Moody's raises CSC Holdings liquidity rating

Moody's Investors Service upgraded the liquidity rating on Cablevision Systems subsidiary CSC Holdings to SGL-2 from SGL-3.

Moody's said the action reflects notable recent improvements in the company's consolidated liquidity profile as anticipated for the coming 12-month period, which can now be best characterized as good versus just adequate previously.

The rating change is driven primarily by the successful completion of the non-core asset sale (mainly PCS licenses) by minority-owned investment subsidiary Northcoast Communications to Verizon Wireless, which closed late last week, Moody's said. This transaction is instrumental in boosting the company's liquidity profile on a number of fronts, but most significantly from the perspective that it effectively ensures both greater availability and added certainty with respect to financial maintenance covenant compliance under the company's unrated $2.4 billion line of credit after application of an estimated $640 million in cash proceeds (a portion of which is held in escrow to be released over the next twelve months) to reduce revolver outstandings against the same.

Additionally, although somewhat less significant taken individually but noteworthy in aggregate nonetheless, the company has recently refinanced its Rainbow Media bank credit facility with two new revolvers and term loans totaling $350 million, and also finally exited its money-losing The Wiz retail business, both of which have further enhanced liquidity and themselves were additive to the earlier Bravo asset and Quadrangle preferred equity sales.

Moody's confirms ConMed

Moody's Investors Service confirmed ConMed Corp.'s $100 million guaranteed senior secured term loan, expanded by $135 million, at Ba3 and its other ratings including its $100 million guaranteed senior secured revolving credit facility due 2007 at Ba3 and $115 million 9% guaranteed senior subordinated notes due 2008 at B2. The outlook is stable.

Moody's said the confirmation reflects ConMed's relatively high, albeit declining leverage and the competitive nature of the segments of the medical device industry in which it operates. The rating also reflects ConMed's strong position in a growing industry and the stability of its cash flow.

Moody's noted that ConMed's product array of orthopedic devices benefits from demographic trends that include an aging yet more active population. This creates a need for orthopedic surgery, and the market for ConMed's instruments, in which ConMed holds a leading position. The disposable nature of much of its product line generates recurring revenues, and stable cashflows. In addition to the organic growth this engenders, ConMed has been making acquisitions, partly funded with debt, raising debt levels to approximately 45% of total capital.

The stable rating outlook reflects Moody's expectation that ConMed will continue to grow revenue and cash flows at a moderate, low- to mid-single digit rate, using its cash to fund capital expenditure and gradually reduce debt. It also reflects Moody's expectation that ConMed will continue to make relatively small, strategic acquisitions, reducing any temporary increase in debt needed for the purpose in the short term.

Moody's said it considers ConMed relatively highly levered. Total debt/book capitalization as of

year-end 2002 was a relatively moderate 43%, but EBIT/interest expense was fairly low at 3.2x for the period. Retained cash flow/debt at 23% for fiscal 2002 was appropriate for its rating category in this industry.

S&P rates Warnaco notes B

Standard & Poor's assigned a B rating to Warnaco Group Inc.'s proposed $210 million senior notes due 2013 and a BB- rating to its $275 million secured revolving bank facility. The outlook is positive.

S&P said the bank loan is one notch above the corporate credit rating, reflecting its secured position within the capital structure. S&P said it believes the company's collateral package supports full recovery of the loan facility if a payment default were to occur.

S&P said the ratings reflect Warnaco's participation in a highly competitive and promotional retail environment, its significant concentration in the slower growing department store channel, exposure to fashion risk in some of its business segments, and the potential lingering impact of its bankruptcy filing on its relationships with customers and suppliers.

The rating also incorporates the operating risk associated with re-invigorating the company's various product offerings, especially intimate apparel, which is highly concentrated in the intensely promotional, sluggish department store channel. Although experienced in the industry, the new senior management team still faces a significant challenge in light of the current economic and operating environment, S&P said. These factors are somewhat offset by Warnaco's portfolio of strong brand names with leading market shares (such as Warners and Olga's, in women's intimate apparel) and its core products, which are characterized by relatively stable demand.

