Moody's lowers Cablevision outlook, upgrades some subsidiaries, preferreds

Moody's Investors Service lowered its outlook on Cablevision Systems Corp. to negative from stable but upgraded Cablevision's content-related subsidiaries, including Rainbow Media Holdings Inc. and its subsidiaries American Movie Classics Co., The Independent Film Channel, LLC and WE: Women's Entertainment, LLC as well as the preferred stock of Cablevision's CSC Holdings Inc. subsidiary.

Rainbow Media's $160 million senior secured revolver due 2008 and $140 million senior secured term loan B due 2009 were upgraded to Ba2 from Ba3 and AMC/IFC/WE's $40 million senior secured revolver due 2008 and $35 million senior secured term loan B due 2009 were upgraded to Ba1 from Ba3. CSC's $1.1 billion exchangeable preferred stock due 2008 and $434 million exchangeable preferred stock due 2007 were upgraded to B2 from B3.

CSC's $1 billion 7.625% senior unsecured notes due 2011, $300 million 7.875% senior debentures due 2018, $500 million 7.25% senior unsecured notes due 2008, $400 million 8.125% senior debentures due 2009, $500 million 7.625% senior unsecured notes due 2018, $500 million 8.125% senior unsecured notes due 2009 and $500 million 7.875% senior unsecured notes due 2007 were confirmed at B1 and $250 million 10.5% senior subordinated debentures due 2019, $200 million 9.875% senior subordinated debentures due 2013 and $150 million 9.875% senior subordinated debentures due 2023 were confirmed at B2.

Moody's said the negative outlook principally reflects the recent commencement of a formal investigation by the SEC into the company, which Moody's believes could include the whole Cablevision entity and not just Rainbow Media and its subsidiaries, after management revealed certain accounting improprieties and terminated several key employees.

The Rainbow Media and AMC/IFC/WE rating upgrades reflect the subsequent announcement by the company that Rainbow Media will be repurchasing the 20% minority stake in the AMC/IFC/WE subsidiaries that is currently held by MGM, which facilitates full access to the strong and growing cash flows generated by these entities and more than offsets the negative implications associated with the incurrence of incremental debt to finance the transaction.

The CSC Holdings preferred stock rating upgrades reflect Moody's belief that the expected loss for these instruments is no longer materially different than that for the company's subordinated debt, particularly in the context of the exchange into subordinated debt provisions that have always existed albeit are unlikely to be exercised and the growing likelihood that their very expensive requisite dividend payouts will finally precipitate their refinancing with cheaper but also equity-linked securities.

S&P rates Calpine second priority debt B

Standard & Poor's assigned a B rating to Calpine Corp.'s $3.3 billion second priority senior debt. including a $750 million term loan due 2007, $500 million floating-rate notes due 2007, $1.15 billion 8.5% secured notes due 2010 and $900 million secured notes due 2013. The notes carry the same rating as other Calpine senior secured debt and are rated two notches higher than the CCC+ rated senior unsecured debt.

S&P also confirmed Calpine's existing ratings including its secured debt at B, senior unsecured bonds at CCC+ and preferred stock at CCC.

S&P said the ratings reflect that:

* Calpine's credit statistics have significantly deteriorated. Adjusted funds from operations interest coverage dropped from 2.2x in 2001 to 1.5x in 2002, significantly below expectations due to lower power prices on the merchant portfolio and higher levels of debt. S&P expects that over the next five years minimum and average adjusted FFO interest coverage ratios will not exceed 1.3x and 1.9x, respectively.

* Overall business risks have increased as a result of Calpine's proposed monetization of contractual revenue and sales of assets with contractual revenues. This will increase cash flow volatility since merchant revenues will make up a larger portion of available cash.

* Calpine faces considerable liquidity pressures through 2004 with $4.7 billion in potential refinancing and about $2 billion in planned capital expenditures.

* Calpine has limited opportunities to reduce its debt burden and issued additional debt to fund new construction.

* To meet its liquidity needs, Calpine must generate cash from sources other than operations. Calpine plans to meet these requirements through a combination of asset sales and debt financings, which carry execution risk.

