Moody's cuts Nortel to junk

Moody's Investors Service lowered the long-term ratings on the senior debt of Nortel Networks Ltd. and its subsidiaries to Ba3 from Baa3 and its preferred stock to B3 from Ba2.

Moody's said the downgrade reflects the continued decline in spending by telecom carriers, which is expected to be deeper and more protracted than previously anticipated. The rating action also considered significant progress Nortel has made in reducing its cost structure, which will become more evident in the current year, and a geographically diversified customer base.

Moody's said the timing of the rating change is not focused on anticipated results for the first quarter but rather the expectation that Nortel's operating performance will remain under pressure for an extended period and that it will prove difficult to return to profitability this year.

The rating agency expects Nortel will consume cash throughout 2002 as it funds restructuring costs as well as a significantly reduced capital investment. As a result of the limited visibility for revenue growth and improvement in operating performance, the outlook is negative.

S&P downgrades Marconi

Standard & Poor's downgraded Marconi plc and removed its ratings from CreditWatch with negative implications. Ratings affected include Marconi's €1 billion 6.375% notes due 2010, €500 million 5.625% notes due 2005 and $1.8 billion bonds due 2030, all cut to C from CCC.

S&P said it downgraded Marconi because of the risk it will default on its debt this financial year.

Any default would most likely be a debt restructuring but S&P said a default in which Marconi is not able to close current negotiations with bank lenders cannot be ruled out.

A restructuring would probably take the form of a debt for equity swap and would be detrimental to bondholders' original position, S&P said.

In a default scenario, Marconi's bank and bond creditors would have equal claim on its assets after preferential creditors, although recovery values are deemed very weak.

Moody's downgrades GenTek

Moody's Investors Service downgraded GenTek Inc. and removed it from review for possible further downgrade. The outlook is negative. Ratings affected include GenTek's $300 million senior guaranteed secured revolving credit facility maturing 200, $100 million senior guaranteed secured term loan A maturing 2005 and $150 million senior guaranteed secured term loan B maturing 2007, all lowered to Caa2 from B3, and its $200 million senior guaranteed subordinated notes due 2009, lowered to Ca from Caa3 .

Moody's said its action reflects GenTek's report that on March 31 its banks gave notice of default based upon the fact that its 2001 audit was qualified as to its status as a going concern.

Moody's said there are also uncertainties about GenTek's ability to successfully finalize an amendment to its credit facility, the significant risk of bankruptcy and the uncertain terms of any potential restructuring of its heavy indebtedness, given the material deterioration in its business segments of telecommunications products, automotive components and performance chemicals.

Concerns raised in Moody's last release on April 1 also persist, namely: significant 2001 losses and charge-offs; the company's indication it would not be in compliance with its credit agreement as of March 31, 2002.

Moody's rates Regal notes B3

Moody's Investors Service assigned a B3 rating to Regal Cinemas, Inc.'s add-on sale of $150 million senior subordinated notes due 2012 and confirmed the company's existing ratings including its $100 million senior secured revolver due 2007 and $270 million senior secured term loan due 2008 at B1 and its $200 million senior subordinated notes due 2012 at B3. The outlook is stable.

The stable outlook, in light of the follow-on issue of senior subordinated notes, reflects Moody's belief that the addition of the high quality assets of Edwards Theatres and the net reduction in debt offsets the reduction in liquidity resulting from this transaction, the rating agency said.

Although the transaction will result in a slight increase in Regal's leverage (net of cash), total lease adjusted leverage for the consolidated company will remain well below 5.0 times relative to the 6.0 times or more for the comparable industry group, Moody's noted.

Moody's rates Russell notes B1, bank debt Ba2

Moody's Investors Service assigned a Ba2 rating to Russell Corp.'s $375 million guaranteed senior secured credit facility maturing 2007 and a B1 rating to its proposed $200 million guaranteed senior unsecured notes due 2010. The outlook is stable.

Moody's said its ratings reflect Russell's moderate leverage at 47% debt to book capitalization or 4.5 times debt to EBITA; the longevity of its primary brand names; its leading market positions; and a strong portfolio of brands.

The company has also benefited from a multi-year restructuring plan which reduced total productive capacity and moved 95% of its cutting and sewing operations offshore, Moody's said.

Also incorporated in the ratings are Russell's significant unused debt capacity; acquisition risk; continued negative price and volume pressures in its core products due to global competition; seasonality; a modest return on assets; weak inventory turns; and significant concentration with Wal-Mart, which represents about 19% of sales.

