S&P cuts Ahold to junk, on watch

Standard & Poor's downgraded Ahold Koninklijke NV to junk and put it on CreditWatch with negative implications. Ratings lowered include Ahold's €1.5 billion 5.875% bonds due 2008, €200 million 6.375% notes due 2007, €55 million 5.625% notes due 2008, and CSK3 billion floating-rate notes due 2005, cut to BB+ from BBB, €680.67 million 3% convertible bonds due 2003, €90.756 million 5.875% bonds due 2005, €90.756 million 6.75% subordinated bonds due 2003 and €920 million 4% subordinated notes due 2005, cut to BB from BBB- and €400 million cumulative preferred shares, cut to BB- from BB+, Ahold USA Holdings Inc.'s €226.89 million 6.25% bonds due 2006, cut to BB+ from BBB, Ahold Finance Europe BV's €40 million 5.625% notes due 2008, cut to BB+ from BBB, Ahold Finance USA Inc.'s $1 billion bonds due 2029, $700 million 8.25% bonds due 2010, €1.5 billion 6.375% notes due 2005 and £500 million 6.5% bonds due 2017, cut to BB+ from BBB, and Albert Heijn BV's €136.134 million 5.875% bonds due 2007, cut to BB+ from BBB. S&P also cut Ahold Lease 2001-A Pass Through Trusts class A-1 and A-2 to BB+ from BBB+.

S&P said the actions reflect Ahold's weaker financial profile and uncertainties with respect to its liquidity position following its announcement that it will restate its financial accounts for 2002 and previous years. Ahold also announced that its chief executive and chief financial officer are to leave the group.

As a result of these earnings overstatements, Ahold's expected 2002 debt measures, which were already modest for the previous ratings, will be significantly weaker and, therefore, no longer commensurate with an investment-grade rating, S&P added.

In addition, although Ahold has obtained a 364-day €3.1 billion facility from a syndicate of banks, with an EBITA-to-interest coverage covenant of 2.5x, its liquidity position remains at risk until the full extent of the restatement of its accounts is clarified, S&P said. In any case, Ahold's leeway under the covenant mentioned above is likely to remain tight.

Moody's puts Ahold on review

Moody's Investors Service put Koninklijke Ahold NV on review for possible downgrade including its senior debt at Baa3 and subordinated debt at Ba1.

Moody's said the review is in response to Ahold's disclosure of a material overstatement of its operating earnings from its US foodservice business that may exceed a total of $500 million for the financial years 2001 and 2002; the resignation of its CEO and CFO; and the significant level of uncertainty that ensues from the combination of these events.

The review will also look into the potential subordination of bondholders as a result of the announcement that the new liquidity facility includes a secured tranche, Moody's added.

The rating agency said Ahold may be downgraded more than one notch.

The rating review will also focus on the impact of the restatement on Ahold's operating cash-flow and debt-repayment capacity, Moody's said. In addition the review will look at the impact of the company's announced investigation into the legality of certain transactions and the accounting treatment thereof at its Argentine subsidiary Disco SA as well as the impact of the change in consolidation treatment of the ICA Ahold and Jeronimo Martin's joint ventures.

Moody's rates Radnor notes B2

Moody's Investors Service assigned a B2 rating to Radnor Holdings Corp.'s planned $135 million senior unsecured notes due 2010, confirmed its senior implied rating at B2 and senior unsecured issuer rating at B3 and raised the outlook to positive from stable.

Moody's said the outlook revision reflects its expectation of more favorable financial results specifically given that pro forma interest expense should be meaningfully reduced.

Radnor's ratings are based on its weak profitability, minimal book equity, and low free cash flow relative to total debt.

Historically operating income has not covered interest expense and earnings have been minimal off a revenue base that has grown significantly since 1996, Moody's said.

The rating agency said 2002 appears to have been a breakout financial year in many ways, however, those recent achievements do not fully off-set Radnor's historical record of weak profitability and low free cash flow relative to its sizable debt burden (total debt is approximately 67% of total revenue adjusted for the sale of ThermiSol in fiscal 2001).

While recognizing Radnor's ability to grow EBITDA since its initial rating in 1996 despite challenging macro-economic events, the relatively low level of margins, coupled with material fluctuations in margins, constrain the ratings (pro-forma fiscal 2002 EBITDA margins are in the mid-teens which are the highest in recent history), Moody's said.

Moody's confirms Sports Authority

Moody's Investors Service confirmed The Sports Authority, Inc. including its $335 million senior secured revolving credit facility due 2006 at B2. The outlook remains positive.

