Moody's cuts Lyondell's liquidity rating

Moody's Investors Service lowered Lyondell Chemical Co.'s speculative-grade liquidity rating to SGL-3 from SGL-2.

Moody's said the downgrade is because of concern over the impact of weaker financial performance due to higher energy and raw material costs, as well as concern over the dividend stream from its majority owned joint venture Lyondell-Citgo Refining LP.

However Moody's said it anticipates that Lyondell will maintain a cash balance in excess of $200 million throughout the year despite the run-up in petrochemical feedstock prices.

Lyondell's cash balance will likely fall below $250 million in the first half of 2003, from over $450 million in the third quarter of 2002, primarily due to increased working capital requirements, which directly result from higher petrochemical feedstock and finished goods selling prices, Moody's noted. To a lesser extent a potential reduction in dividends from Lyondell-Citgo and a continuing weak operating environment will also negatively impact the company's earnings and cash balance in the first half of 2003.

In addition, the near-term earnings weakness will likely compel Lyondell to seek an amendment to the financial covenants in its bank agreement before mid-year, Moody's noted.

Moody's confirms Equistar's liquidity rating

Moody's Investors Service confirmed Equistar Chemicals, LP's speculative-grade liquidity rating at SGL-3.

Moody's said the rating reflects the potential for a substantial increase in required working capital and limited free cash flow generation through year-end 2003, because of a substantial increase in oil and gas prices, versus Equistar's modest cash balance and limited access to secured bank credit.

The rating is also tempered by a $300 million debt maturity in February 2004 and the potential for weaker U.S. economic performance in 2003.

Equistar maintains a $450 million revolving credit facility as its primary liquidity for higher working capital requirements in 2003, which directly result from higher petrochemical feedstock costs and finished goods selling prices, the rating agency added.

Moody's expects that higher oil and gas prices combined with uncertainties from a potential conflict in the Middle East will reduce the company's earnings and cash flow in the first half of 2003. In addition, the near-term earnings weakness will likely compel Equistar to seek an amendment to the financial covenants in its bank agreement before mid-year.

Moody's upgrades American Tower's liquidity rating

Moody's Investors Service upgraded American Tower Corp.'s speculative-grade liquidity rating to SGL-3 from SGL-4.

Moody's said the upgrade follows American Tower's successful issuance of $420 million gross proceeds of 12.25% senior subordinated discount notes due 2008, covenant and amortization relief from its secured bank lenders, as well as the achievement of positive free cash flow in the fourth quarter of 2002 and Moody's expectation that this will continue in 2003.

S&P cuts GEO, on watch

Standard & Poor's downgraded GEO Specialty Chemicals, Inc. including cutting its $120 million 10.125% senior subordinated notes due 2008 to CCC+ from B- and $40 million revolving credit facility due 2005 and $95.5 million term B loan due 2007 to B from B+ and put the ratings on CreditWatch with negative implications.

S&P said the action is due to GEO's continued profitability weakness that has elevated near-term liquidity concerns.

Current profitability levels suggest that GEO may soon breach the financial covenants in its bank credit facility, S&P added.

The CreditWatch placement highlights the risk of a another downgrade if GEO is unable to obtain a waiver or an amendment that would preserve access to the facility in the absence of improvement to operating profits, the rating agency said. Access to the credit facility is a key rating consideration in light of the company's low cash balance, persistent operating challenges, and considerable debt service requirements.

The company's lower earnings stem primarily from substantially reduced volumes and profitability in the gallium market, which has not recovered since its fall-off in early 2001, as well as a weak domestic economy, which has negatively pressured results for GEO's other business units, S&P said.

Fitch raises Allied Waste outlook

Fitch Ratings raised its outlook on Allied Waste to stable from negative and confirmed its ratings including its $1.3 billion senior secured credit facility and $2.4 billion tranche A,B and C loans at BB, $3.4 billion senior secured notes at BB-, $2.0 billion senior subordinated notes at B and Browning Ferris Industries' $690 million senior secured notes, debentures and MTNS at BB-.

Fitch said the outlook revision is in response to Allied Waste's steady debt reduction, which has occurred despite a weak operating environment that has impacted margins and operating cash generation.

The company's current level of cash generation provides a sufficient buffer so that even in the event of further weakness in economic conditions, the company should still be in a position to generate positive cash flow and further reduce debt, Fitch noted.

The company also retains supplemental liquidity in the form of unused bank revolving credit facilities, and has demonstrated continued access to external capital. Over the intermediate term, any improvement in the economic conditions should result in margin expansion toward previous levels, and an acceleration of debt reduction.

Allied Waste's EBITDA margin for 2002 slipped below 32% as compared to slightly over 35% in 2000, with EBITDA falling 2% in 2002 to $1.753 billion, Fitch said. Excluding 2001 costs associated with acquisitions and divestitures, 2002 EBITDA fell 9.3%.

Moody's rates Hollinger notes B3

Moody's Investors Service assigned a B3 rating to Hollinger, Inc.'s planned $110 million of senior secured notes due 2011. The outlook is stable.

Moody's said the rating reflects the current and anticipated illiquidity and high leverage of Hollinger on a stand-alone basis, and its complete dependence on various entities for liquidity with which to service its existing and proposed obligations.

The rating is supported, however, by the high likelihood of Hollinger continuing to receive support payments from the other entities and thereby maintaining sufficient liquidity to satisfy its own obligations, as well as the current excess (double) value afforded by the Hollinger International Inc. shares pledged to the proposed notes and the residual equity interest of Hollinger's remaining holdings in Hollinger International more broadly.

Importantly, however, Hollinger has no direct control over the level of future payments under the highly structured support agreement embedded in the proposed transaction, nor can it control the level of future dividend payments received from its investment in Hollinger International, Moody's added.