With its emergence from bankruptcy protection and the "fresh start accounting" treatment, the company's balance sheet has only about $245 million in debt, compared with $2.2 billion before the bankruptcy filing, S&P said. As a result, the rating agency expects Warnaco to maintain relatively strong financial measures, with lease-adjusted EBITDA to interest of above 4.5x, EBITDA margins of about 10%, and total debt to EBITDA of under 2.0x.

S&P puts Domino's on watch, rates loan B+, notes B-

Standard & Poor's put Domino's Inc. on CreditWatch negative including its $100 million revolving credit facility due 2007 and $365 million term B loan due 2008 at BB- and $275 million 10.375% senior subordinated notes due 2009 at B.

On completion of the refinancing, S&P will lower the corporate credit rating to B+ from BB- and rate Domino's proposed $560 million term loan and $125 million revolving credit facility at B+ and its proposed $450 million senior secured notes at B-. The outlook will be stable.

S&P said the CreditWatch placement is based on the company's announcement of a refinancing comprised of a $685 million bank loan and $450 million senior subordinated notes offering. The proceeds will be used to refinance the company's existing debt, redeem $199.5 million of its preferred shares, and pay a $200 million common dividend, which will add about $400 million of incremental debt.

As a result, pro forma lease-adjusted total debt to EBITDA will increase to about 6x, compared with 3.7x under the previous capital structure, S&P said. Moreover, financial flexibility will be reduced as interest payments and amortizations will have substantially increased.

Domino's has steadily improved its operating performance, S&P noted. Same-store sales for domestic franchise stores, which represent about 60% of the company's store base, decreased slightly in the first quarter of 2003, following gains of 3.0% in 2002 and 3.6% in 2001. Moreover, operating margins expanded to 17% for the 12 months ended March 23, 2003, from 15.5% the year before. Profits have increased as a result of unit expansion, new product introductions and promotions, and lower food and overhead costs.

Pro forma for the refinancing transaction, cash flow protection measures are weak with lease-adjusted EBITDA coverage of interest less than 2x and FFO to total debt of 9%, compared with 2.8x and 18% respectively under the previous capital structure, S&P said.

S&P takes Triton PCS off watch, rates notes B+, loan BB+

Standard & Poor's confirmed Triton PCS Inc. and removed it from CreditWatch negative including its $300 million 11% senior subordinated discount notes due 2008, $350 million 9.375% notes due 2011 and $400 million 8.75% senior subordinated notes due 2011 at B- and $550 million credit facility at BB- and assigned a BB- rating to its new $100 million secured revolving credit facility due 2008 and a B+ to its new $500 million senior notes due 2013. The outlook is negative.

S&P said the actions are due to the improved liquidity position resulting from the refinancing and extension of debt maturities.

In addition, the service revenues increased in first quarter 2003 due to higher-than-expected net customer additions, and lower churn and stabilization of the migration to the UnPlan, S&P noted.

Triton PCS' ratings reflect its continued favorable strategic relationship with AT&T Wireless Services Inc., an expected continued improvement in cash flow measures, improving debt leverage metrics by the end of 2003 and maintenance of its high quality subscriber base. These factors are somewhat offset by a still aggressive balance sheet, competitive pressures of the wireless industry, effect of lower roaming yield, and high cost per gross addition in the $400 area.

