S&P puts Horseshoe on positive watch

Standard & Poor's put Horseshoe Gaming Holding Corp. on CreditWatch positive including its $125 million term loan and $250 million five-year revolving credit facility at BB+, $600 million 8.625% senior subordinated notes due 2009 at B+ and Horseshoe Gaming LLC's $160 million 9.375% senior subordinated notes due 2007 at B+.

S&P said the action follows the announcement that the company has agreed to be acquired by Harrah's Entertainment Inc. for approximately $1.45 billion in an all-cash transaction.

S&P said it expects Horseshoe's existing bank facility to be cancelled upon closure of the transaction, with the rating on this facility being withdrawn.

Horseshoe's subordinated notes carry a change-of-control provision requiring Harrah's to initiate a tender offer. If any of the notes remain outstanding, S&P said it expects to equalize the ratings on these notes with the existing subordinated debt rating on Harrah's. Although Horseshoe's outstanding bond issues are not expected to be supported by a guarantee, S&P said it Poor's is taking a consolidated approach to the credits, given the economic and strategic importance of the acquisition.

S&P confirms Harrah's

Standard & Poor's confirmed Harrah's Entertainment Inc.'s ratings including its corporate credit at BBB-. The outlook is stable.

S&P's confirmation follows the company's announcement that it will acquire the assets of Horseshoe Gaming Holding Corp. for approximately $1.45 billion in an all-cash transaction. The outlook is stable.

S&P said the acquisition will improve Harrah's overall business position by combining its already well-diversified asset base with a portfolio of gaming properties that each possesses clear market-leading positions. The addition of the Horseshoe assets creates the U.S. casino industry's largest company in terms of cash flow.

Although the transaction will be 100% debt financed, Harrah's has a history of financing acquisitions with debt and then significantly decreasing its borrowings in a timely manner. S&P said it expects the company to act in a similar manner with this transaction.

The ratings for Harrah's reflect the company's well-diversified and good-quality portfolio of casino properties, the addition of the Horseshoe brand, the company's experienced management team, and its relatively stable cash flow base. The ratings further incorporate the company's well-regarded existing brand names, innovative marketing systems, and customer loyalty program.

These factors are tempered by competitive market conditions in several of Harrah's markets, evolving regulatory landscapes, and pro forma credit measures that provide little room for weakening within the current rating and outlook, S&P said.

Pro forma for the acquisition, consolidated EBITDA for the 12 months ended June 30, 2003, approximated $1.3 billion, S&P said. As a result, the group's total debt to EBITDA is about 4.1x and EBITDA coverage of interest expenses is about 3.5x (both ratios adjusted for operating leases). S&P added that it expects Harrah's will deemphasize share repurchases, debt-financed acquisitions, and substantially reduce other potential growth related spending until credit measures return to a more comfortable level for the ratings.

Moody's confirms Harrah's

Moody's Investors Service confirmed Harrah's Entertainment, Inc. including Harrah's Operating Co., Inc.'s $498 million 7.125% senior unsecured notes due 2007, $498 million 7.5% senior unsecured notes due 2009 and $495 million 8.0% senior unsecured notes due 2011 at Baa3 and $750 million 7.875% senior subordinated notes due 2005 at Ba1. The outlook is stable.

Moody's said the confirmation follows Harrah's announcement that it has reached an agreement to purchase Horseshoe Gaming Holding Corp. for $1.45 billion including the assumption of debt.

The confirmation reflects the reasonable purchase price multiple of about 7.3x based on Horeshoe's trailing 12 month EBITDA before corporate overhead, as well as the combined company's projected 2004 pro forma leverage of 3.5x that remains adequate for the Baa3 rating category, Moody's said.

Moody's noted that given Harrah's recent implementation of a dividend retained cash flow to debt will deteriorate from about 22% on a trailing 12 months basis to 17% as a result of this transaction.

Moody's confirmation also considers the strategic benefits of the acquisition including the strong Horseshoe brand, well operated casinos, similar gaming focused business model and the leading position of its properties in the Tunica, Shreveport and Hammond markets.

