S&P cuts J.L. French, on watch

Standard & Poor's downgraded J.L. French Automotive Castings and kept it on CreditWatch with negative implications. Ratings lowered include J.L. French's $105 million term A loan due 2005, $190 million term B loan due 2006 and $75 million revolving credit facility due 2005, cut to CCC+ from B, and $175 million 11.5% senior subordinated notes due 2009, cut to D from CCC+.

S&P said the action follows J.L. French's failure to make its Dec. 2 interest payment on its 11.5% subordinated notes.

J.L. French has until Dec. 31 to cure the default but S&P said that there is a high likelihood that without an equity infusion or refinancing of its debt obligations the company will be unable to cure this default.

J.L. French is currently in negotiations to obtain $185 million in new financing, which would be used to repay a portion of existing bank debt, reduce the company's debt amortization payments through 2006, and provide the company with a modest increase in liquidity, S&P said. However, negotiations have been challenging and the timing of completing a refinancing is uncertain.

In the near term, J.L. French faces a $13 million bank debt amortization payment on Dec. 31, 2002. Furthermore, the company has approximately $81 million in debt amortization payments due in 2003, S&P noted.

J.L. French is aggressively leveraged, with total debt to EBITDA of about 5.2 times as of Sept. 30, 2002, and has about $6 million in cash.

S&P cuts Buhrmann, still on watch

Standard & Poor's downgraded Buhrmann NV and kept it on CreditWatch with negative implications. Ratings lowered include Buhrmann's $2.25 billion bank loan due 2007, cut to B+ from BB-, and $350 million subordinated notes due 2009, cut to B- from B.

S&P said it took the action because Buhrmann's headroom under its senior bank debt covenants remains very limited due to a declining operating performance and poor visibility for 2003 despite a renegotiation of the covenants announced on Dec. 3.

In addition, S&P said it believes that maintaining profitability in 2003 will prove challenging even though the company announced a new restructuring plan.

This is due to a difficult trading environment in the U.S., which is the group's primary market. The group's EBITDA, calculated on a last-12-months basis, has been sequentially declining since year-end

2000 - to €491 million ($492 million) in the 12 months to Sept 30, 2002, from €659 million in financial 2000 - reflecting the need for Buhrmann to reduce its fixed-cost base, S&P said.

Moody's raises Corrections Corp. outlook

Moody's Investors Service raised its outlook on Corrections Corp. of America to positive from stable and confirmed its ratings, affecting $1.1 billion of debt including its senior secured debt at B1, senior unsecured debt at B2 and preferred stock at Caa1.

Moody's said it revised Corrections Corp.'s outlook because of the company's improving financial profile including its proven ability to maintain its leadership position in the correctional property development, ownership and management businesses, its continued improvement in operating results, and the strengthening of its financial profile.

In addition, Corrections Corp. was recently awarded two big contracts for 1,500 prisoners each at its McRae and Whiteville facilities. CCA also obtained a definitive settlement of its IRS audit for its 1997 tax year. These events provide CCA with more certainty of its greater earnings and growth potential, while eliminating a significant liability contingency, Moody's said.

An upgrade for Corrections Corp. would be contingent upon its ability to continue to improve occupancy rates and, in turn, operations, while at the same time improving its credit statistics, Moody's said. The rating agency added that it expects Corrections Corp. to be successful in improving these measures, which should allow it to unencumber assets. This could be a catalyst for further improvements in the ratings.

Moody's upgrades American Color Graphics notes

Moody's Investors Service upgraded American Color Graphics, Inc.'s $185 million 12.75% senior subordinated notes due 2005 to B3 from Caa1 and confirmed its other ratings, including its senior implied rating at B2 and senior unsecured issuer rating at B3. The outlook is stable.

Moody's said the action reflects its updated assessment of American Color Graphics' run-rate financials and recognizes the relative consistency of the company's EBIT margins and return on assets despite the challenges of the economic downturn.

Restructuring-related cost overruns, which are negatively affecting EBIT during fiscal 2003, constrain the ratings. However, the company continues to perform in line with Moody's expectations, and the ratings incorporate American Color Graphics' high financial leverage and modest free cash flow relative to total debt, Moody's said.

