Moody's cuts Vivendi

Moody's Investors Service downgraded Vivendi Universal SA's long-term senior debt to B1 from Ba1, affecting €6.9 billion of securities. Also lowered was Houghton Mifflin, which saw its senior debt cut to Ba2 from Ba1. All ratings remain on review for possible further downgrade.

Moody's said the reduction and continuing review reflect the ongoing liquidity problems the company faces as well as significant execution risks in implementing its restructuring plans, in particular the timely implementation of its €5 billion disposal program to be completed over the next nine months.

The actions also reflect a worsening of the company's expected operating cash flow generation for

2002, a challenging operating environment for some of its activities and its continuing contingent liability exposure, Moody's said.

While Vivendi Universal obtained a €1 billion liquidity back-up facility on July 10, Moody's said timely conclusion of a new €3 billion bank facility (which is expected to absorb the original €1 billion facility) remains of "paramount importance" for the company.

In this process Vivendi Universal remains critically dependent on the continuing support of its banks, Moody's commented.

Progress towards negotiating the new €3 billion facility is reflected in the rating level.

Failure to put the facility in place over the next few weeks would lead to a severe short term liquidity problem and further ratings downgrades by several notches, Moody's added.

Moody's said there is a two notch differential between Vivendi's senior implied rating and senior unsecured rating because the rating agency expects that should an adequate longer term refinancing be achieved terms and conditions of the new financing will be onerous and will result in effective and structural subordination of these holding company notes.

Houghton Mifflin's senior ratings are not notched based on the assumption that the negative pledge language in Houghton Mifflin's indentures remains unchanged and in full force, Moody's said.

S&P cuts Vivendi

Standard & Poor's downgraded Vivendi Universal SA and its subsidiaries to junk and kept the ratings on CreditWatch with negative implications. Ratings lowered include Vivendi's bonds, convertible bonds, exchangeable bonds and credit facility, lowered to B+ from BBB-, Houghton Mifflin Co.'s notes and medium-term notes, cut to B+ from BBB-, Joseph E. Seagram & Sons Inc.'s bonds, notes, debentures and QUIDS, cut to B+ from BBB-, and The Seagram Co. Ltd.'s notes and debentures, cut to B+ from BBB-, and ACES, cut to B+ from BB.

S&P said the action follows Vivendi's release of half-year results and significantly lower-than-expected cash flow generation forecasts for second-half 2002.

The downgrade to Vivendi's long-term senior unsecured debt also reflects the increasing subordination risks for Vivendi's existing long-term-debt holders.

Vivendi's revised second-half 2002 free cash flow projections further underscore the visibility and transparency problems that prevailed under the previous management team, S&P said.

Such a cash flow shortfall could result in a much earlier financing gap than we initially anticipated, S&P commented. It may also make it more difficult for Vivendi to rapidly arrange a new, substantial credit line to fund its operations over the next few months.

Although Vivendi's access to the €1 billion syndicated credit line has just been confirmed by its main banks - which is viewed as a positive sign for upcoming refinancing steps - the company's liquidity position will continue to be exposed to tight financial covenants as well as to its creditors' desire to continue to provide funding over the next 18 months, S&P said.

S&P estimated Vivendi's refinancing needs could exceed €3 billion - the amount of the credit line currently under negotiation as indicated by management - on top of the €1 billion credit line and refinancing at Vivendi Universal Entertainment.

Moody's cuts Pierre Foods

Moody's Investors Service downgraded Pierre Foods, Inc. including lowering its $115 million 10¾ % senior unsecured notes due 2006 to Caa3 from B3. The outlook is negative.

Moody's noted that on July 26 Pierre shareholders approved a management buyout plan that removed all of Pierre's public float, consisting of the approximately 37% of shares that the management group did not already own. The transacted valued Pierre's total equity at $15 million and did not bring any new capital into the company.

Moody's said the downgrades reflect Pierre's weak operating results, low profitability, high leverage, and limited credit protection measures, as well as the company's narrow product line, small size ($242 million revenue base in the latest fiscal year), and the highly competitive markets in which it operates.

Also reflected in the ratings are the significant risks that arise from the high proportion of Pierre's costs which represent transactions with related parties (entities owned in part or full by PF Management, which is acquiring Pierre via the buyout), Moody's said. The high level of related party transactions increases the risk that Pierre does not benefit from market based pricing, and raises more general concerns over corporate governance.