Revenue growth has been negatively affected during the past year due to the industry slowdown in net customer additions and the reduction in roaming yield, S&P said. In order to improve customer retention and reduce off-network costs paid to other carriers, the company introduced a new regional plan in 2002, the SunCom UnPlan. The UnPlan provides unlimited calling from a subscriber's local calling area for $49.99 per month. Due to a higher-than-expected migration of the company's existing high average revenue per user subscribers to UnPlan and an increase in the churn rate due to conversion to a new billing system, fourth quarter 2002 service revenues declined by about 6% compared to the third quarter of 2002. However, in the first quarter of 2003, service revenues rose about 6% due to a reduction in the churn rate to 2.1% and higher-than-anticipated net customers additions as a result of attractive features of the UnPlan.

ARPU declined in the fourth quarter of 2002 to $52.55 from $58.02 in the third quarter of 2002 due to the higher than anticipated migration of existing high value subscribers to the UnPlan, S&P said. In the first quarter of 2003, ARPU increased $1 to $53.52 due to partial benefit from price increases initiated in February 2003. ARPU is expected to be $56 by the end of 2003 reflecting the impact of the total $3 in price hikes related to new fees.

Excluding non-cash compensation, EBITDA margin improved to the 20% area in the first quarter of 2003 reflecting lower off-network costs and other cost-reduction measures. EBITDA margin is expected to steadily improve as the company drives more gross additions through its customer-owned retail stores and direct sales force, S&P said. This shift in the distribution channel mix should reduce cost per gross addition, which is high in the $400 area. Given completion of the GSM/GPRS overlay by the end of 2003 and the company's spectrum rich position, capital requirements should decline commencing 2004. Consequently, the company is expected to be free cash flow positive in 2004. Pro forma for the new note issue, debt to EBITDA should be in the 6.0x area for 2003.

Moody's downgrades Domino's, rates loan B1, notes B3

Moody's Investors Service downgraded Domino's, Inc. including cutting its $218 million 10 3/8% senior subordinated notes due 2009 to B3 from B2 and assigned a B1 rating to its $685 million secured bank facility and a B3 rating to its $450 million 8-year senior subordinated notes. The outlook is stable.

Moody's said the downgrade reflects the substantial reduction in free cash flow and fixed charge coverage as a result of the recapitalization, as well as Moody's opinion that Domino's cannot improve revenue and earnings at the same rate as in the past.

The ratings recognize that commitments such as debt service and maintenance capital expenditures will now consume most cash flow, the company's high financial leverage, and the intense competition within the pizza segment of the restaurant industry, Moody's said. The potential that consumer preferences may evolve away from the company's narrow product range, the unpredictability of developing effective marketing programs, and the vulnerability to cheese price volatility (the company buys about 200 tons per day) also restrain the ratings at the current level.

However, the ratings also consider the well-recognized "Domino's" trade name, management's recent track record of using most excess cash flow to pay down debt, and the steady franchisee royalty stream as a disproportionately large generator of operating profits, Moody's said. The ratings also recognize the simple business model that requires franchisees to invest their own capital in most newly developed stores and the diversity (geographically and from many franchisees) of revenue inflows.

EBITDA covered cash interest expense by 3.1 times for the 12 months ending March 2003; pro-forma for annual post-transaction interest expense increasing to $90 million compared to $60 million before, interest coverage would have been about 2.0 times. For the most recent 12 months, lease adjusted debt equaled 3.7 times EBITDAR; pro-forma for increasing balance sheet debt by about $430 million, lease adjusted leverage would be 5.7 times, Moody's said.

S&P rates Pacer loan BB-

Standard & Poor's assigned a BB- rating to Pacer International Inc.'s proposed $75 million revolving credit facility maturing 2008 and $255 million term loan facility maturing 2010 and confirmed its existing BB- bank loan and B subordinated debt ratings. The outlook is stable.

S&P said the ratings reflect Pacer's high (albeit declining) debt leverage and exposure to cyclical pressures (especially in its logistics business), offset by a solid niche position in the freight transportation and logistics industry and a somewhat variable cost structure.

Pacer has built its current business profile through a series of acquisitions that have left the company highly leveraged, S&P noted. Although Pacer used the proceeds (about $127 million) from a stock offering last year to pay down debt, its debt to capital (adjusted for operating leases) remains aggressive and is currently in the low-70% area.