S&P lowers Phoenix Color

Standard & Poor's' downgraded Phoenix Color Corp. and gave the company a stable outlook. Ratings affected include Phoenix Color's $105 million 10.375% senior subordinated notes due 2009, cut to CCC+ from B-, and its $20 million senior secured revolving credit facility due 2004, cut to B+ from BB-.

S&P said the ratings reflect Phoenix Color's heavy debt burden, small cash flow base, narrow business focus, competitive market conditions and weak credit measures.

In addition, the company's Maryland book manufacturing business continues to generate EBITDA losses, S&P said.

However Phoenix Color benefits from a leading niche market position in book component manufacturing and its longstanding relationships with a diverse group of major book publishers, the rating agency added.

EBITDA for 2001 was $15.5 million, a 23% decrease from the prior year, and a result of weak book components performance offset by higher sales of complete books manufactured, S&P said. EBITDA coverage of interest expense is less than 1.5 times and total debt to EBITDA over 7.5 times. Financial flexibility and liquidity currently seem adequate, with approximately $4 million in revolving credit availability, and modest maintenance capital spending.

S&P confirms Superior Telecom

Standard & Poor's confirmed its ratings on Superior Telecom Inc. including its corporate credit rating at B-. The outlook is negative.

S&P said its action follows Superior's announcement it had received amendments to its existing credit agreements.

In March, Superior Telecom received a deferral until Jan. 31, 2003 of the $20 million senior debt principal payment due March 31, S&P said. Because it was at the behest of the senior lenders, not at Superior Telecom's request, S&P did not consider this a default. The rating agency noted Superior Telecom's current liquidity situation was sufficient to have met the payment if necessary.

In light of the expected continuation of weak market conditions, S&P said it expects the company's cash flow measures to remain at or near at current levels for the medium term. The recently amended bank covenant that stipulated Superior complete an asset sale and make a $175 million payment by Jan. 2, 2003 has been waived.

Nevertheless, without improvement in industry fundamentals, the company's debt amortization schedule will continue to absorb its cash flow and available liquidity over the near to medium term, S&P added. Absent asset sales and a continuation of depressed industry conditions, available liquidity and cash flow generation may be insufficient to meet scheduled significant bank principal repayments in 2003, possibly leading to a restructuring of these payments.

Moody's upgrades Caremark RX

Moody's Investors Service upgraded Caremark Rx, Inc. including raising its $300 million senior secured revolving credit facility due 2005, $250 million senior secured term loan B due 2006 and $450 million 7.375% senior notes due 2006 to Ba2 from Ba3. The outlook is positive.

Moody's said its upgrade reflects Caremark's strong operating performance, sustained growth in cash flow and continued deleveraging.

The ratings also reflect Moody's expectation that favorable industry fundamentals will drive industry growth in the near to intermediate term, the rating agency said. These fundamentals include the positive trend in drug spend, significant generic introductions which will boost profitability of mail pharmacy services and strong growth in the development of biotech drugs which should bolster specialty distribution business.

Moody's also noted that Caremark has a stronger business mix and margins relative to its peers and significantly higher profitability as measured by EBITDA/Script.

S&P rates new Champion notes B

Standard & Poor's assigned a B rating to Champion Enterprises Inc.'s proposed issue of $150 million senior unsecured notes and confirmed its existing ratings. The outlook is stable.

S&P said the ratings anticipate Champion's recently announced entrance into the consumer finance business, which is being pursued in the near term to defensively support the company's modestly profitable manufacturing operations and currently weaker retail operations.

Longer term, a successful finance unit would serve to bolster overall returns, S&P said.

Despite inefficiencies due to lower volume, Champion's manufacturing segment has managed to remain modestly profitable, S&P noted. In the quarter ended Dec. 29, 2001, Champion generated $19 million of income on $323 million of revenue, a 7% margin.

However, the retail segment continues to operate at a deficit, having lost $10 million on sales of $95 million, S&P added.

Champion recently announced it would acquire CIT Group Inc.'s manufactured housing loan origination business.

Champion's initial investment is minimal at $4.5 million and fixed overhead of $500,000 per month appear manageable, S&P commented. Importantly, Champion assumes no liabilities related to CIT's existing loans, although CIT will service all new Champion-originated loans in the near to medium term.

S&P cuts Orius to D

Standard & Poor's downgraded Orius Corp.'s bank to D from CC including its $100 million term loan A due 2004, its $175 million term loan B due 2006, its $100 million bank loan due 2004 and its $50 million term loan C due 2007.