Moody's confirmation follows announcement The Sports Authority, Inc. will merge with Gart Sports Co.

Moody's said the action reflects the potential longer-term benefits of the stock-for-stock merger, including expense savings and greater purchasing power, as well as the risks of near-term operating disruptions during the lengthy approval period and challenges while the company finalizes and begins executing its integration plans.

The largely complementary combination of The Sports Authority and Gart will provide longer-term benefits of increased geographic diversification, reduced overhead expenses (through advertising, headcount and facility rationalization), and improved gross margins (through combined purchasing power and merchandising initiatives), Moody's said. The rating agency added that it also recognizes the experience of the Gart management team, which has successfully integrated two smaller acquisitions over the past five years and achieved significant gross margin improvements, as well as the considered approach the company plans to take regarding changes to non-Sports Authority stores.

But Moody's said it believes that the merger, combining two highly leveraged and relatively low-margin retailers, presents meaningful near-term risks. Retaining key personnel and keeping employees focused could be challenging during the transition phase. The company will need to navigate the challenging economic environment, while accelerating The Sports Authority store remodels, migrating systems, and further developing its national store design and merchandising plans.

Debt levels for the combined company are likely to increase above current pro forma levels due to company spending on restructuring initiatives (one-time charges are estimated at $100-120 million), Moody's added.

Moody's rates FairPoint notes B3, loan B1

Moody's Investors Service assigned a B3 rating to FairPoint Communications Inc.'s proposed $225 million senior unsecured notes due 2010 and a B1 rating to its proposed $70 million senior secured revolving credit facility due 2007 and $30 million senior secured term loan A due 2007 and confirmed the company's existing ratings including its $66 million senior secured term loan B due 2006, $129 million senior secured term loan C due 2007 and $85 million senior secured revolving credit facility due 2004 at B2 and $75 million senior subordinated floating rate notes due 2008, $125 million 9.50% senior subordinated notes due 2008 and $200 million 12.50% senior subordinated notes due 2010 at Caa1. The outlook remains stable.

Moody's said the ratings incorporate FairPoint's high leverage, moderate liquidity and limited cash flow growth potential. Moody's said it estimated that at closing FairPoint will record leverage (total pro-forma debt and preferred stock/EBITDA) of approximately 6.8 times.

The ratings also reflect the relatively low business risk of FairPoint's rural telephone service operations together with the stability and predictability of its cash flows, Moody's added. All of FairPoint's operating subsidiaries operate under state regulations that provide for an established rate of return on capital. In addition the operating subsidiaries receive substantial levels of explicit and implicit subsidization resulting from the federal government's long-standing support for universal telephone service.

In addition, the ratings recognize that FairPoint's proposed recapitalization, if successfully concluded, will remove the overhang of the existing bank revolver's maturity in 2004 and potential covenant pressure in 2003, Moody's said.

The stable ratings outlook indicates the more dependable business model that has resulted from the company's exit from the cash- draining CLEC business formerly conducted by FairPoint Communications Solutions Corp., Moody's said.

S&P keeps National Wine on watch

Standard & Poor's said National Wine & Spirits, Inc. remains on CreditWatch with negative implications including its senior unsecured debt at B and bank loan at BB-.

S&P said the continuing watch follows National Wine's announcement that it has been selected as a strategic distributor of Diageo and the exclusive distributor of Diageo spirits and wine brands in Indiana and the exclusive broker and authorized distribution agent of Diageo and Schieffelin & Somerset spirits brands and the exclusive distributor of Diageo "mixed spirits drinks" in Michigan.

These agreements have removed some uncertainty for the company regarding its distribution rights in these two states, S&P noted.

However, the company announced in January of 2003 that it was no longer the exclusive distributor of Diageo brands in Illinois, S&P said.

S&P added that it remains concerned about National Wine & Spirits' ability to replace the distribution of the lost Diageo brands in Illinois, which contributed revenues of $79 million for the 12 months ended Nov. 30, 2002.

S&P rates Northwest pipeline bonds B+

Standard & Poor's assigned a B+ rating to Northwest Pipeline Corp.'s planned $150 million bonds and kept it on CreditWatch with negative implications.

S&P noted that the stand-alone credit profile of Northwest Pipeline is significantly better than the B+ rating but the credit assessment reflects the consolidated issuer credit rating of parent the Williams Companies.