About half of Pacer's debt burden is represented by off-balance-sheet operating leases. Pacer is expected to continue to pursue acquisitions and investment opportunities in the highly fragmented logistics industry, but acquisitions should be modest in size and funded mostly out of internally generated cash flow, S&P said.

Debt leverage is expected to improve modestly over time, with debt to capital (adjusted for operating leases) expected to fall below 70% and remain in the 60%-70% area, depending on the timing of acquisitions, S&P said. The proposed refinancing will modestly enhance the financial profile of the company by reducing interest expense and providing more flexibility for debt repayment.

For the bank loan, S&P said that in its simulated default scenario it is not clear that principal would be fully recovered, a substantial recovery of principal is expected.

S&P rates United Components loan BB-, notes B

Standard & Poor's assigned a BB- rating to United Components Inc. $65 million revolver due 2009, $50 million term loan A due 2009 and $275 million term loan due 2010 and a B rating to its proposed $255 million senior subordinated notes due 2013. The outlook is stable.

S&P said the senior secured credit facility is rated the same as the corporate credit rating since under a severe distress scenario asset values could erode such that ultimate recovery of principal could fall short of the total facility amount.

Proceeds from the subordinated notes issue and bank term loan A and B will be used to fund the purchase of United Components by The Carlyle Group from UIS Inc., S&P said.

The ratings reflect United Components' high debt load, weak credit protection measures, and challenges associated with its highly competitive end markets. The ratings also take into account the company's sizeable market penetration in each of its businesses, good product diversity, and long-standing customer relationships with large retailers.

Revenue growth is consistently challenged by the highly competitive nature of the automotive aftermarket industry, S&P said. However, future revenue growth is expected to come from an improvement in certain aftermarket fundamentals, such as an increase in the number of vehicles on the road older than six years old, a material driver of aftermarket revenues. The introduction of new products and penetration into new customer segments, including the heavy-duty truck market, is also expected drive revenue expansion.

United Components' financial profile is below average but satisfactory for the rating, S&P said. While revenue and EBITDA are expected to be flat to marginally higher in the near-term, profitability is good as reflected in operating margins of around 15%. Pro forma EBITDA interest coverage was 2.8x at the end of 2002; EBITDA interest coverage is likely to remain at the lower end of the 3x to 3.5x range, which is adequate for the rating. The expected completion of a capital investment project in the company's filtration segment in 2004 should result in incremental savings in the next few years, which will bolster EBITDA.

Moody's rates Triton PCS notes B2

Moody's Investors Service assigned a B2 rating to Triton PCS, Inc.'s new $500 million senior notes due 2013 and confirmed its existing ratings including its $512 million 11.0% senior subordinated discount notes due 2008, $350 million 9.375% senior subordinated notes due 2011 and $400 million 8.75% senior subordinated notes due 2011 at B3. The outlook is negative.

Moody's said the ratings reflect the increasingly difficult operating environment facing all wireless carriers as subscriber growth slows and cash flow generation becomes more challenging. It also reflects the delay the company has experienced in generating free cash flow relating to the investment required to upgrade its network to provide GSM service, as well as from the re-rating of a large portion of its subscriber base.

While the company has built a top quality network that has attracted a high quality subscriber base, after over four years of operations free cash flow generation is still distant, and capital expenditure requirements combined with spectrum investments remain high, Moody's added.

Moody's has confirmed the senior implied rating of Triton PCS at B1 based upon the company's adequate liquidity, with over $150 million of cash at the end of March 2003 (pro forma for repayments under its existing credit facility made in May 2003). Financial flexibility will be improved with the retirement of the existing credit facility and the elimination of its financial covenants and amortization requirements.

The company is establishing a new $100 million secured revolving credit facility (unrated) that Moody's does not expect to be utilized near term.

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