S&P cuts Fleming, still on watch

Standard & Poor's downgraded Fleming Cos. Inc. and kept it on CreditWatch with negative implications. Ratings lowered include Fleming's $200 million 9.25% senior notes due 2010 and $355 million 10.125% senior notes due 2008, cut to B- from B+, $250 million senior subordinated notes due 2007, $250 million senior subordinated notes due 2011, $250 million 10.5% senior subordinated notes due 2004 and $260 million 9.875% senior subordinated notes due 2012, cut to CCC+ from B, $350 million term loan due 2008 and $600 million revolving credit facility due 2007, cut to B+ from BB, $130 million 5.25% convertible senior subordinated notes due 2009, cut to CCC+ from B and Core-Mark International Inc.'s $75 million 11.375% senior subordinated notes due 2003, cut to CCC+ from B.

S&P said the downgrade reflects the increased challenges Fleming faces in its core wholesale business now that the Kmart Corp. supply contract has been terminated, as well as ongoing difficulties with the integration and exit of other business units.

Since the Kmart contract represented about $3 billion in revenues, Fleming will likely need to reduce its distribution capacity, incurring substantial one-time costs, unless it can replace the volume quickly, S&P said.

Although the Kmart business was low-margin and the lower distribution volume will reduce working capital needs, the impact on Fleming's overall operating efficiency is uncertain, S&P added. The loss of the Kmart contract comes at a time when Fleming's core business is not meeting expectations due to soft sales at the company's supermarket customers, a promotional retail environment, and higher employee benefit costs. Fourth quarter 2002 earnings (ended Dec. 2002) were down 25% from earlier expectations.

Moreover, Fleming still needs to fully integrate the CoreMark International Inc. acquisition, complete the sale of its retail assets, and reduce debt, S&P said.

Management's earlier expectations of $450 million in proceeds from the sale of all retail assets are now expected not to be fully realized. The operational shortfalls and lower-than-anticipated asset sale proceeds could hinder debt reduction and earlier anticipated improvement in credit ratios.

S&P added that it believes management will be challenged to manage these processes smoothly while maintaining focus on executing its core distribution business.

Moody's upgrades Solutia

Moody's Investors Service upgraded Solutia Inc. including raising its secured credit facility and term loan to Ba2 from Ba3, guaranteed senior unsecured notes to Ba3 from B1, senior unsecured notes and debentures to B1 from B2 and Solutia Europe SA/NV's guaranteed senior unsecured euro notes to B1 from B2. The outlook is stable.

Moody's said the upgrade follows the completion of the company's sale of its resins, additives and adhesives businesses for $500 million (in addition to a $10 million exclusivity fee). Proceeds from the sale will be used to repay debt, primarily term loans and revolving credit bank borrowings.

The upgrade in Solutia's debt ratings reflects the improvement in the company's financial profile achieved as a result of the transaction, Moody's said. Most of the $510 million proceeds will be available to repay debt, including the $275 million term loan due 2004, and about $125 million in borrowings under the revolving credit facility, leaving estimated total debt of $850 million.

The transaction improves Solutia's financial liquidity, as following the repayment of these obligations, Solutia will have available a $300 million undrawn credit facility and no significant debt maturities until August 2004 when a $150 million debenture issue is putable.

The transaction significantly lowers Solutia's financial leverage, bring 2002 TD/EBITDA to about 5 times (pro-forma for the asset sale), Moody's added.

S&P says Louisiana-Pacific unchanged

Standard & Poor's said Louisiana-Pacific Corp.'s ratings are unchanged including its corporate credit at BB with a stable outlook following the company's announcement of fourth-quarter earnings.

Significant cost reductions during the past year or two have led to meaningful improvement in operating results despite turbulent wood product market conditions, S&P said. The company recorded a $22 million impairment charge in the company's decorative panels business, as well as a $27 million addition to its hardboard siding settlement reserve to reflect a slower decline in new claims than originally anticipated.

Louisiana-Pacific continues to sell assets under a major program announced last year, using most proceeds to reduce debt, S&P noted. The company has adequate liquidity with about $300 million in cash and committed credit facilities.

