Moody's puts Jo-Ann Stores on upgrade review

Moody's Investors Service put Jo-Ann Stores, Inc. on review for possible upgrade including its $150 million 10.375% senior subordinated notes due 2007 at B3.

Moody's said the review is in response to demonstrated operating improvements and the announcement that the company intends to tender for about $40 million of its subordinated notes, to be funded out of cash balances.

Moody's raises Sotheby's outlook

Moody's Investors Service raised its outlook on Sotheby's Holdings, Inc. to positive and confirmed its ratings including its $100 million 6.875% senior unsecured notes due 2009 at B3. The action ends a review first started when Sotheby's antitrust challenges arose in 2000, and which resulted in several ratings downgrades. Most recently the ratings were on review with direction uncertain.

Moody's noted that Sotheby's controlling shareholders recently announced they would not seek a partial or total sale of the company in the near future. All remaining liabilities emanating from the antitrust action have been determined or settled over the past few months.

The confirmation reflect Sotheby's high effective leverage at current performance levels; the near term expiration of its bank facilities in February 2004; and the need to finance legal obligations and retention payments over the near to medium term, Moody's said.

The ratings continue to recognize the risk of top line and balance sheet volatility due to competitive issues and the reliance on a relatively small number of showrooms and sale dates which could experience disruption.

Moody's recognizes that Sotheby's remains a closely-held company. While a sale of the company is not expected in the near future, a change in control at any time in the future could result in changes to business and financial practices.

The ratings are supported by Sotheby's effective and opportunistic management of its balance sheet in a difficult business and banking environment; its ability to sustain cost reductions, which should allow it to operate through the current business trough and benefit from operating leverage when revenues rise; the expectation that Sotheby's can remain cash flow neutral to slightly positive even in a continued weak business environment; and an improved capital structure due to the repayment of short-term debt through the sale/leaseback of its York Avenue headquarters in early 2003, Moody's said.

The ratings are also supported by the considerable brand equity in the Sotheby's franchise.

Moody's assigned a positive outlook because it expects Sotheby's to maintain fixed charge coverage levels in a politically and economically challenging environment, and believes the company can continue to manage its balance sheet appropriately.

Moody's cuts SAS to junk

Moody's Investors Service downgraded Scandinavian Airlines System to junk including cutting its euro medium-term notes to Ba2 from Baa3 and perpetual subordinated bonds to Ba3 from Ba1.

Moody's said the downgrade reflects weaker than expected operating performance reflecting the prolonged decline in travel volumes, especially in the Scandinavian and other European markets, and the continued economic downturn. The drop in volumes was recently aggravated due to the Iraq war and partly through the outbreak of SARS in Asia.

The downgrade also reflects lower yields and margin pressure relating to intensified competition from low cost airlines and on European routes as well as due to new fare policies and reduced business-class travel, the need for additional restructuring measures to offset market pressures and improve cost positioning in order to raise barriers to entry and effectively compete with low cost airlines and other European network carriers and the increase in secured debt and encumbered assets within the group's debt profile, which resulted in additional notching being introduced between the senior implied rating and SAS's senior unsecured debt and subordinated bonds.

Fitch cuts Lopro

Fitch Ratings downgraded Lopro Corp.'s long-term rating to BB from BBB-, removed it from Negative Watch and assigned a negative outlook.

Lopro has forecast a net loss of ¥68.0 billion for the financial year ending March 2003, Fitch noted. The forecast loss has been caused by setting aside additional reserves to cover the cost of legal action (¥44.0 billion) and the writing-off of deferred tax assets (¥24.5 billion). This loss will wipe out most of the company's retained earnings and reduce the equity/asset ratio from 47.8% at end-September 2002 to around 30% at end-March 2003.

Although Fitch said it welcomes the writing-off of deferred tax assets and the additional coverage provided for ongoing legal liabilities, it remains concerned that Lopro's business has yet to show any signs of recovery from the difficult period endured since late-1999.

Loan volumes and interest revenues continue to shrink while operating costs have remained relatively high, Fitch noted. Lopro has also experienced consistently high credit-related losses, either as straightforward loan loss provisions as asset quality has deteriorated, or more recently in the form of provisions to cover legal dispute costs. Together these factors have impaired profitability.

S&P upgrades Bank TuranAlem

Standard & Poor's upgraded Bank TuranAlem including raising its long-term counterparty credit and certificate of deposit ratings to BB- from B+. The outlook is stable.

S&P said the action reflects the improved economic environment in the Republic of Kazakhstan, improvements in the bank's core earnings, and the bank's lower loan growth in 2002.

The action also reflects the increased involvement of Bank TuranAlem's new owners - which include Raiffeisen Zentralbank Oesterreich (A-1) and the European Bank for Reconstruction & Development (AAA/Stable/A-1+) as their presence should help improve Bank TuranAlem's corporate governance, systems, funding, and capitalization.

Fitch rates AmeriGas notes BB+

Fitch Ratings assigned a BB+ rating to the $32 million 8.875% senior notes due 2011 of AmeriGas Partners, LP, jointly issued with special purpose financing subsidiary AP Eagle Finance Corp. The outlook is stable.

AmeriGas' rating reflects the subordination of its debt obligations to $577 million secured debt of the operating limited partnership including the OLP's $540 million privately placed BBB rated first mortgage notes.

In addition, Fitch's assessment incorporates the underlying strength of AmeriGas' retail propane distribution network. AmeriGas is viewed as one of the premier retail propane distributors evidenced by its efficient operations, favorable acquisition track record, and proven ability to sustain gross profit margins under various operating conditions.

Weather across AmeriGas' service territory has been slightly colder than normal during the 2002-2003 winter heating season, a factor which has favorably impacted AmeriGas' credit measures.

Fitch said it expects that consolidated ratios for EBITDA coverage of interest and debt to EBITDA for fiscal year 2003 will approximate 2.8 times and 3.7x, respectively. This compares with EBITDA to interest of 2.4x and total debt to EBITDA of 4.6x for the fiscal year ended Sept. 30, 2002, a period during which AmeriGas experienced weather that was 10% warmer than normal.

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