S&P rates Block Communications notes B-

Standard & Poor's assigned a B- rating to Block Communications Inc.'s planned offering of $150 million senior subordinated notes due 2009. The outlook is stable.

S&P raises Bauang Power outlook

Standard & Poor's raised its outlook on Bauang Private Power Corp. to stable from negative.

Ratings affected include Bauang's $85 million 10.17% senior secured notes due 2008 rated BB+.

S&P rates new Alltrista notes B-, bank debt B+

Standard & Poor's assigned a B- rating to Alltrista Corp.'s upcoming offering of $150 million senior subordinated notes due 2012 and a B+ rating to its $50 million revolving credit facility and $50 million term loan. The outlook is stable.

S&P puts Gray Communications on watch

Standard & Poor's put Gray Communications Systems Inc. on CreditWatch with negative implications.

Ratings affected include Gray's $50 million revolver due 2006 and $200 million term loan B due 2006, both rated B+, and its $180 million 9.25% senior notes due 2011 rated B-.

Moody's rates new D.R. Horton notes at Ba1

Moody's Investors Service assigned a Ba1 rating to D. R. Horton Inc.'s new $250 million issue of 8.50% senior notes due 2012, and confirmed its existing ratings including its senior notes at Ba1. The outlook was changed to negative from stable in March, reflecting the company's aggressive use of debt leverage despite previous indications that capital structure discipline would be maintained, Moody's noted.

The ratings reflect enviable operating performance, success at integrating acquisitions, strong equity base, geographic diversity, tight cost controls and size, Moody's said.

However, the ratings also continue to reflect higher than average business risk given D.R. Horton's appetite for acquisitions, greater debt leverage than its peers, capacity under its credit agreement that could lead to substantial additional debt, integration risks associated with the recent merger with Schuler Homes and the cyclical nature of homebuilding.

For the negative outlook to be lifted, the company would have to integrate Schuler Homes seamlessly and make substantial progress in meeting its capital structure projections, Moody's said.

For the debt ratings to be lowered, D.R. Horton would have to have difficulties in its integration of Schuler Homes and/or further stress its balance sheet.

Moody's confirms Gray Communications

Moody's Investors Service confirmed Gray Communications Systems, Inc.'s ratings including its $180 million of guaranteed senior subordinated notes due 2011 at B3 and its $50 million senior secured revolving credit facility due 2008 and $200 million senior secured term loan due 2009 at Ba3. The outlook is stable.

Moody's said the confirmation follows Gray's announcement of its proposed acquisition of Benedek Broadcasting's television stations for $500 million or 10 times 2001cash flow before corporate overhead.

The transaction is expected to be financed with a prudent mix of debt and equity, Moody's said.

Following the combination, the company's cash flow leverage for this year should improve in part because of the benefits of a political year and the amelioration of the advertising downturn as well as the likely reduction in combined corporate expenses and opportunities associated with television station clusters, the rating agency said. As of Dec. 31, 2001, Gray's leverage was high with Debt/EBITDA of 8.14 times but, according to management, the combined company should be closer to 6 times by year end.

Moody's rates Block's new notes B2, bank debt Ba2

Moody's Investors Service assigned a B2 rating to Block Communications, Inc.'s upcoming offering of $150 million senior subordinated notes and Ba2 rating to its new $225 million senior secured credit facilities. The outlook is stable.

Moody's said its ratings on Block reflect the risks posed by the company's high financial leverage and inadequate cash flow coverage of interest after capital expenditures; high planned capital investment associated with the network infrastructure and printing press upgrades in the company's cable and publishing operating segments, respectively; operating performance in its television and publishing segments that has been below that of the company's comparative peer groups; and the potential for work stoppages, inherent in all labor negotiations, in the company's publishing group if current or expected future contract talks are unsuccessful.

Block also suffers from the general risks of its operating segments, including high fixed costs, negative circulation trends and paper price volatility in the newspaper publishing sector; the high and rising costs of cable programming, particularly for smaller system operators, and execution risks associated with digital enhanced service roll-outs in the cable television sector; and the company's overall exposure to the cyclical advertising environment more broadly.

However Block's ratings benefit from the high underlying asset value of its technologically advanced cable network infrastructure, the implied "stick value" associated with its broadcast television station portfolio, and the operation of two newspapers which are prominent in their markets.

In particular, the company's Louisville operations, while under-performing, add material value to the broadcasting group due to the company's duopoly in this top 50 ranked market, Moody's said. Similarly, the company's newspaper operations include the Pittsburgh Post-Gazette, which is the dominant newspaper in the top 25 ranked Pittsburgh market.

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