Fitch rates Omnova notes BB, loan BB+

Fitch Ratings assigned a BB rating to Omnova Solutions Inc.'s proposed $165 million senior secured notes due 2010 and a BB+ ratings to its proposed $100 million senior secured credit facility.

The ratings reflect the company's size, market position, liquidity and financial performance, Fitch said.

Omnova is a small company with EBITDA of $37 million on revenue of $678 million for the trailing 12 month period ended Feb. 28, 2003.

Its size makes the company vulnerable to downside events. However, the company has remained cash flow positive during the current cyclical downturn, Fitch said.

In addition, although Omnova is small, the company provides differentiated design and performance products; has leading market positions in commercial wall covering, coated fabrics, and vinyl and paper laminates; and is a leading producer of styrene butadiene latex.

These market positions, as well as reductions in capital expenditure and the elimination of the dividend, have helped the company during the trough. On a trailing 12 month basis for the period ended Feb. 28, 2003, Omnova's EBITDA-to-interest incurred was 4.0x and its total debt (including the A/R program balance)-to-EBITDA was 5.4x, Fitch said.

Moody's rates Pacificare's loan B1

Moody's Investors Service assigned a B1 rating to Pacificare Health System's $300 million secured credit facility, consisting of a $150 million revolver due 2006 and a $150 million term loan due 2008. The outlook is stable.

The facility will be used to refinance existing debt and provide additional liquidity.

The rating reflects improved performance at the company's regulated subsidiaries, which translates into better capital adequacy and dividend capability. Also reflected in the rating is continued risks associated with high dependence on Medicare risk business, competitive challenges faced in expanding commercial membership, conversion risk as capitated contracts continue to wind down and risks involving potential acquisitions, Moody's said.

Moody's rates Safilo notes B3

Moody's Investors Service today assigned a provision B3 rating to Safilo Capital International SA's planned €225 million in senior notes due 2013 and a B1 rating to Safilo SpA's €650 million in senior secured credit facilities. The outlook is stable.

Moody's said the B1 senior implied rating reflects financial risks from Safilo's highly leveraged capital structure (Pro forma fiscal 2002 net debt/EBITDA of 4.8x, or 4.5x excluding its securitization facility) as well as the substantial scale of debt in absolute terms at approximately €900 million; the need for the company to continue to strongly grow revenues near annualized historical rates if it is to materially de-leverage the balance sheet; cash absorption in working capital and capital expenditure as a result of new business initiatives (e.g. Armani) which is likely to push the company into negative free cash flow in the near term; as well as its exposure to the fashion and luxury goods market especially in the face of the current challenging economic climate.

Additionally, the ratings factor an element of business risk associated with fulfilling the Armani undertaking, though Moody's notes the company's solid track record in assimilating new brands into its portfolio.

Positives are Safilo's long history as a leader in the global wholesale eyewear market, particularly in the premium brand segment; geographic and product diversification of revenues and cash flows, particularly its prescription frames business which provides some stability to its business plan; a reputation for quality and innovation as evidenced by its recent success in winning the Armani contract, its broad portfolio of brands, which is further strengthened by the addition of the Armani brands; and management's track record of organically growing the business.

The ratings also incorporate the benefit from barriers to entry that Safilo's market leadership, long-term contracts, global distribution network and design capabilities provide to its business plan.

The stable outlook reflects Moody's opinion that the company is well positioned within the rating category, underpinned by continued demand for its products, a history of solid growth and a generally favorable outlook for the industry.

S&P rates Werner loan B+

Standard & Poor's assigned a B+ rating to Werner Holding Co.'s new $230 million credit facilities and confirmed its existing ratings including its senior secured debt at B+ and subordinated debt at B-. The outlook is stable.

S&P said the ratings were confirmed despite the substantial increase in debt and debt-like preferred stock that the company will incur in connection with a recapitalization.

Pro forma for the transaction, the capital structure will be very aggressive, with debt to EBITDA of about 5x, S&P said, adding that it includes the preferred stock as debt because it can be put back to Werner in January 2007. In addition, $36 million of unfunded postretirement obligations are included as debt on a tax-effected basis.