The downgrades also reflect the likelihood that the company could resume restructuring negotiations with noteholders at some point in the future, Moody's said. Alternatively, if there is a default Moody's said it believes the notes are likely to experience principal loss.

S&P says Scotts unchanged

Standard & Poor's said The Scotts Co.'s ratings and outlook are unchanged on news it will acquire substantially all of the lawn care operations of Centex HomeTeam Services. S&p gives Scotts a BB corporate credit rating with a stable outlook.

Although financial terms of the transaction were not disclosed, S&P said it does not expect the acquisition to have an impact on Scotts' improved credit measures.

The acquisition of Centex's lawn service business represents the largest for Scotts in its growing lawn service business and will significantly increase Scotts' presence in this market in the southern U.S.,. S&P added.

S&P puts Omnicare on watch

Standard & Poor's put Omnicare Inc. on CreditWatch with negative implications including its senior unsecured bank facility at BBB- and subordinated debt at BB+.

S&P said the action is in response to the possible impact on Omnicare's credit protection and cash flow measures should it complete the acquisition of NCS HealthCare Inc.

Omnicare has made a tender offer of $3.50 per share to acquire all the outstanding shares of NCS HealthCare Inc. in a competitive bid against Genesis Health Ventures, whose lower offer has been accepted by NCS.

NCS has about $300 million of debt, which is in default. S&P said it assumes Omnicare will need to satisfy those debt obligations through some debt financing of its own.

The transaction costs may weaken Omnicare's funds from operations to lease-adjusted debt to below 20%, a level considered weak for an investment-grade company, S&P said. Furthermore, the acquisition also involves risk that Omnicare may not realize the benefits from the acquisition to the extent anticipated by management.

S&P withdraws Budget ratings

Standard & Poor's withdrew its ratings on Budget Group Inc. following the company's Chapter 11 filing.

Ratings affected include Budget's $400 million 9.125% senior notes due 2006 and $300 million 6.25% high TIDES, both previously at D.

Moody's cuts Acterna notes

Moody's Investors Service downgraded Acterna LLC's $125 million 9.75% senior subordinated notes due 2008 to Ca from Caa3 and confirmed its other ratings including its senior implied rating at Caa1 and issuer ratings at Caa2. The outlook is stable.

Moody's said the action follows conclusion of Acterna's tender offer for a portion of its 9.75% subordinated notes issue at a price substantially below face value.

S&P cuts Ocwen

Standard & Poor's downgraded Ocwen Financial Corp. and maintained the outlook at negative.

Ratings lowered include OCWEN Financial Corp.'s $125 million 11.875% senior notes due 2003, cut to B- from B, Ocwen Capital Trust I's $125 million 10.875% capital securities, cut to CCC- from CCC, and OCWEN Federal Bank FSB's $100 million 12% subordinated debentures due 2005, cut to B- from B.

S&P puts Champion on watch

Standard & Poor's put Champion Enterprises Inc. on CreditWatch with negative implications.

Ratings affected include Champion's $200 million 7.625% unsecured notes due 2009 at B and Champion Home Builders Co.'s $150 million 11.25% senior unsecured notes due 2007 at B.

Moody's cuts Levi Strauss

Moody's Investors Service downgraded Levi Strauss & Co. completing a review begun on July 2. The outlook remains negative. Ratings lowered include Levi's $619 million guaranteed senior secured revolving facility due 2003, $28 million guaranteed senior secured term loan A due 2003 and $125 million guaranteed senior secured term loan B due 2003, all cut to B1 from Ba3, its $350 million 6.8% senior unsecured eurobonds due 2003, $450 million 7% senior unsecured eurobonds due 2006, $380 million 11.625% unsecured global senior notes due 2008 and €125 million 11.625% unsecured global senior notes due 2008, all cut to Caa1 from B2.

Moody's said the downgrade reflects the negative impact on the company's level of cash generation from a weak economy and broad global competition focused on price and fashion; significant upcoming cash outlays related to plant closures and systems improvements; and required refinancings of its $619 million credit agreement in August 2003 and the $350 million issue of 6.8% senior notes which mature in November 2003.

The negative outlook reflects the company's reliance on the successful introduction of new products, improved delivery, and channel or market share expansion to recover gross sales and margins and to reduce debt levels, Moody's added.

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