The rating is consolidated to reflect the risk of consolidation in the event of a parent bankruptcy, S&P explained. Additionally, the parent level debt is rated one notch lower at B to reflect its structural subordination to the operating company debt.

The most significant risk that the Williams Companies faces in the near-to-intermediate term is execution risk associated with the planned sale of assets and the pending $1.3 billion in debt maturities in July 2003, S&P said.

Williams plans to sell assets with net proceeds of $3.9 billion in 2003 to meet debt maturity obligations, the rating agency noted. Many of these assets appear to be attractive to the marketplace, including the recently announced planned sale of Texas Gas Transmission Corp. and Williams Energy Partners MLP. Williams anticipates selling assets with net proceeds of $1.2 billion to $1.4 billion in the first four months of 2003.

If these sales are completed, and the forecast for cash flow from operations is in line with projections, including stemming the cash drain from the energy marketing and trading business unit, Williams should have sufficient cash on hand to retire all of its debt maturities for 2003 with cash, S&P said.

Furthermore, if Williams is able to complete the entire asset sale plan, the company should have sufficient cash to meet its $2 billion maturity schedule in 2004, which includes the $1.4 billion Williams Communications Group Inc. note that matures in March 2004. This assumes no access to the capital markets, which could be used to refinance a portion of the Barrett loan, S&P added.

Moody's confirms CB Richard Ellis

Moody's Investors Service confirmed CB Richard Ellis Services, Inc. including its senior secured bank debt at B1 and senior subordinated debt at B3. The outlook remains negative.

Moody's confirmation follows CB Richard Ellis' announcement it will acquire Insignia Financial Group, a competitor in the commercial real estate service business, for cash at $11.00 per share of common stock. This transaction is valued at approximately $415 million.

Blum Capital, a major investor in CBRE, is expected to provide a capital infusion of up to $145 million, subject to certain contingencies.

The transaction is expected to be highly leveraged, but consistent with CBRE's existing capital structure, which as of year-end 2002 was 3.6x debt/EBITDA, Moody's said.

Moody's noted the acquisition if Insignia would solidify CBRE's position as the largest real estate service firm in the world. The combined company anticipates generating revenues exceeding $1.8 billion in 2003, from $90 billion of annual sales and leasing transactions, and provide property management services for a global property portfolio of nearly 800 million sq. ft.

In particular, Moody's noted that the acquisition of Insignia should substantially enhance CBRE's competitive position in key markets such as New York, Paris and the United Kingdom, where Insignia has been a leading firm.

Moody's believes that a larger and more diversified property service platform will strengthen the company's brand and franchise, and improve cash flow stability.

The negative outlook reflects continued uncertainty regarding the economy, and its potential impact on the real estate service sector, and the financing terms and cost for the transaction, Moody's added. Moody's also believes that because of the culture of sales and leasing brokers, optimal integration and retention will be challenging to achieve.

S&P upgrades Canadian Satellite

Standard & Poor's upgraded Canadian Satellite Communications Inc. (Cancom), raising its corporate credit rating to BB- from B+ and Star Choice Communications Inc.'s $150 million 13% notes due 2005 to BB- from B+. The outlook is now stable.

S&P said the action follows Shaw Communications Inc.'s announcement that it obtained a C$350 million senior unsecured bank loan due 2006 to repay its 100%-owned subsidiary Cancom's existing C$350 million senior secured credit facility.

The upgrade reflects Cancom's significantly lower debt position and Shaw's continued demonstration of financial support, S&P said.

Cancom's liquidity, following the repayment of its credit facility, is derived from a C$43 million of pro forma cash position, as of Nov. 30, 2002, and C$10 million and C$5 million operating credit facilities at the Cancom and Star Choice levels, respectively, sufficient to fund cash requirements in 2003.

In addition, S&P said it expects Shaw will provide liquidity and refinancing support to Cancom until it starts to generate positive free cash flow, expected in 2004.

S&P cuts Shaw to junk

Standard & Poor's downgraded Shaw Communications Inc. to junk including cutting its $225 million 7.25% notes due 2011, $300 million 7.2% senior notes due 2011, $440 million 8.25% senior unsecured notes due 2010, C$275 million 7.05% senior unsecured notes due 2005 and C$300 million 7.4% notes due 2007 to BB+ from BBB-, its $142.5 million 8.45% Canadian originated preferred securities due 2046 series A, $172.5 million 8.5% Canadian originated preferred securities due 2097, C$150 million 8.875% COPRS due 2049 and C$100 million 8.54% due 2027 series B to B+ from BB and Videon Cablesystems Inc. C$130 million 8.15% senior unsecured notes due 2010 to BB+ from BBB-. The outlook is stable.