EBITDA interest coverage will be in the upper-2x area, with funds from operations to debt below 10%. To maintain the existing ratings, total debt to EBITDA is expected to decline to about 4x, with funds from operations to debt strengthening to the 10% to 12% range within the next two years, S&P said.

Sales are somewhat dependent on cyclical housing starts, as well as seasonal factors. During 2002, sales declined slightly due to the impact of continuing economic weakness on ladder unit sales and extruded products end markets as well as significant inventory reductions by a major customer early in the year.

However, operating profits (both absolute amounts and as a percentage of sales) have strengthened meaningfully due to manufacturing productivity improvements and other cost reduction initiatives, lower aluminum costs, and product mix enhancement, S&P said. Plans to transfer ladder manufacturing from Greenville to lower-cost locations should further improve its cost position and are not expected to be disruptive. As a result, operating margins (before depreciation and amortization) are expected to average in the mid- to upper-teens percentage area.

For the bank loan, S&P said its simulated default scenario indicates that recovery may be substantially below 100%.

S&P rates Omnova notes BB, loan BB+

Standard & Poor's assigned a BB rating to Omnova Solutions Inc.'s proposed $165 million senior secured notes due 2010 and a BB+ rating to its proposed $100 million asset-based bank credit facility and confirmed its existing ratings including its senior secured debt at BB.

S&P said Omnova's ratings reflect the company's fair market positions and decent product diversification, tempered by competitive markets, exposure to volatile raw material costs and an aggressive financial profile.

The proposed refinancing will enhance the company's liquidity position, S&P said.

For the loan, S&P said the rating incorporates the expectation that the collateral package will retain value in the event of default or liquidation, and that there is a strong likelihood of full recovery of principal in event of default or bankruptcy.

Profitability and cash flow remain negatively affected by high raw material and energy costs and soft demand in key markets caused by the sluggish economy, S&P said. Operating margins (before depreciation and amortization) have fallen to 7% in recent quarters (the three-year average of about 8% compares with about 15% for the previous three-year period).

The shortfall in cash flow has contributed to elevated debt (adjusted for receivables securitization and leases) and increased leverage; debt to EBITDA is about 5x, S&P said. Credit protection measures are somewhat weak; funds from operations to adjusted debt is about 15%.

A gradual recovery in business conditions should result in cash generation that is in excess of internal needs, thereby providing funds for debt reduction, S&P added. During the business cycle, funds from operations to debt and debt to EBITDA should average 20% and 3.5x, respectively.

S&P expects to rate Evergreen notes B-, loan B+

Standard & Poor's said it expects to upgrade Evergreen International Aviation Inc. from its current CCC corporate credit rating on CreditWatch developing on completion of the refinancing.

S&P said it expects to rate the company's $100 million bank financing at B+ and $215 million notes due 2010 at B-.

The upgrade will reflect the successful resolution of Evergreen's liquidity problems, and the new ratings will be based on the cyclical and competitive nature of Evergreen's airfreight transportation business and its significant, albeit declining, debt burden, S&P said.

Moody's rates Advanced Accessory notes B2

Moody's Investors Service assigned a B2 rating to Advanced Accessory Systems, LLC's planned $150 million guaranteed senior unsecured notes maturing 2011. The outlook is stable. The existing senior subordinated notes are rated B3 but the rating will be withdrawn when they are redeemed.

The rating actions reflect that Advanced Accessory will become slightly more highly leveraged on a pro forma basis following the proposed transactions and recapitalization; that the company remains at significant risk of stepped-up OEM price compression due to its small revenue base relative to many Tier

I suppliers, its current concentrations with General Motors and DaimlerChrysler, and the commodity-like nature of certain of its product lines; and that the company operates in competitive niche markets which remain highly dependent upon favorable general economic and industry-specific conditions, Moody's said.

Advanced Accessory is under pressure to expand and innovate its product line and to increase the demand for roof racks and towing equipment on passenger cars and crossover vehicles in order to establish avenues for future growth, maintain margins, and also protect against potential declines in the popularity of SUV's and other light truck categories.