In Moody's opinion the acquisition of Horseshoe will further enhance Harrah's cross-market play offerings as well as its customer database after Horseshoe's customers are integrated into the Harrah's Total Reward program.

Moody's puts Horseshoe on upgrade review

Moody's Investors Service put Horseshoe Gaming Holding Corp. on review for possible upgrade including its $150.0 million senior secured revolving credit facility due 2006 at Ba2 and $533.8 million 8.625% senior subordinated notes due 2009 at B2.

Moody's said the review follows Harrah's Entertainment, Inc.'s (Baa3/stable) announcement that it has reached an agreement to purchase Horseshoe for $1.45 billion including the assumption of debt.

Once the transaction closes, Moody's expects that it will withdraw Horseshoe's Ba2 senior secured bank loan rating, Ba3 senior implied rating and B1 senior unsecured issuer rating. Horseshoe's senior subordinated notes are subject to a change of control provision. Any senior subordinated notes that remain outstanding after the transaction closes are expected to receive an upgrade.

Moody's also expects that Harrah's will likely call any remaining Horseshoe senior subordinated notes in May 2004.

S&P cuts Park Place

Standard & Poor's downgraded Park Place Entertainment Corp. including cutting its $2.318 billion revolving credit facility due 2003, $493 million 364-day bank loan, $300 million 7% notes due 2013, $400 million 8.5% senior notes due 2006 and $425 million 7.5% senior notes due 2009 to BB+ from BBB- and $350 million 8.125% senior subordinated notes due 2011, $375 million 7.875% senior subordinated notes due 2010, $400 million 7.875% senior subordinated notes due 2005 and $400 million 8.875% subordinated notes due 2008 to BB- from BB+. The ratings were removed from CreditWatch negative. The outlook is stable.

S&P said the rating actions follow Park Place's announcement that it plans to proceed with an approximately $ 376 million expansion project at its Caesars Las Vegas property at such a time when credit measures have not improved to levels more consistent with the previous ratings, despite the company's efforts during the past few quarters to reduce overall debt balances.

To this end, the company has repaid approximately $170 million in debt through June 30, 2003, while refraining from share repurchases.

S&P said it had expected Park Place's debt leverage, as measured by total debt to EBITDA, to improve to much closer to 4x by the end of 2003 compared to 4.5x at Dec. 31, 2002. However, the lower-than-expected EBITDA during the first six months of 2003, in addition to newly announced capital spending plans, will likely extend the timing for reducing debt leverage beyond S&P's previous expectations, despite the likelihood for improved operating performance in the gaming sector during the next several quarters.

Park Place's ratings reflect its diversified asset and cash flow base, which includes a few well-known and recognizable brand names, S&P said. These factors are offset by a portfolio that includes several older assets, some of which are not market leaders. The ratings also consider that the combination of increased near-term capital spending and other potential growth opportunities will utilize a significant portion of free cash flow that would otherwise be available for debt reduction.

As of June 30, 2003, debt leverage was about 4.5x (adjusted for operating leases), flat with the level achieved for the year ended Dec. 31, 2002, despite the company's progress in repaying debt, S&P said. Given management's expectation for capital spending during 2003 of about $475 million (including $159 million spent through June 30), the company's ability to continue to materially reduce debt balances in the near term is limited. The $475 million does not include material spending associated with the new Caesars Palace tower.

Moody's puts Levi Strauss on review

Moody's Investors Service put Levi Strauss & Co. on review for possible downgrade including its $750 million senior secured bank facilities at B1 and $1.6 billion of senior unsecured notes maturing through 2012 at B3.

Moody's said the review was prompted by Levi Strauss' announcement that it could not be certain it would be in compliance with all of its financial covenants in its existing credit facility dated January 2003, and that it would seek a temporary waiver until it could execute a refinancing of the credit agreement.

The company also stated that it would incur significant restructuring charges as part of a cost cutting initiative with the hope of realizing significant savings in 2004 and beyond.

Moody's said it is concerned about the rapid decline in the company's financial flexibility vis a vis its recently executed credit agreement and weaker year-to-date results than Moody's had expected at the time of the rating assignments, particularly in the areas of sales, higher working capital needs and higher debt levels.

