Moody's lowers DR Horton outlook, raises Schuler

Moody's Investors Service lowered its outlook on D.R. Horton, Inc. to negative from stable and confirmed the company's ratings. It also upgraded Schuler Homes, Inc. and removed both companies from its watchlist. Ratings affected include Horton's senior notes at Ba1, senior subordinated notes at Ba2 and convertible zero coupon senior notes at Ba1 and Schuler's senior notes, raised to Ba1 from Ba3 and its senior subordinated notes, raised to Ba2 from B2.

The action follows the closing of Horton's acquisition of Schuler.

Moody's said it lowered the outlook on Horton because of its "aggressive use of debt leverage despite previous indications that capital structure discipline would be maintained."

The rating agency said that Horton has an "enviable" operating performance with 97 consecutive quarters of year-on-year earnings growth. But it said the company also has one of the homebuilding industry's more aggressively leveraged balance sheets. Among its Ba2 to Baa2 rated peers, Horton is consistently the most heavily leveraged but not the most profitable as measured by return on assets and return on equity.

On Sept. 30, 2001, it had total homebuilding debt to capitalization ratio of 57.5% and a total debt to EBITDA coverage figure for the year of 3.1 times, both the highest in its peer group, Moody's said.

Horton's projections of a total debt to capitalization ratio of 52.7% for fiscal year-end 2002 and 47.5% for fiscal year-end 2003 assume a change to a strategy of more fiscal moderation "that would be unusual for the company," Moody's said.

Moody's added that it expects the integration of Schuler - which itself acquired Western Pacific Housing less than a year ago - to be manageable but warned any misstep could lead to a downgrade.

Fitch says AES Latin American operations perform normally

Fitch Ratings said that despite investor's concerns about AES' exposure to Latin America its subsidiaries there continue to operate normally and have not been affected by the credit pressures on AES. Fitch recently downgraded AES to BB from BB+ on concerns about high parent debt leverage and tight liquidity position along with its concentrated exposure to Latin America and the volatility inherent in these markets.

Companies examined by Fitch were:

--Electricidad de Caracas in Venezuela, which has solid credit-protection measures and is cutting expenses and capital expenditure, but will need tariff adjustment or other compensation to avoid pressure on credit quality;

--Eletropaulo and Tiete in Brazil, which Fitch sees benefiting from an end to rationing and the government's resolution to restore lost revenue related to the rationing program;

--Gener in Chile, which is supported by a strong position in the country's electricity market, its portfolio of thermal generating plants, its strategy of focusing on core electricity generation in Chile, conservative financial policies and experienced management;

--For Argentina, Fitch warned AES should not need to contribute additional funds but also should not expect dividend flows;

--AES Panama has strong project economics and financial position but faces exposure to hydrological conditions, commodity price risks, a relatively new and untested regulatory framework and competitive pressures for new supply contracts.

--AES Clesa in El Salvador is supported by an operating environment similar to the other Latin American countries in which AES operates and a constructive regulatory framework that provides for regulated tariffs for distributors.

Fitch expects more Argentinean defaults

Fitch Ratings said it expects more Argentinean corporations to default on their debt, saying the current operating environment is unsustainable for many Argentine public service companies - suppliers of electricity, water and natural gas - without some form of financial relief.

The timetable for negotiating concession contracts will not lead to an improved situation anytime soon, likely causing additional defaults, Fitch said.

In addition, a windfall tax designed to collect $2 billion from corporations with strong earnings during the last few years will not provide the level of social assistance required nor help the country's acute liquidity shortage and fiscal problems, Fitch said.

At the same time, the rating agency does not believe the corporate sector can viably absorb the potential new taxes given the already precarious financial position of many of the companies.

Defaults are also likely from continuing problems servicing dollar-denominated debt after the peso devaluation, Fitch added. It sees most power companies restructuring their debt, especially as the government's policies are likely to deter support from multinational parents.

Fitch acts on EETCs

Fitch Ratings took various actions on enhanced equipment trust certificates, downgrading some and confirming others.

The actions come close to completing a review begun in response to the Sept. 11 terrorist attacks when Fitch put all EETCs on Rating Watch Negative.

Fitch said its analysis looked at both the underlying airline and the aircraft financed in the transaction.

Some airlines have been downgraded since Sept. 11 and there has also been an unprecedented decline in aircraft values, Fitch noted.