The ratings and stable outlook more favorably reflect that since the company was founded in 1995, Advanced Accessory has established leading niche market positions globally as a designer and manufacturer of exterior accessories for the automotive original equipment manufacturer market as a Tier 1 supplier, and for the automotive aftermarket, Moody's added. The company notably also maintained profitability and reduced debt balances during the past two years of recessionary market conditions.

Pro forma last 12 months total debt/EBITDA leverage approximated 4.4x and 4.0x, before and after adjusting debt and EBITDA for off-balance sheet leases and approximately $1 million of under-funded pension liabilities, Moody's said. Pro forma EBIT coverage of cash interest was adequate at 1.8x. The pro forma EBIT return on total assets was 9.2%, reflecting the write-up of assets due to purchase accounting.

S&P upgrades PDV America, Citgo

Standard & Poor's upgraded PDV America Inc. and subsidiary CITGO Petroleum Corp. including raising PDV America's senior unsecured debt to B from B- and Citgo's senior secured term loan to BB from BB- and senior unsecured debt to BB- from B+. The outlook is stable.

S&P said the upgrades reflect that PDV America and Citgo now likely have sufficient liquidity to meet financial obligations for 2003 without relying on material external financing or triggering a violation of financial covenants.

PDV America's ratings reflect its competitive position in the highly cyclical, capital-intensive, and fiercely competitive U.S. refining and marketing industry, a somewhat aggressive debt burden, and risks associated with its ownership by PDVSA, S&P said.

During the past year, PDV America's financial condition has been buffeted by a severe downturn in refining margins and political instability in Venezuela that reduced crude shipments to its Citgo subsidiary. This combination of events caused Citgo's trade credit terms to worsen sufficiently to strain Citgo's liquidity and significantly increased the cost of accessing credit markets, S&P said.

However, in recent months, refining margins have rebounded, crude shipments from Venezuela have normalized, and the company has successfully raised external financing, bringing total cash and available borrowing capacity to about $1.2 billion. As such, Citgo's fiscal crisis has abated.

Nevertheless, Citgo and PDV America still face significant challenges over the intermediate term, most significantly a likely decline in refining margins later in 2003 and funding about $1.1 billion (through 2006) of required investments to meet clean fuels expenditures, S&P said. While Citgo's funds from operations should average about $600 million per year (translating into about 30% funds from operations to total debt), volatile margins and working capital requirements can cause actual cash available for capital investment and debt service to vary widely.

Moody's rates Amphenol liquidity SGL-2

Moody's Investors Service assigned an SGL-2 speculative-grade liquidity rating to Amphenol Corp.

Moody's said the SGL-2 rating reflects its expectations for continued strong free cash flow and more than adequate availability under the $125 million revolving credit facility, which together, should provide good liquidity for the company to comfortably finance operations during the next 12 months, the time horizon for the rating.

Additional support comes from the company's recently financed bank debt which is comprised of a $125 million term loan A and a $500 million term loan B that allowed the company to extend maturities from 2004 and 2006 to 2008 and 2011, respectively, and reduce near-term amortization requirements.

S&P upgrades Advanced Accessory, rates notes B-

Standard & Poor's upgraded Advanced Accessory Systems LLC including raising its coproarte credit to B+ from B and assigned a B- rating to Advanced Accessory's proposed offering of $150 million senior unsecured notes due 2011.

The upgrade reflects the new capital structure of AAS and expectations for financial performance under the new owners, S&P said.

The ratings on AAS reflect the company's high debt leverage and exposure to cyclical and competitive markets, S&P added. These risks are mitigated by the company's significant position in two specialized markets, the North American original equipment (OEM) automotive rack systems market and the North American and European towing systems markets.

In recent years, the company's sales have benefited from attractive growth rates for sport utility vehicles, which are often accessorized with racks in North America and towing hitches in Europe. The company's business is diversified by end market, with 70% of sales coming from the OEMs and 30% from the aftermarket.

Over the intermediate term, S&P said it expects AAS' total debt to EBITDA to be in the 3x-4x range and EBITDA interest coverage to be around 2.5x. Financial flexibility was modestly enhanced by the company's recent recapitalization and issuance of the pending $150 million of notes maturing in 2011.

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