Moody's cuts NRG to junk

Moody's Investors Service downgraded NRG Energy, Inc. four notches to junk, lowering its senior unsecured debt to B1 from Baa3. Moody's also cut Xcel Energy's senior unsecured debt to Baa2 from A3 and lowered its subsidiaries. All ratings remain on review for possible further downgrade.

Moody's said the action reflects NRG's very tight liquidity position, weaker prospective cash flow and continued uncertainty surrounding its plans to acquire generating assets of First Energy.

NRG's liquidity pressures have been exacerbated by a rating trigger requirement to post a total of $1.1 billion in collateral for creditors at subsidiary project financings, and for the company's construction revolver, Moody's said. NRG intends to post the necessary collateral at each of the subsidiary project financings over the next 30 days, and is seeking an amendment from the construction revolver bank group to defer the posting of such collateral until it can raise funds from asset sales. NRG anticipates raising about $1.5 billion in net asset sales proceeds from the sale of its international generation assets as well as the sale of a portion of its domestic assets.

Also factoring into the downgrade is the continued uncertainty surrounding NRG's plan and ability to acquire First Energy's generating assets, Moody's said. The purchase was originally announced in November 2001, and received a conditional approval from FERC in June 2002. However, the acquisition remains in question particularly in light of NRG's liquidity position and limited prospects for accessing the capital markets. Last week, NRG disclosed that it has begun discussions with First Energy that are intended to modify the terms and conditions of the purchase agreement.

NRG's liquidity is tight and its position is highly dependent upon NRG's successfully amending its construction revolver, which in turn, is dependent upon NRG's future success in raising significant capital from asset sales in a difficult market, Moody's said.

S&P takes Booth Creek off watch

Standard & Poor's removed Booth Creek Ski Holdings Inc. from CreditWatch with negative implications and confirmed its ratings including its $110 million 12.5% senior unsecured notes due 2007 at CCC+.

S&P said the confirmation reflects Booth Creek's reasonable operating performance during the 2001-2002 ski season and its maintenance of credit measures appropriate for the ratings.

Liquidity concerns have abated following the refinancing of the company's revolving credit facility, which provides a modest cushion to absorb potentially weak skier visitation in the upcoming ski season, S&P said.

Even so, longer-term visibility is somewhat unclear, as skier visitation trends, a key driver of profitability, could be affected by slow economic conditions and security issues related to travel, the rating agency added.

For the last 12 months ended May 3, 2002, EBITDA coverage of interest expense was about 2.0 times, compared with 1.6x and 2.3x at fiscal year ends Nov. 2, 2001 and 2000, respectively, S&P said. EBITDA margins are approaching 26%, a slight improvement compared with margins in 2001.

S&P puts Northern Natural Gas on positive watch

Standard & Poor's put Northern Natural Gas Co. on CreditWatch with positive implications. Ratings affected include its $100 million 6.875% senior notes due 2005, $150 million 6.75% senior notes due 2008 and $250 million 7% senior notes due 2011, all at B+.

S&P said the action is in response to the announcement that parent company Dynegy Inc. has agreed to sell Northern Natural to MidAmerican Energy Holdings Co.

S&P said it expects the ratings of Northern Natural will be in line with the higher credit ratings of MidAmerican Energy on successful completion of the transaction.

S&P added that the sale has no immediate impact on Dynegy's credit quality. The sale, valued at $928 million in cash and the assumption of $950 million in debt helps to relieve some near term liquidity issues, since it provides a source of cash and relieves $450 million in maturities coming due in November 2002.

However, the sale raises concerns regarding the repayment of a $1.5 billion obligation to ChevronTexaco, S&P said. Dynegy borrowed $1.5 billion to purchase Northern Natural Gas from Enron Corp. in late 2001. This transaction results in an almost $600 million loss on the resale of the asset, and no change in the repayment obligation due ChevronTexaco in November 2003.

S&P cuts Interface

Standard & Poor's downgraded Interface Inc. including lowering its $125 million 9.5% senior subordinated notes due 2005 to B from B+ and its $150 million 7.3% senior notes due 2008 and $175 million 10.375% notes due 2010 to BB- from BB. The outlook is stable.

S&P said it cut Interface because it is concerned that company's operating results and credit protection measures for fiscal 2002 will be weaker than expected and that the timing of recovery of credit measures to existing levels is uncertain.