Moody's cuts Atlas, still on review

Moody's Investors Service downgraded Atlas Air Corp. and its subsidiaries and kept it on review for further downgrade. Ratings lowered include Atlas' $137.5 million 10¾% senior unsecured notes due 2005, $153 million 9¼% senior unsecured notes due 2008 and $147 million 9 3/8% senior unsecured notes due 2006, cut to Caa2 from Caa1, its $51.0 million secured aircraft term loan (originally $140 million) due

2005, cut to Caa1 from B3, series 2000-1 EETCs class A cut to Baa3 from Baa2, class B cut to Ba3 from Ba1, class C cut to B3 from Ba3, series 1999-1 EETCs class A cut to Baa3 from Baa2, class B cut to Ba3 from Ba2, class C cut to B3 from B1, series 1998-1 EETCs class A cut to Ba1 from Baa3, class B cut to B2 from Ba2 and class C cut to Caa1 from B1.

Moody's said the downgrade reflects Atlas' announcement that it has elected not to make a lease payment relating to one of its 747-200 freighter series.

Despite the non-payment, the company indicated it is current on all public debt, secured debt, and other lease obligations, and that this election was done in conjunction with negotiations with other aircraft lessors to reduce or defer lease payments.

Moody's said it is concerned that such non-payment may be symptomatic of further liquidity concerns facing Atlas over the balance of the year in a continued difficult operating environment.

Atlas currently has no revolving credit facility in place, essentially no assets available for additional liquidity, and high operating lease payments in the first and third quarter of 2003.

However the company's parent, Atlas Worldwide Holdings Inc., has a significant cash balance; estimated by Atlas to be approximately $250 million at year-end 2002.

Fitch rates TRW notes B+, B, loan BB

Fitch Ratings assigned a B+ rating to TRW Automotive Acquisition Corp.'s planned $1.0 billion senior notes due 2013, a B rating to its planned $400 million senior subordinated notes due 2013 and a BB rating to its planned $1.8 billion senior secured credit facilities. The outlook is stable.

Fitch said the ratings reflect TRW Automotive's good revenue diversity by customer, product and geography with historical operating margins in the middle range amongst large global tier one suppliers and a relatively high degree of financial leverage.

While 2002 saw relatively healthy automotive build rates in North America and Europe fueled by the deeply discounted automotive retail market in North America and in Europe, Fitch said it expects that there is greater downside risk for automotive build rates in 2003. North American build rate is forecasted to be down by mid single digit rates while European build rate is forecasted to be down by low single rates.

In addition, Fitch expects that TRW Automotive will continue to face intense pricing pressures in 2003 which will constrain margin improvements.

Given the heavy debt load of the pro-forma capitalization and the risk of operating volatilities related to volume cyclicality and other potential cost and pricing headwinds, Fitch said it expects that 2003 will produce limited cashflow available for debt reduction.

Expected cash EBITDA for 2002 (adjusted to show benefit costs on a cash basis and before cash charges of $33 million) of $989 million amounted to 3.8x the $3.7 billion of total debt. Expected cash EBITDA coverage of projected cash interest expense of the pro-forma capital structure amounts to 3.7x for 2002, Fitch added.

S&P cuts Big Food

Standard & Poor's downgraded Big Food Group plc including cutting its £150 million 9.75% notes due 2012 to B+ from BB-. The outlook is stable.

S&P said the downgrade reflects Big Food's weakened business profile, primarily due to the continuing underperformance of Iceland, the group's retail division.

But S&P added that Big Food's financial profile and liquidity remain adequate for the current ratings.

Like-for-like sales at Iceland, which is estimated to account for 40% of consolidated EBITDA in financial 2003, were heavily negative in the first half of financial 2003, S&P noted. They have recovered somewhat in the third quarter, to negative 3.6% from negative 8.3% in the second quarter of financial 2003, while the group's return to its traditional BOGOF (Buy One Get One Free) pricing strategy and the stepping-up of its store conversion program to 100 stores in financial 2004 from the current 30 stores are positive developments.

