Investors Service put Semco Energy, Inc. on review for downgrade to junk including its senior unsecured debt at Baa3, subordinated debt at Ba1, Semco Capital Trust I's preferred stock at Ba1 and Semco Capital Trust II's Prides at Baa2.

Moody's said its review was prompted by Semco's announcement that it is lowering its 2002 earnings guidance by about 25% from previous levels. This announcement follows a previous 25% reduction in 2002 earnings estimates just two months ago. The lower earnings estimates are due to weaker than expected results both in its utility segment as well as in its construction services segment and are significantly below levels anticipated in Semco's current ratings.

Areas of concern that will be analyzed in Moody's review include: Semco's compliance with debt covenants; the prospects for Semco's construction business which has been depressed by the cyclical downturn in many of its markets; refinancing risk in 2003 since Semco faces the possibility of having to redeem $105 million of ROARS in July; and regulatory risk - Semco has filed a rate case in Michigan.

Moody's rates Hartz Mountain loan B1

Moody's Investors Service assigned a B1 rating to Hartz Mountain Corp.'s 35 million senior secured revolving credit facility due 2005 and $96 million senior secured term loan due 2007. The outlook is stable.

Moody's said the incorporate Hartz Mountain's strong market position in pet product categories with moderate underlying growth, but are limited by the company's high leverage and weaker than expected operating performance in a highly competitive business subject to some volatility.

The animal health care business (one of Hartz' most profitable lines) is vulnerable to weather conditions during flea season, which negatively impacted results in 2001-02. In addition, the company has shifted to other technologies to replace existing products, resulting in some delays in product development and restraining growth below expectations, Moody's said. On an ongoing basis, these products also face potential for technical obsolescence and competition from the veterinary channel.

Another factor negatively impacting Hartz has been the shift in consumer purchases away from grocery and independent pet stores, which has resulted in weak sales for certain product lines (dog and cat accessories and bird and small animal products) that are primarily distributed in those channels.

Hartz also benefits from moderate underlying demand growth in the pet care products segment. In addition, the ratings reflect the company's progress in rationalizing SKUs and reducing working capital (down $23 million since Dec. 31, 2000), which has supported a $32 million reduction in secured debt (to $96 million from $128 million at Dec. 31, 2000) and a $26 million reduction in total debt (including the accruing PIK seller note).

Although Hartz has reduced debt levels, earnings weakness has kept leverage high relative to cash flow, and the balance sheet remains weak, Moody's said. Intangibles, including trademarks, accounted for 40% of Hartz' balance sheet assets ($315 million) at Sept. 30, 2002, and tangible net worth was negative. Total debt is estimated at about $210 million on Dec. 31, 2002, including the accruing seller note, representing 79% of capitalization and 64% of last 12 month revenues (about $326 million). Total debt/last 12 months EBITDA was a very high 6.1x (5.2x excluding the seller note), reflecting the particularly poor fourth quarter of 2001. At estimated fiscal 2002 EBITDA levels (which exclude the fourth quarter of 2001), debt/EBITDA would be 4.7x (3.8x excluding the seller note).

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