S&P raises Advanstar outlook, rates notes B-

Standard & Poor's raised its outlook on Advanstar Communications Inc. to stable from negative and assigned a B- rating to its new add-on to its second priority senior secured notes due 2010. Existing ratings were confirmed including the corporate credit at B.

S&P said the outlook change reflects a slight improvement in Advanstar's credit profile as a result of its pending acquisition of 15 healthcare industry trade magazines and related custom project services business from Thomson Corp.

The use of equity to partially fund the purchase will modestly lower Advanstar's debt leverage and should slightly boost its discretionary cash flow, S&P noted. The acquired businesses will complement and expand Advanstar's existing portfolio of healthcare, science and pharmaceutical magazines and should increase EBITDA about 22%. Expanding the healthcare cluster will also mildly reduce its reliance on its fashion industry business cluster.

On a pro forma basis, the EBITDA contribution, before corporate expenses, from the company's fashion and apparel cluster will decline to about 32% from 37%, while the contribution from the healthcare cluster will almost double to 24%, S&P added. In addition, Advanstar expects the combination of the healthcare portfolios will yield moderate cost savings, and also provide cross-marketing and cross-selling opportunities.

The ratings on Advanstar reflect its high debt leverage and thin coverage ratios and the still difficult, but stabilizing, operating environment, S&P said. These risks are tempered by the good competitive positions of Advanstar's niche trade show and publishing businesses and the company's good sector diversity, notwithstanding the heavy reliance on the cash flow from its fashion industry businesses.

Financial risk will remain high despite the benefits from the acquisition. Pro forma consolidated debt to EBITDA will be about 7.3x and EBITDA coverage of interest expense will be about 1.2x, although this improves to about 1.5x on a cash interest basis (excluding the accretion on the parent company notes), S&P said.

S&P rates Hines' loan BB-, notes B, cuts outlook

Standard & Poor's rated Hines Horticulture Inc.'s proposed $185 million senior secured credit facility at BB- and proposed $175 million senior unsecured notes due 2011 at B. Furthermore, the outlook was lowered to stable from positive.

The majority of the proceeds of the new debt offerings will be used to refinance existing senior secured credit facilities and other indebtedness at Hines Horticulture.

The credit facility consists of a $145 million five-year revolver due in 2008 and a $40 million term loan due in 2008. The revolver is asset-based and is secured by substantially all of the company's assets. The term loan is secured by the company's real estate, valued at $94.8 million. Borrowings under the revolver are based on a percentage of eligible accounts receivable and inventories.

Ratings reflect the company's leveraged financial profile, a high level of customer concentration risk and vulnerability to unfavorable weather conditions. These factors are mitigated by Hines' leading market position in the consolidating, though still highly fragmented, color plants and nursery product lines, S&P said.

Pro forma for the refinancing, operating EBITDA to interest is expected to be in the 2x area for fiscal 2003 and total debt to operating EBITDA is expected to be in the 4.5x area.

Moody's upgrades Gray TV

Moody's Investors Service upgraded Gray Television, Inc. including raising its $75 million senior secured revolver due 2009 and $375 million senior secured term loan due 2010 to Ba2 from Ba3 and its $278 million senior subordinated notes due 2011 to B2 from B3. The outlook is stable.

Moody's said the upgrade recognizes Gray's smooth integration of Benedek and expectations of balance sheet strengthening over the course of the next 12 to 18 months.

The upgrade also reflects maintenance of the company's leading market positions throughout the Benedek station integration period, the attractiveness of margins achieved by the combined television business, and deleveraging of the company's balance sheet through cash flow appreciation and last year's equity offering.

Moreover, the ratings incorporate the increased size and strengthened credit profile through the broader network and geographic diversity of the consolidated entity, Moody's said.

However, Gray's ratings continue to also reflect the company's high financial leverage and merely adequate cash flow coverage of interest and capital expenditures, the likelihood that the company will continue to acquire opportunistically and the consequent integration challenges, Moody's said. Additionally, over the next 12 to 15 months, Gray's capital expenditures will be unusually high as the company is obliged to upgrade its facilities for digital television.