Iceland's sales, however, are likely to remain under pressure, especially as competition is picking up in the U.K. food retail market, S&P added.

Despite the operational issues at Iceland, Big Food's debt-protection measures remain adequate for the ratings. S&P estimated fixed-charge coverage (earnings before interest, taxes, depreciation, amortization, and rent (EBITDAR) to net interest plus rents) to be about 1.8x at financial year-end 2003, only slightly down from 2.0x in financial 2002.

S&P keeps Genesis on developing watch

Standard & Poor's said Genesis Health Ventures Inc. remains on CreditWatch with developing implications including its senior secured debt at B+ and senior notes at B.

S&P said the continuing developing watch follows Genesis' announcement that it will have a decision on the fate of its ElderCare nursing home and assisted-living division within the next 60 days.

The ratings' continued placement on CreditWatch reflects the possible sale or spin-off of Genesis' core ElderCare nursing home and assisted living division, which generates more than half of current revenues but faces significant reimbursement uncertainties and growing insurance expenses, S&P said.

S&P keeps American Airlines on watch

Standard & Poor's said AMR Corp. and American Airlines Inc. remain on CreditWatch with negative implications including their corporate credit rating at BB-.

S&P said the continuing negative watch follows American's announcement that it asked its unionized employees to accept $1.8 billion annually of permanent labor cost savings to supplement other cost-cutting efforts and eliminate heavy losses.

American's labor cost-cutting proposals, expected in the wake of the company's ongoing heavy losses, will launch difficult negotiations with its unions, but prospects for success are bolstered by the sobering precedents of steep labor concessions at bankrupt United Air Lines Inc. and US Airways Inc., and the termination of a pension plan at the latter airline, S&P said.

AMR and American have adequate short-term liquidity, but operating cash losses (about $5 million per day currently) and upcoming debt maturities, plus the prospect of further financial damage from a likely U.S.-Iraq war, indicate an urgent need for further cost reductions, S&P added.

American implied that the alternative to agreement on these savings would be bankruptcy and urged that a decision had to be made quickly, though management did not suggest a specific timetable.

S&P cuts JLG

Standard & Poor's downgraded JLG Industries Inc. and removed it from CreditWatch with negative implications. The outlook is negative. Ratings lowered include JLG's $175 million 8.375% senior subordinated notes due 2012, cut to B+ from BB+, and $250 million revolving credit facility due 2004, cut to BB from BBB-.

S&P said the downgrade reflects its concern over limited prospects for a significant turnaround in the company's end markets over the near term and resulting reduced credit measures compared to previous expectations.

Although JLG remains profitable, its financial results have deteriorated materially from levels achieved before the recent economic downturn due to a continuing difficult economic environment that has depressed the nonresidential construction and industrial markets, aggravated excess capacity in the industry, pressured prices in the used equipment market, and prompted a credit crunch for some of JLG's customers, S&P noted.

JLG's sales and EBITDA (including restructuring charges) declined 20% and 46%, respectively, year-over-year, in fiscal year 2002 (ended July), despite a continuing series of cost-saving and restructuring efforts initiated by management, because a significant contraction in the private nonresidential construction industry led equipment rental companies to scale back on planned purchases, S&P said.

S&P expects credit protection measures for JLG over the intermediate term of total debt to EBITDA in the range of 3x to 3.5x and funds from operations to total debt approaching 20% to 25%, treating AFS on an equity basis.

S&P upgrades Cascades senior unsecured debt

Standard & Poor's upgraded Cascades Inc.'s senior unsecured debt including raising its $450 million notes due 2013 to BB+ from BB and confirmed its other ratings including its senior secured debt at BBB-. The outlook is stable.

S&P said the upgrade is in response to the redemption of Cascades Boxboard Group Inc.'s $125 million 8.375% senior notes.

The transaction eliminates the structural subordination of the notes at the parent level, and substantially reduces the amount of priority debt that would rank ahead of senior unsecured creditors in the event of default, S&P said.

S&P upgrades U.S. Industries

Standard & Poor's upgraded U.S. Industries Inc. including raising its $125 million 7.25% senior notes due 2006 and $250 million 7.125% senior notes due 2003 to B+ from B. The outlook is stable.