The rating agency added that it has some concern about the depressed year-to-date fiscal 2003 performance of the company's Premedia Services, which contributed only 14% of consolidated EBIT, down from 20% the prior period.

In light of the current negotiations with its bank syndicate regarding the likely minimum EBITDA breach and potential waiver or elimination of that covenant, liquidity is constrained in Moody's opinion.

S&P rates Ball loan BB+, notes BB

Standard & Poor's assigned a BB+ rating to Ball Corp.'s new $350 million term loan B due 2009, $465 million multicurrency revolving credit facility due 2007, C$35 million revolving credit facility due 2007, €250 million term loan A due 2007 and €300 million term loan B due 2009 and a BB rating to its proposed $200 million senior unsecured notes due 2012.

S&P said Ball's ratings reflect its solid market positions and stable cash flow generation, offset by its aggressive financial management. Ball is the largest aluminum beverage can producer in North America, with an estimated 33% market share, and a leading producer of metal food cans and PET beverage containers. A profitable aerospace business generates about 11% of revenues.

Schmalbach-Lubeca AG, which Ball will acquire with proceeds from the new debt, is the second-largest beverage can producer in Europe with about 31% share, revenues of $1 billion, and EBITDA of about $198 million for the 12 months ended Sept. 30, 2002. On a combined basis, Ball's pro forma revenues and EBITDA were $4.8 billion and $628 million for the 12 months ended Sept. 30, 2002.

Following completion of the acquisition, Ball will become the largest global beverage can producer with leading shares in the two largest can markets - North America and Europe. The acquisition will also improve its geographic diversity and modestly reduce its high customer concentration.

Ball should also benefit from better growth prospects, as the European market is still growing in the mid-single-digit percent area, unlike the mature North American market, S&P said.

Still, competition is intense, stemming from large global rivals and inter-material substitution. Although management has a good track record of buying and integrating businesses, the Schmalbach-Lubeca acquisition will be challenging both in its scope and because it will be the company's first foray into Europe, S&P said. In order to counter potential difficulties, Ball plans to retain Schmalbach-Lubeca's experienced management team.

S&P said it expects that following the acquisition Ball will focus on enhancing its free cash flows and reduce its high debt levels and restore its credit ratios to more appropriate levels - funds from operations to total debt (adjusted to include receivables sales and capitalized operating leases) to the mid-20% and debt to capital to the mid-60% area.

Moody's rates Sanmina notes Ba2, loan Ba1 cuts convertibles

Moody's Investors Service assigned a Ba2 rating to Sanmina-SCI Corp.'s planned $450 million guaranteed senior secured notes due 2009 and a Ba1 rating to its planned $250 million guaranteed senior secured tranche B term loan due 2007 and downgraded its convertibles to B1 from Ba3. The outlook remains negative.

Moody's said it lowered the convertibles because of the encumbrance of the collateral, consisting largely of all company and domestic subsidiary assets located in the United States, other than the company's office campus and certain property to be acquired in the future, by the senior secured debt obligations. In addition, the guarantees pledged to the senior secured debt by the domestic subsidiaries further subrogate the position of the convertible subordinated issues, which have been structurally subordinated in the company's legal organization, both at the Sanmina-SCI parent level and the SCI Systems, Inc. subsidiary level.

Moody's said the ratings and negative outlook reflect its concerns over Sanmina's high 5.8 times debt to last 12 month EBITDA ratio while the protracted downturn in its customers' computing and telecommunications end markets exhibits no clear indication of imminent recovery.

Pro forma last 12 month EBITDA would have provided satisfactory 3.3 times coverage of pro forma interest requirements.

The risks are mitigated by Sanmina-SCI's very good liquidity and encouraging prospects for new OEM product platform awards stemming from the company's focus on providing services utilizing advanced technologies, as well as the superb systems build capabilities honed over several decades by the original SCI Systems side of the business, Moody's added.

The ratings, which were downgraded as recently as Oct. 7, 2002, could be lowered further if quarterly revenues decline significantly from the current run rate, and the company is unable to maintain operating profitability, Moody's warned.

Moody's puts Interface on review

Moody's Investors Service put Interface, Inc. on review for possible downgrade including its $150 million 7.3% guaranteed senior unsecured notes due 2008 and $175 million 10.375% guaranteed senior unsecured notes due 2010 at B2 and $125 million 9.5% guaranteed senior subordinated notes due 2005 at B3.