Expected continued revenue and margin pressures across all business segments, particularly the commercial interiors and office furniture markets, will hurt operating results and weaken credit measures for the year, S&P said. Although the company reported some sequential improvements in sales volume for the June quarter and management has taken steps to realign its cost structure by rationalizing its U.S. broadloom and access flooring operations, and exiting the unprofitable European broadloom business, Interface will continue to be challenged to improve sales volume in the near term.

For the past 12 months ended June 30, 2002, the operating margin (before D&A) was about 11%, down from the low teens in recent years, S&P said. Credit measures were weak, with EBITDA to interest coverage about 2.4x and total debt to EBITDA more than 5x. Standard & Poor's expects credit measures will likely remain in this range, absent any meaningful recovery in the economy that would strengthen revenue growth.

S&P cuts Iusacell

Standard & Poor's downgraded Grupo Iusacell Celular SA de CV including cutting its $150 million 10% notes due 2004 and $350 million 14.25% senior unsecured notes due 2006 to B- from B+ and its $265.621 million bank loan due 2002 to B+ from BB. The outlook is negative.

S&P said it cut Iusacell because of further erosion of Iusacell's market share and revenues and uncertainties about the timely execution of several turnaround measures announced by the company to rapidly improve its internal cash flow generation.

In addition, S&P said it is concerned about the company's debt service and refinancing ability, especially in light of the volatility in the financial markets and, specifically, in the telecommunication industry.

As of June 2002, Iusacell's revenues were $269 million, a 20% year-over-year decline due to adverse economic conditions affecting overall usage, and a higher proportion of prepaid and mixed users, resulting in lower average revenue per user, S&P said. EBITDA was $86 million, for a Mexican GAAP EBITDA margin of 21.6%. However, these figures were affected by the sale and leaseback of towers to American Tower Corp.; without considering these operations and expensing handset subsidies, Iusacell's adjusted EBITDA was $83 million for the six months ended June 2002, compared with $118 million a year earlier.

Interest coverage by the company's reported EBITDA was 2 times at June 2002, compared with 3x in June 2001, S&P said. Iusacell's debt to last 12 months' EBITDA ratio was 3.6x as of June 2002, compared with 3.2x the year before.

S&P cuts Budget to D

Standard & Poor's downgraded Budget Group Inc.'s corporate credit rating to D.

S&P said the action follows Budget's Chapter 11 filing.

Moody's confirms Saks

Moody's Investors Service confirmed the ratings of Saks Inc. including its senior unsecured debt at B1. The outlook remains stable.

Moody's Investors Service said its confirmation follows Saks' announcement that it intends to enter into an alliance with Household International that would result in the sale of the majority of Saks' private label accounts and balances associated with them.

The transaction will net Saks about $300 million of cash at closing, Moody's noted. Precise use of proceeds has not been determined, although the company has said it intends to use some portion of this cash for debt reduction and share repurchases.

Moody's said it believes that the net impact of the sale will be to reduce operating income versus expectations.

Confirmation of the ratings reflects the potential for lower operating income, offset by increased financial and operating flexibility for Saks and the potential to reduce debt as a result of the portfolio sale, Moody's said.

S&P upgrades Scientific Games

Standard & Poor's upgraded Scientific Games Corp. including raising its $150 million 12.5% senior subordinated notes due 2010 to B from B- and its $65 million revolving credit facility due 2006, $60 million term A loan due 2006 and $220 million term B loan due 2007 to BB- from B+. The outlook is stable.

S&P said the action follows Scientific Games' announcement of results for the fiscal second quarter ended June 30, 2002, which showed continued improved operating performance.

In addition, the company plans to use net proceeds of about $100 million from a recent equity offering to repurchase the 12.5% senior subordinated notes outstanding, which will significantly improve credit measures and increase financial flexibility and liquidity, S&P said.

EBITDA for the six months ended June 30, 2002, was $61.7 million, an approximately 16% increase over the prior-year period, due to the continued strength of the lottery and pari-mutuel businesses, despite the adverse economic conditions, S&P said. Based on current operating trends (and pro forma for the equity offering), EBITDA coverage of interest expense and total debt to EBITDA are expected to be around 2.5 times and less than 3.5x, respectively, for 2002.

Moody's confirms YPF

Moody's Investors Service confirmed that foreign currency debt of YPF SA at B1 as well as parent company Repsol YPF's Baa2 senior unsecured, Ba1 preferred stock and Prime-2 short-term ratings. The outlook remains negative. The action concludes a review begun on April 25.