S&P said the upgrade is in response to strengthening cash flow protection measures.

Completion of the major asset divestiture program, the extension of the company's credit facilities to October 2004, and the exchange of a new senior note issue maturing in December 2005 for outstanding notes due in October 2003 are clearly meaningful positives for credit quality, S&P added. Financial measures should benefit from management's ability to now devote greater attention to improving the sales and profitability of its product lines, especially whirlpool baths in the U.S.

Earnings from Jacuzzi's domestic operations are expected to strengthen from the substantially depressed levels of recent years, which primarily reflected decreased volumes in the spa and whirlpool bath businesses, S&P said. The lower volumes resulted from reduced unit sales of certain home center product lines for which the company declined requests for price and service concessions.

Over the next few years, Jacuzzi's domestic earnings should benefit from: an improved cost structure because of consolidation of the company's whirlpool bath manufacturing facilities; management's renewed marketing focus on profitable sales of the whirlpool bath product line to the home centers; the ongoing increase in new specialty retailer locations for premium priced spas.

In the meantime, the financial performances at Jacuzzi's international operations are much better, especially in the U.K. and Italy where Jacuzzi benefits from well-established positions in its channels of distribution, S&P added.

In recent years considerable management attention has been devoted to the divestiture of non-core assets in order to meet hefty quarterly debt maturities as well as extending the maturities of its bank facilities and refinancing a senior note issue, S&P said. With the successful completion of these debt-related activities, more time can be spent on addressing marketing challenges in the U.S. home centers and cost cutting at underperforming bath and plumbing units to help lift operating margins, currently 12%, to industry-leading levels.

Total debt has been reduced to less than half of the amount outstanding at fiscal year-end 2001. Moreover, annual discretionary cash flows, expected to be at least $25 million, will be used to further de-leverage the capital structure. The funds from operations to total debt ratio is expected to be solidly in the 10% to 15% range in the next 12 months, S&P said. Total debt to EBITDA is expected to improve to less than 4.0x, while further strengthening is also in store for EBITDA interest coverage to the 2.0x to 2.5x range.

Moody's cuts Hanover Compressor

Moody's Investors Service downgraded Hanover Compressor including cutting its $192 million 4.50% non-guaranteed senior convertible notes to B2 from B1, $86 million of non-guaranteed convertible preferreds to B3 from B2 and Hanover Equipment Trust 2001A's $300 million 8.50% partly secured senior notes due 2008 and Hanover Equipment Trust 2001B's $250 million 8.75% partly secured senior notes due 2011 to B2 from B1. The outlook is negative.

Moody's noted that its Nov. 20 release on the company said the ratings may fall if Hanover Compressor could not show first-half 2003 ability to reduce leverage.

Moody's added that the downgrades better reflect the challenges of Hanover Compressor's effort to reduce leverage, the continued tightness in certain bank covenants, and expected year-end 2003 leverage and cash flow.

High consolidated leverage will persist too long to be compatible with the prior ratings, Moody's said, noting a lower expected fourth quarter 2002 and first quarter 2003 bottom to Hanover Compressor's results, a more prolonged time of recovery and deleveraging, the still uncertain impact on receivables and cash flow due to the Venezuelan oil strike, and an uncertain equity market reaction to 2003 developments.

The negative outlook is pending amendment of Hanover Compressor's bank credit facilities, and would likely be moved to stable upon execution of the amendments.

Moody's lowers Advanta outlook

Moody's Investors Service lowered its outlook on Advanta Corp. to negative from positive. Ratings affected include Advanta's senior unsecured debt at B2, junior subordinated long-term debt at Caa1 and preferred stock at Caa2, Advanta Capital Trust I's preferred stock at Caa2 and Advanta National Bank's long-term senior debt and senior bank notes at B1 and subordinated bank notes at B2.

Moody's said the outlook change is in response to concerns about Advanta's asset quality trends given the slow pace of economic recovery, and continued concerns regarding the impact of pending litigation on the company's liquidity and financial flexibility.

