Moody's raises Sanmina-SCI liquidity rating

Moody's Investors Service upgraded Sanmina-SCI Corp.'s speculative-grade liquidity rating to SGL-1 from SGL-2, affecting $2.5 billion of securities.

Moody's said the upgrade is in response to the company's pro forma $1.5 billion cash balance as of Sept. 28, 2002 and the enhanced visibility that has been afforded into the company's pipeline of new customer programs.

The balance sheet cash, which takes into account the company's December 2002 senior secured tranche B term loan and second lien senior secured notes financing; a higher confidence level regarding anticipated cash flow from operations; and expectations that only a modicum of cash would be required to support new acquisitions contribute to an assessment that there is sufficient liquidity to comfortably finance operations for at least the next 12 to 18 months, Moody's said.

S&P takes actions on Houghton Mifflin

Standard & Poor's downgraded Houghton Mifflin Co.'s corporate credit rating to BB- from BB but upgraded its notes including its $125 million 7% notes due 2006 and $150 million 7.2% notes due 2011 to BB- from B+. The ratings were removed from CreditWatch with developing implications. The outlook is stable.

S&P said the action reflects the Dec. 31 leveraged acquisition of the company for $1.66 billion by Thomas H. Lee Partners LP, Bain Capital Partners LLC and the Blackstone Group.

S&P said it raised the notes because Houghton Mifflin also has pledged collateral that puts them on an equal basis with the credit facility borrowings.

The ratings on Houghton Mifflin reflect the company's strong business position in the educational publishing industry and stable operating performance, offset by financial risk resulting from the leveraged acquisition of the company, S&P said.

The company is the fourth-largest U.S. educational publisher, with long-standing, solid market shares in elementary and secondary school publishing. The industry has significant barriers to entry, as high start-up costs and long lead times are required to develop and market educational programs. The company is well positioned to take advantage of increasing school enrollments and significant adoption opportunities over the intermediate term, S&P noted.

Operating performance and EBITDA margins have been relatively stable due to increased sales to adoption states, where textbook selection and purchasing is done on a statewide basis through long-term contracts and programs ranging from five to eight years, S&P said. The company remains dependent on the K-12 market, which accounts for two-thirds of its EBITDA. The company's college, testing, and trade and reference divisions provide some operating diversity.

The purchase was financed with a $600 million equity contribution and about $1.0 billion in debt. Pro forma EBITDA less amortization of capitalized plate costs divided by interest expense was 2.3x for the 12 months ended Sept. 30, 2002, S&P said. The company has higher leverage and remains smaller than its peers, which could put it at a competitive disadvantage.

S&P cuts Vantico

Standard & Poor's downgraded Vantico Corp. including cutting its corporate credit rating to D from CCC- and kept its €250 million senior unsecured notes due 2010 at C on CreditWatch with negative implications.

S&P said the downgrade follows Vantico's announcement that a SFR25.9 million loan payment due Dec. 31 was deferred to Jan. 28.

S&P said that under its criteria non-payment of any financial obligation on the day it is due - whether interest or a principal payment, rated or unrated - is technically considered a default, even though the deferral has been approved by Vantico's senior banks.

Vantico is currently discussing the restructuring of its balance sheet with all financial stakeholders, S&P noted.

S&P confirms Vivendi

Standard & Poor's confirmed Vivendi Universal SA and removed it from CreditWatch with developing implications. The outlook is stable. Ratings affected include Vivendi's bonds and convertibles at B+, Joseph E. Seagram & Sons Inc.'s senior notes, debentures, bonds, QUIDS and ACES at B+

S&P said the confirmation reflects Vivendi's significantly improved liquidity position following the successful completion of a string of asset disposals and financing agreements, in particular its sale of Houghton Mifflin for $1.28 billion (around €1.3 billion) in cash and $380 million of assumed debt.

Vivendi's ratings and outlook primarily reflect the recent substantial improvement in the company's liquidity and its reduced debt burden.

However, Vivendi's liquidity would again come under strain if none of the major asset disposals it has planned for 2003 materialize, as well as if the full refinancing of U.S. subsidiary Vivendi Universal Entertainment's $1.62 billion credit line maturing mid-2003 proves difficult, S&P cautioned.

Apart from Vivendi Universal Entertainment, the group's existing cash balances and available credit lines should be sufficient to cover debt obligations and other commitments through 2003, without any access to new financing, S&P added.

Nevertheless, the rating agency said it expects Vivendi to actively seek further asset-disposal opportunities in 2003, in order to maintain adequate liquidity, gradually improve cash flow generation at its entertainment divisions, and reduce debt to levels consistent with the group's business profile and ratings.

S&P finalizes new AES debt ratings

Standard & Poor's finalized the preliminary BB ratings on AES Corp.'s new $258 million exchange notes due 2005 and new $1.62 billion credit facility due 2005.

S&P said it considers the default risk of the bank facility and exchange notes as equal to AES' B+ corporate credit rating. The two-notch elevation of the ratings on these instruments reflects S&P's high degree of confidence that the collateral package provides enough value for secured lenders to realize 100% recovery in a default or stress scenario.

S&P raises Avado Brands

Standard & Poor's upgraded Avado Brands Inc. including raising its $125 million 9.75% senior notes due 2006 to CC from D.

S&P said the action follows Avado's payment of interest to holders of the senior notes.

S&P also noted Avado has not remitted its Dec. 15 interest payment on its subordinated notes.

Avado's financial flexibility continues to be limited, S&P said. On Dec. 27 the company executed an amendment to its $75 million credit facility under which its lenders agreed to forbear from exercising their remedies with respect to existing events of default until May 31, 2003. The amendment also revised certain financial covenants and requires the company to reduce its obligations under the facility to zero by May 25, 2003.

Avado needs to obtain sources of capital to meet its cash needs and debt obligations, S&P said. The company only had $309,000 of cash and cash equivalents on the balance sheet as of Sept. 29, 2002.

S&P says Silgan unchanged

Standard & Poor's said Silgan Holdings Inc. rating is unchanged including its corporate credit at BB- with a positive outlook on the announcement that it would acquire the remaining 65% of Amcor White Cap LLC that it does not already own for about $125 million.

Silgan is expected to recognize significant cost savings at the acquired metal closure facilities, which should add to its earnings in 2003 and offset the effect of higher debt levels, S&P said.

Silgan's earnings should also continue to benefit from an increasing shift in product mix towards higher-margin plastic packaging products and improved pricing and value-added features (such as easy-open ends) in metal food containers, S&P added. Moreover, the company is expected to generate adequate free cash flows for either additional growth initiatives or debt reduction.

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