Moody's said it began the review because of the continued negative impact on operating margins from lower sales and related under-absorption of fixed manufacturing costs as well as weakened interest protection measures.

The review will focus on the expected outcome of the company's rationalization plans as well as prospects for improved cash generation and credit protection measures, Moody's added.

S&P puts Solutia loan on positive watch

Standard & Poor's put Solutia Inc.'s $600 million credit agreement due 2004 on CreditWatch with positive implications. The loan is rated BB. Other ratings were confirmed including its senior secured notes and senior unsecured debt at BB-.

The affirmation followed Solutia's announcement that it has signed a definitive agreement to sell its resins, additives and adhesives businesses to UCB SA for $500 million, S&P said.

The proposed transaction will strengthen the company's balance sheet and liquidity, although the business profile will reflect a loss of diversity and a greater dependence on the commodity nylon business, which has yet to significantly recover from difficult market conditions, S&P noted.

Despite the anticipated debt reduction, credit protection measures will remain sub-par for the ratings and leverage will remain elevated. Pro forma for the transaction, debt to EBITDA will approximate 4.5x.

The CreditWatch placement reflected the possibility that the ratings on the bank loan could be raised if a meaningful amount of bank debt is repaid, thereby improving lenders' prospects for a full recovery in a default scenario, S&P said.

Moody's confirms Vivendi, outlook negative

Moody's Investors Service confirmed Vivendi Universal's senior debt at B1. The outlook is negative. Houghton Mifflin's Ba3 senior unsecured rating remains under review for downgraded pending clarification of its capital structure following its sale to a group of financial investors.

Moody's said the confirmation recognizes the significant progress Vivendi Universal has made in addressing its most imminent liquidity issues by finalizing new bank financings at the Vivendi Universal level and at its Vivendi Universal Entertainment subsidiary as well as locking in key disposals such as that of Houghton Mifflin and Vivendi Universal Publishing.

Moody's also acknowledged that funding for Vivendi Universal's pre-emption of British Telecom's 26% stake in Cegetel SA, which cements Vivendi Universal's ownership of an attractive asset with strong growth characteristics, has a significant equity component and that the company is vigorously pursuing its ongoing disposal program designed to cover substantial debt maturities over the next 18 months.

However, Moody's said the negative outlook reflects its view that the company remains fully dependent on the timely disposal of a number of small to medium-sized asset sales to meet its debt repayment obligations in the second half of 2003 and beyond and that significant execution risk remains.

S&P cuts Microcell

Standard & Poor's downgraded Microcell Telecommunications Inc. including cutting its $418 million 14% senior unsecured discount notes due 2006 to D from C.

S&P said the action follows Microcell's failure to make a scheduled interest payment on its 2006 bonds.

Microcell technically has a 30-day grace period to make this interest payment, S&P said. But since the company is in discussions with a steering committee of its secured bank lenders and its unsecured high-yield note holders, it is highly unlikely that the payment will be made.

Fitch cuts Drax

Fitch Ratings downgraded AES Drax Holdings Ltd.'s senior secured bonds to CC from CCC, Inpower Ltd.'s senior secured bank loan to C from CCC and AES Drax Energy Ltd.'s senior notes to C from CC. All ratings remain on Rating Watch Negative.

Under the standstill agreement, principal, but not interest, payable to the senior lenders under the £905 million facility and due Dec. 31, 2002 will be deferred.

According to Fitch's rating methodology, the deferment of principal on the bank loan amounts to a change in payment terms and as such is considered an event of default. Inpower's senior secured bank loan rating at the C level reflects the fact that the payment of the principal is not due until Dec. 31 at which time the rating would be downgraded to DD reflecting Fitch's expectation of recovery in the range 50% to 90% .

The downgrade to Drax Energy's senior notes takes account of the increasing likelihood that interest payment on this class of debt will not be met when due on Feb. 28, 2003 and the anticipated lower recovery level in an insolvency scenario as a consequence of their structural subordination.

S&P cuts AmeriKing

Standard & Poor's downgraded AmeriKing Inc. including cutting its $30 million senior exchangeable preferred stock due 2008 to D from C and National Restaurant Enterprises Holdings Inc.'s $50 million 13% senior PIK notes due 2008 to D from C.