The rating agency noted that while Advanta has recently tightened its underwriting standards for its business card portfolio, these new standards remain relatively untested.

While the company's more focused business card strategy continues to be profitable, the entrance of larger competitors into this market segment and the seasoning of the loan portfolio together with management's expectations of lower receivable growth could negatively affect the firm's profitability in the future, Moody's said.

S&P puts Host Marriott on watch

Standard & Poor's put Host Marriott Corp. on CreditWatch with negative implications including its senior unsecured debt at BB- and preferred stock at B-.

S&P said the watch placement reflects ongoing weakness within the lodging environment and the expectation that Host Marriott's credit measures are not likely to improve to levels consistent with the rating during the intermediate term.

Debt leverage, as measured by total operating lease-adjusted debt to EBITDA as of Sept. 30, 2002, was weak for the rating at 7.5x, S&P said. Based on management's guidance of additional revenue per available room declines expected for the first quarter of 2003 and additional margin deterioration in 2003, material improvement in credit measures is not expected in 2003.

Moody's rates FastenTech notes B3

Moody's Investors Service assigned a B3 rating to FastenTech, Inc.'s planned $175 million of senior subordinated notes due 2011 and a Ba3 rating to its planned $40 million senior secured credit facility due 2007. The outlook is stable.

Moody's said the ratings reflect FastenTech's significant financial leverage (which is likely to be maintained to fund its acquisitive growth strategy), exposure to highly cyclical industrial end-markets, high customer concentration, limited pricing power, and exposure to volatile steel prices.

Positives include the company's strong position in a number of niche specialty fastener end-markets, a track record of solid cash flow generation and profit margins, substantial cost savings from restructuring and working capital management initiatives, and established relationships with major customers.

Factors that could have negative ramifications for ratings include acquisitions that substantially increase leverage, erosion in the company's market position, and deterioration in operating performance and cash flow generation, Moody's said. Factors that could have positive ramifications for ratings include substantially reduced leverage and a disciplined approach to future acquisition financing.

The company's established brands, product innovation, and long-term relationship with major customers have enabled it to build a strong position in a number of small niche markets and to generate solid margins, Moody's noted. Operating margins for the fiscal year ended September 2002 and 2001 were 15.8% and 15.5%, respectively, a large increase from 11.3% in 2000, due mainly to the cost-cutting initiatives implemented by the new management team.

Subsequent to this transaction, funded debt will total approximately $175 million, or 3.7 times last 12 months EBITDA (5 times on a EBITA basis), or about 84% of last 12 months total sales, Moody's said. Including the $32 million preferred stock, adjusted total debt amounts to $213 million, or 4.4 times EBITDA (5.9 times EBITA). Last 12 months EBITDA and EBITA would cover interest expense 2.4 times and 1.8 times, respectively.

S&P puts Buffets on watch

Standard & Poor's put Buffets Inc. on CreditWatch with negative implications including its $205 million term loan due 2009 and $50 million revolving credit facility due 2009 at BB- and $230 million 11.25% senior subordinated notes due 2010 at B.

S&P said the watch listing not only reflects Buffets' weak operating performance, but performance that is substantially weaker than S&P had anticipated.

Furthermore, S&P said it does not expect that the company will be able to reverse its weak operating performance in the near term.

As a result of declining same-store sales, operating margins dropped to 13.5% in the first half of fiscal 2003 from 16% the year before, S&P noted. Operating performance has been negatively affected by a weak economy and an intensely competitive restaurant environment.

The company's poor operating performance has resulted in weakened credit measures, with EBITDA coverage of interest of about 2x for the 12 months ended Dec. 18, 2002, down from about 2.5x in the prior year, S&P said.

Moody's cuts Harvest

Moody's Investors Service downgraded Harvest Natural Resources, Inc. including cutting its 9/3/8% senior unsecured notes due 2007 to Caa2 from B3. The outlook is developing.

Moody's said it lowered Harvest because of the company's prior shut-in of all production at its Venezuela operations (Harvest's sole source of operating cashflow), as well as the uncertainty concerning the timing and resolution of Venezuelan oil workers strike and any potential costs and operational challenges associated with the initial production shut-down and eventual start up.

