S&P cuts Smithfield to junk, rates notes BB

Standard & Poor's downgraded Smithfield Foods Inc. to junk including cutting its $100 million 8.41% notes series I due 2009, $100 million 8.52% notes series F due 2006, $14 million 9.85% notes series G due 2006, $14.779 million 8.41% notes series H due 2004, $25 million notes series L due 2009, $40 million 8.34% notes series C due 2003, $50 million notes series J due 2009, $50 million notes series K due 2009, $75 million 8.25% notes series M due 2006, $9 million 9.8% notes series D due 2003 and $9.25 million 10.75% notes series E due 2005 to BB+ from BBB-, its $200 million notes due 2020 to BB from BB+ and its $200 million 7.625% senior subordinated notes due 2008 to BB- from BB+. S&P also assigned a BB rating to its new $250 million senior notes due 2013. The outlook is negative.

S&P said the downgrade reflects Smithfield's weak operating performance and deteriorating credit measures affected by lower hog prices and weak fresh meat prices, a decline driven by the excess supply of all proteins in the marketplace.

Mitigating factors include Smithfield's large, vertically integrated U.S. operations in hog slaughter and the further processing of pork, as well as its broad portfolio of meat proteins offered.

Although hog prices have improved somewhat in the past several weeks, they remain around breakeven levels for hog producers, S&P noted. The rating agency said it is concerned that Smithfield's vertically integrated operations have not reduced the degree of volatility in the firm's operations as originally expected.

In addition, Russia's new import quotas on poultry - a pork substitute - adds a new risk dimension to the recovery of future protein prices. Furthermore, due to weak operating results, Smithfield has amended covenant agreements in its secured revolving credit facility and the loan agreements of certain senior secured notes.

Smithfield's financial profile has weakened. For the third quarter ended Jan. 26, 2003, the company was required to seek amendments to the financial covenants on its secured revolving credit facility and secured notes because of operating weakness, S&P said. Operating lease-adjusted total debt to EBITDA for the 12 months ended Jan. 26, 2003, was 4.7x, while EBITDA to interest was 3.4x. Standard & Poor's expects credit measures to remain weak in the near term because of the impact of lower hog prices and because retail protein prices remain at cyclical low levels.

S&P upgrades Bank Negara, Bank Mandiri

Standard & Poor's upgraded PT Bank Negara Indonesia including raising its $145 million senior notes due 2007 to B from B- and $150 million step-up notes due 2012 to CCC+ from CCC and PT Bank Mandiri including raising its $125 million 10.625% subordinated notes due 2012 to CCC+ from CCC and $125 million floating-rate notes due 2006 and $300 million 7% notes due 2008 to B from B-. The outlook is stable.

S&P said the upgrades recognize that improvement in Indonesia's economy since the financial crisis in 1997-1998, albeit at a mixed pace, has increasingly enhanced the operating environment for Indonesia's banks, and more particularly for the country's leading banks.

In addition, the strengthened credit profile of the Indonesian government - S&P also upgraded Indonesia - improves the asset quality of Indonesia's banks, given that government bonds continue to form a substantial part of the banks' asset book.

Nevertheless, the major banks are still subject to the risks associated with operating in a highly indebted and still-developing country, with an uncertain policy environment and limited fiscal flexibility, S&P said.

S&P added that it considers that although the risk of systemwide foreign exchange controls being imposed is not immaterial in Indonesia this risk is consistent with a B rating.

The stable outlook on the counterparty credit ratings is line with the outlook on S&P's long-term credit rating on the Indonesian government. This reflects the indirect constraints that the fiscal health of the government places on the economy and in turn the banks.

Moody's rates Standard Pacific notes Ba2

Moody's Investors Service assigned a Ba2 rating to Standard Pacific Corp.'s new $175 million senior notes and confirmed the company's existing ratings including its senior notes at Ba2 and senior subordinated notes at Ba3. The outlook is stable.

Moody's said the ratings consider the strength of Standard Pacific's major markets in California, moderate homebuilder debt leverage and successful efforts to diversify geographically.

However, the ratings also reflect the risks of having a regional concentration in California, integration challenges from acquisitions, the stock buyback program and the cyclical nature of the homebuilding industry.

Although Standard Pacific derived 42% of its home closings in 2002 from California (down from 51% in 2001 and 79% in 1996), its profits from California constituted a significantly greater proportion of its homebuilding total, Moody's said. Fortunately for the company, California as a whole has been extremely strong for a number of years, and even the Northern California market, which suffered a sharp contraction in 2000, has shown some selected signs of strength.

Going forward, the relative profit contribution from California is projected to decline, from rapid growth in several other markets and from entry into new markets. While the concentration levels in California will remain high, they will be declining measurably, and the characterization of Standard Pacific as primarily a California homebuilder will be evolving.

Homebuilding debt leverage has held pretty steady for the past four years, with homebuilding debt/capitalization ending 2002 at 45.3%, vs. 48.8% at year-end 2001, and homebuilding debt/EBITDA coming in at 2.9x (vs. 2.6x), Moody's said. After adjusting the balance sheet for the company's off-balance sheet joint venture indebtedness, homebuilding debt/capitalization would increase by several percentage points.

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