S&P said the action follows AmeriKing's Chapter 11 filing.

The company has been operating with very limited liquidity for the past two and a half years as a result of its poor operating performance, S&P noted. The company's operating difficulties are in part due to the weakening competitive position of the Burger King chain.

S&P confirms AMI Semiconductor

Standard & Poor's confirmed AMI Semiconductor Inc., removed it from CreditWatch with negative implications and assigned a negative outlook. Ratings affected include AMI's $175 million term loan due 2006 and $75 million revolving credit facility due 2006, both rated BB-.

S&P said the confirmation reflects its expectation that AMI will maintain adequate profitability and cash flow measures, despite near-term industry concerns and the likelihood that a recent acquisition will eventually be re-financed with debt.

In April 2002, AMI acquired Alcatel S.A.'s mixed-signal ASIC business from STMicroelectronics NV. The acquisition is expected to enhance AMI's mixed-signal process technology and market position, and increase sales of mixed-signal ASIC's to more than 50% of total sales. AMI's mixed-signal business experienced stable sales performance in the semiconductor downturn relative to the company's more-volatile digital and foundry businesses. AMI is likely to issue debt in 2003 to refinance approximately $77 million in preferred shares, provided by its main equity sponsor to buy MSB, raising total debt to about $250 million.

Operating profitability at the mixed-signal ASIC business in the 12 months ended June 2002 fell to around 11% from 20% the year earlier, following a decrease in orders from its largest customer, Alcatel, and other communications customers. S&P said it expects AMI to improve profitability at its new MSB unit through headcount reductions, improved manufacturing, and materials efficiencies, and a migration of test activities to AMI's lower-cost facility in the Philippines.

Total debt-to-EBITDA is expected to be 2.7 times and EBTIDA interest coverage is expected to be 4x in 2002, S&P said. Total debt-to-EBITDA requirements in existing bank covenants begin to step down to 2.25-x in the March 2003 quarter, and below 2.25-x afterward. Should semiconductor market conditions remain depressed in 2003, covenants could be tight, although cash balances could repay some term debt to meet covenant requirements. If the refinancing occurs, total debt-to-EBITDA could rise above 3x temporarily, and covenants are likely to be renegotiated.

S&P raises Gruma outlook

Standard & Poor's revised its outlook on Gruma SA de CV to positive from stable and confirmed its ratings including its corporate credit at BB.

S&P said the revision reflects Gruma's continued improvement in its financial profile derived from higher sales in its U.S. operation, improved cost structure and lower debt levels.

During 2002, the company continued to benefit from higher sales in its U.S. operation, good growth opportunities in this market as a result of the increasing demand and acceptance of Mexican food, and better cost controls and improved productivity, S&P said. These factors have resulted in an improvement of the company's profitability and have offset the lower level of sales in its Mexican operation, which is still affected by the lower conversion to corn flour, as the low price of corn results in higher competition from the traditional method, and limits the company's ability to increase volume and sales in this market.

Throughout 2002 sales have not increased, nevertheless Gruma's management has proven its commitment to focus on profitability, S&P noted. The company's EBITDA margins have increased to 12% for the last 12 months as of September 2002, from 10% as of September 2001, as a result of lower costs and higher prices in its U.S. operations.

During 2002 the company also cut debt $68 million and expects to reduce it $50 million more during 2003, S&P added. The lower debt coupled with the increase in cash flow has allowed for an increase in the company's credit protection measures.

EBITDA interest coverage and total debt to EBITDA improved to 4.1 times and 2.9x, respectively, for the last 12 months as of September 2002, from 2.6x and 3.8x, respectively, as of September 2001.

Moody's cuts Trenwick

Moody's Investors Service downgraded Trenwick Group Ltd. including cutting Trenwick America Corp.'s senior unsecured debt to Caa3 from B3, Trenwick Capital Trust I's trust preferred stock to Ca from Caa1 and LaSalle Re Holding Ltd.'s preferred stock to Ca from Caa2. The outlook is stable.

Moody's said the action follows Trenwick's announcement it is suspending dividends on its preferred stock and trust preferred securities.

Moody's also cited continued concerns over the company's liquidity profile, the upcoming April 2003 debt maturity date and uncertainty surrounding Trenwick's future business prospects.

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