Ratings downgraded are:

--American Trans Air, 1996-1 class A to A from A+, class B to BBB- from BBB+, class C to BB+ from BBB-;

--Aircraft Indebtedness Repackaging Trust 98-2 class A to BBB+ from AA-, class B to BB from A-, class C to BB from BBB;

--Aircraft Indebtedness Repackaging Trust 98-1 class A to BBB+ from AA-, class B to BB from A-, class C to BB from BBB;

--Aircraft Indebtedness Repackaging Trust 97-1 class A to BBB- from A+, class B to B+ from BBB+, class C to B- from BBB-;

--Continental Feats class B to BB from BB+;

--Northwest Airlines, 1996-1 class A to A- from AA-, class B to BBB- from A-, class C to BB from BBB-, class D to BB- from BB;

--NWA Trust #1 class B to BBB- from BBB.

Ratings confirmed are:

--Regional Jet Equipment Trust class A at AA+, class B at AA;

--Continental Feats class A at A+;

--Northwest Airlines E-EETC, 2001-2 class A at AA-, class B at BBB;

--NWA Trust #1 class A at A;

--NWA Trust #2 class A at A+, class B at BBB+, class C at BBB, class D at BB-;

Ratings that remain on Rating Watch Negative are:

--Atlas Air 2000-1 class A at AA-, class B at A-, class C at BBB-;

--Atlas Air 1999-1 class A-1 at AA-, class A-2 at AA-, class B at A-, class C at BBB-;

--Atlas Air 1998-1 class A at AA-, class B at A-, class C at BBB-.

S&P upgrades MDC

Standard & Poor's upgraded MDC Holdings Inc. including raising its $175 million lion 8.375% senior notes due 2008 to BB+ from BB. The outlook was revised to stable from positive.

S&P said it raised MDC because of the company's solid overall financial profile, including strong cash flow protection measures and modest leverage.

"The company's manageable inventory levels, healthy gross, and operating margins are offset by a geographic concentration in potentially weakening markets, including Colorado and California," S&P added.

S&P noted that improved market positions and management's emphasis on controlling costs during the recently strong housing cycle have helped boost gross and operating margins to above 20% and 10%, respectively.

MDC's financial profile has strengthened considerably over the past five years, S&P said, adding that it has consistently improved debt protection measures and lowered leverage while profitably expanding sales.

Moody's puts General Growth on downgrade review

Moody's Investors Service put the ratings of General Growth Properties, Inc. under review for possible downgrade, affecting $330 million lion of securities including its cumulative preferred equity redeemable stock at Ba3.

Moody's said its action follows General Growth's announcement it will acquire JP Realty (senior debt at Baa2) for approximately $1.1 billion of cash and debt assumption.

If a downgrade occurs, Moody's said it will most likely be a single notch.

The review will examine the increasingly competitive retail mall business and the resulting pressure for the REIT to aggressively pursue acquisitions, Moody's said. It will also look at the extent to which the company's growth and financing plans will affect its capacity to maintain sufficient cash flow and debt protection measures during 2002 and beyond.

Moody's added that it sees General Growth's acquisition of JP Realty as an enhancement to its earnings stream and diversity.

S&P puts Corrections Corp. on positive watch

Standard & Poor's put Corrections Corp. of America on CreditWatch with positive implications. The company previously had a positive outlook.

Ratings affected include Corrections Corp.'s $269.4 million term loan due 2002, $250 million term loan due 2002 and $350 million term bank loan due 2002, all at B, and $100 million 12% senior notes due 2006, rated CCC+.

S&P downgrades Packaged Ice

Standard & Poor's downgraded Packaged Ice Inc. and lowered the outlook to negative from stable. Ratings affected include Packaged Ice's $270 million 9.75% notes due 2005, cut to B- from B.

S&P takes General Binding off watch

Standard & Poor's removed General Binding Corp. from CreditWatch with negative implications and confirmed the company's ratings. The outlook is negative.

Ratings affected include General Binding's $150 million 9.375% senior subordinated notes due 2008, rated B-, and its $290 revolving credit facility due 2002, rated B+.

S&P upgrades Ryland

Standard & Poor's upgraded The Ryland Group Inc.

Ratings affected include Ryland's $100 million 8¼% senior subordinated notes due 2008 and $150 million 9.125% senior subordinated notes due 2011, raised to BB- from B+, and its $150 million 9.75% senior unsecured notes due 2010 and $100 million 8% senior unsecured notes due 2006, raised to BB+ from BB.

S&P cuts Gaylord Container

Standard & Poor's downgraded Gaylord Container Corp., cutting its $225 million 9.75% senior subordinated notes due 2007 and $200 million 9.375% senior notes due 2007 to D from CC.

S&P rates new Joy Global notes B+

Standard & Poor's assigned a B+ rating to Joy Global Inc.'s upcoming offering of $200 million senior subordinated notes due 2012.

S&P downgrades HCC

Standard & Poor's downgraded HCC Industries Inc., including cutting its $80 million 10.75% senior notes due 2007 to CC from CCC. The outlook was lowered to negative from positive.

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