S&P puts Avondale Mills on watch

Standard & Poor's put Avondale Mills Inc. on CreditWatch negative including its $150 million 10.25% senior subordinated notes due 2013 at B+.

S&P said the watch placement reflects its heightened concerns regarding the challenging industry conditions as well as Avondale Mills' ability to continue to adjust its operating model in response to the current environment.

According to its recent 8-K filing, the company expects to report sales of $591 million and a net loss of $7.7 million for the fiscal year ended Aug. 29, 2003, versus sales of $660 million and a net loss of $0.1 million the previous year. The decline in sales and profitability is due to overall weak demand for textile and apparel products as well as the shift in demand for lower priced goods manufactured overseas.

In response, the company has focused on cost-saving initiatives to improve its low-cost domestic manufacturing operations.

Still, S&P said it Poor's is concerned that Avondale Mills' financial performance will continue to be pressured by challenging business conditions in the intermediate term.

S&P expands Japanese coverage

Standard & Poor's said it is greatly expanding its coverage of the Japanese market by assigning new ratings to 100 companies, adding outlooks to 107 ratings, and assigning new ratings to senior unsecured corporate bonds issued by rated entities.

S&P said it will now cover about 90% of outstanding issues in the Japanese corporate bond market.

S&P will assign outlooks to the ratings of 107 companies that formerly carried the "pi" or public information subscript. The "pi" will be withdrawn.

S&P noted ratings on debt issues have been previously assigned at the request of issuers. With the expanded coverage, the agency will assign ratings to unsecured domestic corporate bond issues of more than ¥10 billion, or the equivalent of $50 million in unsecured overseas bonds, including outstanding issues.

S&P also plans to expand its coverage to include more companies classified in the S&P/Topix150, a large-cap stock price index, and the S&P MidCap 100, a mid-cap stock price index within the S&P Japan 500.

S&P assigned new ratings to 51 companies, following the withdrawal of 89 of the 196 "pi" subscript ratings previously assigned.

S&P will assign additional ratings over the next few months and further expand its coverage by the end of 2003. In 2004, expansion is also envisioned to cover the S&P SmallCap 250.

S&P said that ratings are now widely used by investors in Japan as a risk management tool, especially with the growth in awareness of credit risk following the failures of major companies during the prolonged economic slump.

The attitude of corporations toward disclosure has also changed drastically, especially with the introduction of tighter information-disclosure regulations, which require accounting information to be submitted on a quarterly basis, S&P added. In addition, the quality of information utilized in assigning ratings on companies with the former "pi" subscript has also improved.

Fitch rates Brake Bros. notes B-

Fitch Ratings assigned a B- rating to Brake Bros. Finance plc's £105 million 12% senior notes due 2011 and €105 million 11.5% senior notes due 2011. The outlook is stable.

S&P said the three-notch differential between the B- rating assigned to the notes and the BB- rating assigned to the senior secured facilities reflects its view of the significant difference in the potential recovery prospects between the two classes of debt in the event of any future forced restructuring or distressed sale scenario.

The successful negotiation that provided noteholders with upstream guarantees from operating companies is a step forward on the long road towards achieving full contractual subordination for European high yield notes, Fitch added.

However, because of the standstill provisions and the automatic release of the noteholders' guarantees on any sale of the business following enforcement by senior secured lenders, this structure could leave noteholders in a typical structurally subordinated position, Fitch added.

Moody's rates CFR notes B2

Moody's Investors Service assigned a provisional B2 rating to Compania Nationala de Cai Ferate CFR SA's planned €120 million of senior unsecured notes. The outlook is stable.

Moody's said the rating reflects CFR's legal status and ownership, Moody's expectation that the Government of Romania would, if required, provide funds to CFR to enable it to meet its obligations under the notes, and CFR's weak financial standing and poor liquidity.

The notes are the first debt issued by CFR that will not benefit from a guarantee by the Romanian Government.

The stable outlook reflects the stable outlook for Romania.

The one-notch difference reflects CFR's legal status as a limited liability company, its full ownership by the Government of Romania (which is not likely to change in the foreseeable future), CFR's strategic importance to the Romanian railway industry and the Government's legal role in funding infrastructure upgrades. These factors are somewhat mitigated by the historical propensity for delays in government providing all of its funding to CFR.

Without the benefit of implied government support, CFR's very poor financial position would warrant a rating in the Caa rating category, Moody's said. This reflects CFR's negative net worth and past record of material operating losses, its cost recovery revenue model which does not permit the build-up of reserves and its substantial debt service obligations in foreign currency. However, CFR's central role in the Government's strategy for the railway industry should ensure continued government involvement in CFR.

S&P puts CMA CGM on watch

Standard & Poor's put CMA CGM SA on CreditWatch negative including its €100 million notes due 2013 at BB-.

S&P said it is concerned that the group's ratio of priority liabilities, including net present value of operating leases, to total assets will not fall to less than 30% - which is the threshold for a two-notch differential from the corporate credit rating - in the near- to medium-term as expected due to high investment levels.

CMA CGM's ratings reflect the group's average business profile, with an extensive route network and demonstrated substantial organic growth. They also reflect the container shipping industry's slightly worse-than-average industry characteristics, the group's large investment commitments, and an aggressive financial profile, S&P said.

The ratings could be raised in the intermediate term if CMA CGM is able to improve its financial profile. The group is well positioned to leverage off its exposure to the booming Chinese economy, which should lead to improved revenues and earnings in the near term. Large committed investments in assets over the next few years, however, could constrain meaningful debt reduction.

Moody's maintains iStar's positive outlook

Moody's Investors Service confirmed iStar Financial Inc. including its senior debt at Ba1 and its REIT subsidiary TriNet Corporate Realty Trust, Inc. including its senior debt at Ba1 and maintained a positive outlook.

Moody's said the ratings reflect the growth of iStar's business franchise, the steady quality of its mortgage portfolio, the stability stemming from its triple net lease business, the active management of its investments base and the reduction of single-asset concentrations in its mortgage portfolio.

The firm's loan portfolio has become more diverse, with fewer large mortgages dominating the portfolio, a credit positive. However, this loan portfolio continues to have large individual exposures, which attenuates the firm's liquidity, limits the firm's leverageability, and contributes to a sensitivity to potentially sharp asset quality swings.

Moody's ratings continue to reflect iStar's experienced management team, along with its ability to successfully formulate highly structured transactions utilizing strong underwriting skills. Other credit positives include asset diversification by geography and tenant, the variety of products offered and the firm's disciplined asset management and servicing systems.

Moody's noted that iStar's high level of secured debt and its moderately high targeted leverage, have both increased over the past year.

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