Moody's noted it began the review for possible downgrade in response to the ongoing deterioration in the economic situation in Argentina, concerns over the Argentine Government's ability to come to an agreement with the International Monetary Fund, and the growing likelihood that fiscal and currency control measures could be applied to YPF as a source of tax and hard currency revenues.

Since the review was initiated, the Argentine economy has continued to languish but has not worsened materially, there has been little by way of substantive development in the IMF talks but, if ultimately successful, Moody's said it now believes that these are more likely to exclude the more draconian measures that the rating agency had feared could be applied to YPF.

Moody's cautioned that the situation in Argentina remains unpredictable and could change adversely for YPF at a future stage, and consequently for the Repsol YPF group as a whole, in view not only of group cash flows but also due to potential cross-default.

Moody's raises Lear outlook

Moody's Investors Service confirmed Lear Corp. including its senior unsecured debt at Ba1 and raised the outlook to stable from negative, affecting $3.8 billion of debt.

Moody's said the action reflects Lear's strong cash flow, debt reduction and enhanced financial flexibility despite difficult end-markets and an uncertain global economy.

The actions also incorporate Moody's expectation that Lear will continue to outperform its industry peers and generate solid levels of free cash flow for further debt reduction, the rating agency said.

The rating agency noted that Lear's recent, relatively strong financial results will be enhanced by sizable net new business awards, a low fixed cost structure, a growing trend toward increasing content per vehicle and the company's emergence as a complete interior systems integrator.

These positive factors are partially offset by Lear's reliance on the North American-based automakers, the ongoing pricing pressure from original equipment manufacturers (OEMs) and the high leverage position stemming from multiple debt-financed acquisitions over the past decade, Moody's added.

S&P raises Willis

Standard & Poor's upgraded Willis Group Holdings Ltd. including Willis North America Inc.'s $450 million term loan bank loan and $150 million revolver to BB+ from BB and its $550 million notes due 2009 to BB- from B+.

Moody's cuts Corning

Moody's Investors Service downgraded Corning Inc. including lowering its senior debt to Ba2 from Baa3 and assigned a B1 rating to its proposed $500 million mandatory convertible preferred.

Moody's said the action, affecting $5 billion of debt, reflects its concern that the recovery in the company's telecommunications operations will be delayed until well into 2003, as end users of its products have continued to dramatically scale back capital expenditures.

While recognizing Corning's leadership position in the markets it serves and its current strong liquidity position, the rating agency noted that the rapid fall off of business in the telecommunications sector continues to curtail internal cash generation, prolonging its cash burn rate, Moody's said.

At the same time, Corning's debt protection measures are weak and will remain so over the near-to-intermediate-term, Moody's said.

Issuance of $500 million of mandatory convertible preferred securities, if successful, will enhance liquidity and provide some equity cushion as the company weathers the current weakening environment in fiber, cable and photonic demand, Moody's said.

S&P cuts Corning

Standard & Poor's downgraded Corning Inc. including lowering its senior unsecured debt to BB+ from BBB- and subordinated debt to BB- from BB+ and assigned a BB- rating to its proposed issue of convertible preferred stock.

Corning's downgrade to junk reflects a somewhat weaker business position due to depressed conditions and poor prospects for recovery in the company's core fiber segment, S&P said.

In addition, continued uncertainty persists about the timing of a return to profitability, despite an already low-cost position and significant ongoing cost reductions.

Corning's announcement that it will issue about $500 million in mandatory convertible preferred stock augments an adequate liquidity position, S&P said.

At June 30, Corning had $1.3 billion in cash and short-term investments, most of which were domestically held and available at June 30 and an undrawn $2.0 billion revolving credit facility with 18 banks that expires August 5, 2005. The bank facility is undrawn, has no material adverse change clause past signing, and one financial covenant (maximum 60% total debt to total capital).

The ratings on Corning reflect sharply deteriorated conditions in many of the company's major markets, particularly in telecommunications, with no assured timing as to recovery, offset by adequate near-term liquidity, S&P said.

Credit protection measures will remain sub-par for the rating in 2002 due to ongoing losses, S&P added. Liquidity remains an important underpinning of the rating until the company's businesses return to profitability. Significant refinancing risk exists in the potential "put" of more than $2 billion in zero coupon convertible debentures in November 2005 (which can also be satisfied with common stock). An important determinant of the evolution of this risk will be the company's progress towards profitability and resulting satisfactory access to the capital markets.

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