Harvest receives all payments for production from Petroleos de Venezuela (PDVSA), the state-owned oil company of Venezuela. PDVSA's local and foreign currency ratings are both Caa1 and Venezuela's country ceiling is Caa1 with a developing outlook.

Harvest's outlook is also developing, meaning the ratings may be confirmed, upgraded or downgraded depending on whether conditions in Venezuela are resolved or continue to disrupt production, Moody's said.

Furthermore, Harvest's project finance loans at the Venezuelan joint venture contain covenants that would accelerate the loans if production is shut-down for 30 consecutive days. A waiver of this covenant has been granted until Feb. 18, at which time another waiver would be required should production not come back on-line, Moody's added.

S&P rates FastenTech notes B-

Standard & Poor's assigned a B- rating to FastenTech Inc.'s planned $175 million senior subordinated notes due 2011 and a BB rating to its proposed $40 million revolving credit facility due 2008. The outlook is stable.

S&P said FastenTech's ratings reflect its niche market positions in specialty fasteners with a diverse array of customers offset by a weak financial profile.

FastenTech is a growing global manufacturer and marketer of highly engineered specialty fasteners. Although its products account for a small portion of customers' total cost, the fasteners are a critical component of end-users' products.

However, the company operates in the highly cyclical and competitive automotive, light-, medium-, and heavy-duty truck, industrial, power generation, construction, and military markets. The top-10 customers account for about 43% of its sales, with its largest customer accounting for 11%, S&P noted.

FastenTech has recently improved its operating margins notwithstanding difficult economic conditions.

Productivity improvements in addition to labor reductions totaled $10 million in fiscal 2001 and $5 million in fiscal 2002.

The company generates good operating margins, which averaged about 20% in the past three years, S&P said. EBITDA interest coverage at about 2.5x is expected for the rating. Total debt to EBITDA in the 3.5x to 4x area is expected in addition to funds from operations to total debt (adjusted for operating leases) of about 10%-15%, assuming no major acquisitions. The company is expected to generate modest free cash flow that could help fund acquisitions. Still, the company is highly levered with total debt to capital at 90%.

Moody's confirms Plains Exploration

Moody's Investors Service confirmed Plains Exploration's ratings including its $275 million 10.25% senior subordinated notes due 2006 at B2. The outlook is stable.

Moody's said the confirmation is in response to Plains Exploration's announced $432 million acquisition of 3Tec Energy.

Plains will pay $310 million to 3Tec shareholders ($151 million in Plains equity; $159 million cash), pay $14.7 million cash to 3Tec preferred shareholders, repay $99 million in 3Tec bank debt, and fund roughly $12 million in transaction costs. Plains bank debt will rise by roughly $280 million.

A combination of strengths warrants a ratings confirmation, and offsets the fact that, at $8.82 per barrel of oil-equivalent (boe) of acquired reserves, the acquisition is not inexpensive and is also 65% debt-funded, Moody's said.

Pro-forma leverage and full-cycle unit costs and cash margins are compatible with the ratings; the combination of $151 million of new equity and roughly 65% of 2003 pro-forma production hedged at up-cycle prices mitigates incremental risk at this time; and reinvestment risk remains modest, Moody's said.

Pro-forma, Plains displays an ample and, on balance, lower risk drilling inventory and a pro-forma proven developed (PD) reserve life of 11.8 years. While Plains will continue to be in an active acquisition mode, management is well seasoned in growing and funding an exploration and production business.

An upgrade may require solid post-acquisition operating performance, debt reduction and/or a significant acquisition amply funded with equity, Moody's added.

S&P raises J.L. French

Standard & Poor's upgraded J.L. French Automotive Castings Inc. including raising its $175 million 11.5% senior subordinated notes due 2009 to CCC+ from CCC- and its $190 million term B bank loan due 2006 and $75 million revolving credit facility due 2005 to B from CCC+ and assigned a B rating to its new $95 million term C bank loan due 2006. The ratings were removed from CreditWatch with positive implications. The outlook is stable.