Gray's leverage is expected to remain below 6 times, Moody's said. Interest coverage after capital expenditures is likely to be thin given the larger digital expenditures which the company is expected to complete by the end of 2004. As of June 30, 2003, leverage as measured by total debt/EBITDA is high at 5.9 times, but is likely to be lower by year-end. Coverage as reflected by (EBITDA-capex)/(interest+preferred dividends) is modest at 2 times.

Moody's cuts Consol to junk

Moody's Investors Service downgraded Consol Energy Inc. to junk, cutting its 7.875% notes due 2012 to Ba1 from Baa2. The ratings remain under review for possible further downgrade.

Moody's said the Ba1 rating reflects Consol's reduced financial flexibility due to the need to provide financial assurances for certain surety bonding requirements, its reinvestment requirements to boost coal production over the medium term to more optimal levels, given Consol's cost base, the ongoing need to manage and reduce costs and the contraction in debt protection ratios.

The rating acknowledges that strengthening in coal industry fundamentals is evident, but considers that better economic growth is necessary for more robust improvement.

In addition, the rating considers that Consol faces these challenges and increased spending requirements following a period of reduced earnings and cash flow generation and contraction in debt protection measures.

The continued review for possible downgrade reflects the need for Consol to put in place a financing and operating plan that provides the company the flexibility to cover its surety bonding requirements, cover its increasing cash requirements for pension, OPEB and other costs and meet strategic growth investment requirements, Moody's said.

S&P raises Galen outlook, cuts senior unsecured

Standard & Poor's raised its outlook on Galen Holdings plc to positive from stable and lowered its senior unsecured debt including Warner Chilcott Inc.'s $200 million 12.625% notes due 2008 to B from B+.

S&P said the senior unsecured rating is being lowered solely to reflect the priority position of the increased senior secured debt resulting from the company's credit facility and is not indicative of deterioration in corporate credit quality.

S&P said Galen's ratings reflect its aggressive use of debt to fund product acquisitions and the possible threat of generic competition to several of its key products. These factors are partially offset by the growing diversity of the company's portfolio of drugs and its sizable U.S.-based 340-person sales force.

Galen's portfolio has grown substantially in the past year, given the acquisition of several new products, S&P noted.

Galen's margins have benefited from the addition of higher margin products to its drug portfolio and the disposal of its services business, S&P said. Indeed, gross margins are expected to continue to be above 80% and EBITDA margins above 40% in the near term. A recently expanded sales force (from 200 to 340) will further drive demand for its products.

Current credit protection metrics are solid for the rating category, S&P said. Debt to EBITDA is expected to be roughly 2x for fiscal year-end 2003, and funds from operation to total debt is expected to be roughly 35% for the same period.

Moody's rates MGM Mirage notes Ba1

Moody's Investors Service assigned a Ba1 rating to MGM Mirage's new $600 million guaranteed senior secured notes due 2009 and confirmed its existing ratings including its guaranteed senior secured bank facilities and guaranteed senior collateralized notes at Ba1, guaranteed senior subordinated notes at Ba2 and Mirage Resorts Inc.'s senior guaranteed notes at Ba1. The outlook is stable.

Moody's said the actions reflect MGM Mirage's ability to generate positive free cash flow, the high quality and good location of the company's properties, industry leading margins and adequate debt protection measures.

The stable outlook reflects Moody's expectation that earnings pressure experienced in the first half of 2003 will abate modestly in the second half and that MGM Mirage will continue to use a portion of its free cash flow to reduce debt.

The company's debt to EBITDA on a trailing 12 months basis has deteriorated slightly to about 4.7x from 4.5x at year end 2002 as earnings weakness caused by a slowdown in demand prior to military action in Iraq, the weak economy and higher operating expenses has offset absolute debt reduction.

Moody's said it expects the company's operating results in the second half of 2003 will improve relative to the first half, but that full year EBITDA may, nevertheless, be 5% to 10% below 2002 due to continuing labor cost pressure and higher taxes in Nevada.

Assuming that proceeds from the sale of the Golden Nugget assets are used to repay debt, leverage at year end 2003 should be only slightly higher than year-ago levels.

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