S&P said the downgrade follows Shaw's announcement that it obtained a C$350 million senior unsecured bank loan due 2006 to repay its 100%-owned subsidiary Canadian Satellite Communications

Inc.'s (Cancom) existing C$350 million senior secured credit facility.

Although the transaction does not materially increase Shaw's consolidated debt burden, leverage at the parent level (excluding Cancom) has increased to 5.0x total lease-adjusted debt to EBITDA for the 12 months ended Nov. 30, 2002, S&P said.

Incorporating proceeds of C$300 million from the sale of the U.S. cable systems announced on Feb. 21, 2003, however, leverage is at 4.5x. In addition, with the new bank loan, Shaw has further demonstrated its willingness to provide financial support to Cancom, as required, S&P noted.

The ratings on Shaw reflect its strong business position as one of the largest and most profitable Canadian cable television operators with 2.1 million basic subscribers; its success in rolling out new services that mitigate competitive pressures; and management's stated commitment to achieving positive free cash flows in 2003 to reduce debt, S&P said. These factors are offset by a relatively aggressive financial profile and the weaker credit quality of the company's satellite services and direct-to-home satellite subsidiary, Cancom, whose impact is now incorporated fully into Shaw's consolidated credit profile.

Fitch cuts Aquila, still on watch

Fitch Ratings downgraded the senior unsecured rating of Aquila, Inc. to B+ from BB, affecting $3 billion of debt. The ratings remain on Rating Watch Negative.

Fitch said the action reflects Aquila's limited financial flexibility, tighter than expected liquidity position, and weak cash flow from non-regulated operations, as well as an increase in execution risks surrounding the renegotiation of existing bank facilities.

The rating watch continues pending resolution of bank group negotiations and a review of an updated business plan.

Aquila's liquidity position and cash flows are weaker than previously anticipated, Fitch noted. Due to weak spark spreads available in the power market, net revenues from power facilities under tolling arrangements are inadequate to fully cover the cash capacity payment obligations that total approximately $118 million in 2003. Fitch expects the combination of high gas prices and low electricity spot prices to persist over the next several months.

Secondly, when Aquila was downgraded below investment grade, a $130 million accounts receivable facility was wound down, Fitch said. This facility was not replaced by a new $80 million receivables facility prior to year-end 2002, as anticipated.

Finally, Aquila has made slower than expected progress in selling of Avon Energy Partners Holding the U.K. operations, and has rejected bids for the sale of these assets as inadequate.

Aquila has until April 12, 2003 to reach an agreement for additional covenant relief with lenders to its $650 million revolving credit facilities. On April 12, an existing waiver of the minimum interest coverage covenant under these facilities will expire, Fitch noted. Aquila previously reported that it expects to remain out of compliance with this covenant through Dec. 31, 2003. If Aquila is unable to negotiate necessary relief, the lenders could declare borrowings immediately due and payable, which would trigger cross-defaults to Aquila's other debt as well as to guaranteed obligations, including certain synthetic leases and the Aquila Canada Finance bank facility.

S&P raises Gerdau Ameristeel outlook

Standard & Poor's raised its outlook on Gerdau Ameristeel Corp. to stable from negative and confirmed its BB corporate credit rating.

S&P said the revision reflects its assessment that the growth strategy and financial policy of the company's parent, Gerdau SA, which has a 67% interest, should not adversely affect Gerdau Ameristeel's financial and business profile.

S&P said it had been concerned about the potential for Gerdau SA to leverage up Gerdau Ameristeel to support its growth in North America.

The ratings on Gerdau Ameristeel reflects the company's fair business position as a producer in the highly competitive, rebar, structural shapes, and merchant bar, rod, flat rolled and fabricated steel markets, S&P added.

Gerdau Ameristeel's debt leverage is aggressive with total debt to total capital at 52% and total debt to EBITDA at 3.4x as of Dec. 31, 2002, S&P noted. EBITDA interest coverage for the calendar year 2002 was 4.5x. For the year ended Dec. 31, 2002, the company on a pro forma basis generated $175 million in EBITDA. However, prices of merchant bar and rebar have been soft due to the sluggish economy and reduced construction activity, while scrap prices have increased, which has decreased the company's metal spread (difference between product prices and scrap costs). Although price increases have been announced, S&P said it is not convinced that they will hold firm given weak end markets.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.