S&P said the upgrade follows J.L. French's recently completed $190 million refinancing, which improved its near-term liquidity position. Proceeds from the refinancing were used to retire all of the outstandings under the company's term loan A and to modestly reduce outstandings under the company's term loan B and revolving credit facility.

By refinancing the company's term loan A, J.L. French has drastically reduced its scheduled debt amortization payments and has meaningfully improved its financial flexibility over the near term, S&P said.

Refinancing risk will increase over time, with heavy requirements starting in mid-2006.

The company remains aggressively leveraged with total debt to EBITDA of about 5.6x as of Sept. 30, 2002, and has a modest amount of liquidity, S&P added.

J.L. French continues to experience very competitive market conditions within the automotive casting market, which is characterized by intense pricing pressure, S&P noted. The company is improving its cost structure through various cost-cutting initiatives and has recently won several new business contracts, such as the recently announced $65 million contract with DaimlerChrysler.

S&P puts FelCor on watch

Standard & Poor's put FelCor Lodging Trust Inc. on CreditWatch with negative implications including its $150 million cumulative convertible preferred stock series A and $150 million 9% cumulative preferred stock at B- and $250 million term loan at BB- and FelCor Lodging LP's $125 million 7.625% senior notes due 2007, $175 million 7.375% senior notes due 2004, $400 million 9.5% senior unsecured notes due 2008 and $600 million 8.5% senior notes due 2011 at BB-.

S&P said the watch placement follows FelCor's fourth quarter 2002 earnings release, and reflects ongoing weakness within the lodging environment and the expectation that FelCor's credit measures are not likely to improve to levels consistent with the rating during the intermediate term.

Debt leverage, as measured by total debt to EBITDA, was weak for the rating at 6.6x as of Dec. 31, 2002 (this includes pro rata share of unconsolidated debt), S&P said. Given management's guidance for 2003 EBITDA of $277 million to $289 million, little improvement in credit measures is expected in 2003.

S&P cuts Metris

Standard & Poor's downgraded Metris Cos., Inc. including cutting its $100 million 10% senior notes due 2004 and $150 million 10.125% senior notes due 2006 to CCC+ from B. The ratings were removed from CreditWatch with negative implications. The outlook is negative.

S&P said the downgrade reflects Metris' difficulties in improving asset quality and restoring profitability. The company reported a net loss of $48.5 million for the fourth quarter ended Dec. 31, 2002.

Net charge-offs on a managed basis (eliminating accelerated losses on a sold portfolio) remained essentially flat at 16.1% when compared to the third quarter.

The company's funding alternatives are under pressure as management continues to shrink deposits in its bank subsidiary, and the ratings of some of its ABS have been lowered, S&P said.

S&P rates U.S. Steel convert at B

Standard & Poor's assigned a B rating to United States Steel Corp.'s proposed $250 million series B mandatory convertible preferred and put it on negative watch.

Pittsburgh-based U.S. Steel had about $1.4 billion in debt at Dec. 31.

Existing ratings remain on negative watch (senior unsecured at BB) where they were placed on Jan. 9 on the company's plan to acquire substantially all of bankrupt National Steel Corp.'s steelmaking and finishing assets for $950 million.

Although AK Steel Corp. recently established a new agreement to acquire National Steel at a higher price than U.S. Steel, U.S. Steel remains interested in acquiring National and could make an additional offer, S&P noted.

The bidding process in the AK agreement indicates that a formal auction will be held after March 17, providing U.S. Steel the opportunity to submit a new bid.

S&P is concerned that potential acquisitions, together with increasing pension costs at U.S. Steel, weakened steel prices and higher interest costs from debt-financed acquisitions will weaken its financial profile.

Moreover, despite its greater size and improved steel market position, S&P deems a possible acquisition of National and the expected sale of more stable mining and transportation assets to Apollo Management LP to be somewhat detrimental to U.S. Steel's business profile.

S&P also is concerned about worsening trends in the U.S. steel industry by the re-emergence of almost all of the 10 million tons of idled steel sheet capacity in 2001, weakening demand and continued high levels of imports that have driven prices lower.

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