* Calpine's target of 65% leverage to total capitalization still exposes the company's financial profile to electricity price volatility and capital market access. Calpine's inability to access the equity markets has led to debt levels over 70%. Adjusted debt levels will likely remain above 70% over the next five years.

Positives include its contractual revenue base, proven ability to maintain and operate its power plants in an efficient manner, proven ability to manage and construct multiple plants in a timely and efficient manner and highly efficient gas turbines.

S&P says DaVita unchanged

Standard & Poor's said DaVita Inc.'s ratings are unchanged including its corporate credit at BB- with a positive outlook following the company's planned redemption of $200 million of its $345 million 7% convertible subordinated notes due 2009.

This is the latest of several steps DaVita has taken to strengthen its capital structure, including the July 2003 conversion to common stock of its $125 million 5 5/8% convertible subordinated notes, S&P noted.

DaVita's stock price has risen handsomely recently, to nearly $30 from below $20, improving the prospects that the 7% convertible subordinated notes will be converted into stock. However, DaVita also has sufficient liquidity to fund an all-cash redemption.

Moody's rates Key Energy liquidity SGL-3

Moody's Investors Service assigned an SGL-3 speculative-grade liquidity rating to Key Energy Services, Inc.

Moody's said the SGL-3 rating reflects the company's good operating cash flow outlook, substantial cash position, availability under its revolving credit facility and a track record of generating sufficient cash flow from operations to cover ordinary capital spending.

However, the rating is tempered by the expected redemption in first quarter of 2004 of Key's higher coupon debt which would utilize a significant amount of Key's liquidity within the next six months.

The SGL rating is further restrained by limited readily accessible alternative sources of liquidity due to the pledging of assets to its banks, only modest cushion in some of its covenants and the expected utilization of almost half of the company's $150 million revolver for Letters of Credit issuance, Moody's said.

S&P says Delta unchanged

Standard & Poor's said Delta Air Lines Inc. ratings are unchanged including its corporate credit at BB- with a negative outlook after the airline reported a second-quarter pretax loss before special gains of $380 million, somewhat worse than the $310 million loss on a comparable basis in the 2002 second quarter.

The results reflect damage from the Iraq war, high fuel prices and continuing adverse industry revenue conditions.

Delta's pretax loss margin, before special items, of negative 11% is somewhat disappointing compared with AMR Corp.'s negative 8%, Northwest Airlines Corp.'s negative 7.9%, and Continental Airlines Inc.'s break-even margin, underlining the cost challenge facing Delta, S&P said. Delta projects a net loss of $200 million to $250 million in the third quarter, similar to the results in the third quarter of 2002.

Liquidity continues to be strong, with unrestricted cash rising to $2.8 billion, from $1.9 billion at March 31, 2003.

Despite the substantial loss, Delta's operating cash flow in the second quarter was only slightly negative and should improve in the third quarter, S&P said. Delta has about $2.8 billion of unencumbered aircraft, though these models are considered less desirable collateral.

Moody's Lamar Media liquidity SGL-1

Moody's Investors Service assigned an SGL-1 speculative-grade liquidity rating to Lamar Media.

Moody's said the SGL-1 rating reflects Lamar's very good liquidity position as projected over the forward 12-month rating horizon, based on expectations of relatively meaningful positive free cash flow before acquisitions (at more than 10% of outstanding debt), good flexibility under bank financial maintenance covenants and sizable availability under its revolving credit facility (about $180 million available of an undrawn $225 million).

Moody's also expects Lamar to show modest operating improvements given the strengthening of the advertising environment and the stability of local market outdoor advertising. Absent acquisitions, EBITDA is likely to be in the $350 million range and free cash flow could be about $200 million.

The rating also incorporates expectations of continued acquisition activity by Lamar funded from free cash flow. However, the rating does not assume a sizable acquisition which would require debt-financing. While Lamar is somewhat vulnerable to both seasonality (working capital swings) and economic cyclicality, neither is expected to negatively impact the company over the time horizon of the liquidity rating.

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