The proposed notes will be secured by Hollinger's holdings of Hollinger International stock with a value of $220 million at closing. The value of the stock collateral could fall over time and there is no provision for maintaining the initial collateral coverage of 200%.

Accordingly, Moody's considers the debt service of the proposed notes somewhat lacking in both certainty and consistency, while asset protection metrics are subject to the volatility of Hollinger International's stock price.

S&P rates Hexcel notes B

Standard & Poor's assigned a B rating to Hexcel Corp.'s proposed $125 million senior secured notes due 2008 and confirmed its existing ratings including its corporate credit rating at B. The outlook is negative.

Proceeds from the proposed debt offering, in combination with part of the proceeds from the sale of $125 million in preferred stock to certain investors, will be used to refinance and pay down the company's existing secured credit facility. The remaining proceeds from the preferred stock sale will be used to repay the subordinated notes maturing in August 2003. In addition, Hexcel is arranging a new credit facility to meet working capital needs.

The refinancing and preferred stock issuance will alleviate near-term liquidity concerns regarding the return to stricter bank covenants in the first quarter of 2003 and upcoming debt maturities, S&P said. Therefore, the outlook will likely be revised to stable from negative after the transaction closes.

Hexcel's ratings reflect a very weak financial profile, stemming from high debt levels and unprofitable operations, which outweigh the company's substantial positions in competitive industries and generally favorable long-term business fundamentals, S&P said.

The negative outlook reflects that the substantial decline in the commercial aircraft business, which could be prolonged, and a heavy debt burden will challenge management in the intermediate term, S&P added.

S&P cuts AES Drax

Standard & Poor's downgraded AES Drax Energy Ltd. including cutting its $200 million 11.5% bonds due 2010 and £135 million 11.25% bonds due 2010 to D from C.

S&P said the downgrade follows nonpayment of interest due on Feb. 28.

Drax Energy does not have sufficient funds to make the £15 million interest payment, S&P noted.

S&P cuts Newmont Yandal to junk

Standard & Poor's downgraded Newmont Yandal Operations Ltd. to junk, cutting its $300 million 8.875% notes due 2008 to BB- from BBB-. The outlook is negative.

S&P said the downgrade follows Newmont Yandal's disclosure detailing the embedded right-to-break clauses on certain hedged gold contracts and the potential cash settlement risk if these contracts were to be called at current gold prices.

At Dec. 31, 2002, Newmont Yandal reported that about 2.8 million ounces of hedged gold contracts are subject to review clauses that give the hedge counterparties the right to terminate hedge contracts prior to the scheduled maturity date, and potentially requiring an immediate cash settlement for the market value of the contract.

At Dec. 31, 2002, Newmont Yandal's exposure to cash settlements was negative A$364.2 million, covering maturities to August 2005. The settlement amounts are subject to change due to the volatile spot gold price. Furthermore, Yandal could predeliver physical gold into these out-of-the-money hedges, thus reducing its exposure.

Nevertheless, assuming no change to the current price of gold and the company's gold reserve position, Yandal would not be able to pay its 2005 settlement exposures without financial support from its parent.

S&P cuts Cable Satisfaction

Standard & Poor's downgraded Cable Satisfaction International Inc. including cutting its $150 million 12.75% senior notes due 2010 to D from CC.

S&P said the action follows Cable Satisfaction's announcement it will not make the scheduled March 3 interest payment on its $155 million 12.75% senior unsecured notes due 2010.

S&P said it does not expect Cable Satisfaction will make the interest payment within the 30-day grace period to avoid an event of default.

Moody's cuts PolyOne to junk, still on review

Moody's Investors Service downgraded PolyOne Corp.'s senior unsecured debt to Ba3 from Baa3 and kept it on review for possible downgrade.

Moody's said it lowered PolyOne to junk because of concerns over the company's weak financial profile, $90 million of debt maturities in September 2003, pending renegotiation of financial covenants in its credit agreement, the negative impact of higher oil and gas prices on the company's margins and concerns about further weakness in the US industrial economy during 2003.

Furthermore, the downgrade reflects the effective subordination of the senior unsecured notes to outstandings under the $250 million accounts receivable program and a $125 million revolving credit facility, Moody's added. These secured facilities are expected to be a sizable and permanent portion of the company's capital structure going forward.

The continuing review for downgrade is due to the company's need to address near-term debt maturities and obtain covenant relief by the end of the second quarter, Moody's added.

S&P keeps Nash Finch on developing watch

Standard & Poor's said Nash Finch Co. remains on CreditWatch with developing implications including its senior secured bank loan at CCC- and subordinated debt at CC.

S&P's comments follow Nash Finch's announcement that holders of more than 51% of the company's $165 million 8.5% senior subordinated notes due 2008 agreed to waive the previously reported default under the indenture.

While the waiver provides Nash Finch additional time to resolve its accounting issues and file its financial statements, S&P said it remains concerned about Nash Finch's liquidity if the company is not successful in resolving these issues.

Fitch confirms CenterPoint Energy's ratings

Fitch Ratings confirmed CenterPoint Energy Inc. and its subsidiaries CenterPoint Energy Houston Electric LLC and CenterPoint Energy Resources Corp. The outlook remains negative.

The confirmed ratings include: CenterPoint Energy's senior unsecured debt at BBB-, unsecured pollution control bonds at BBB-, trust originated preferred securities at BB+ and zero premium exchange notes at BB+; CenterPoint Energy Houston Electric's first mortgage bonds at BBB+ and $1.3 billion secured term loan at BBB; and, CenterPoint Energy Resources' senior unsecured notes and debentures at BBB and convertible preferred securities at BBB-.

The confirmation follows the company's announcement that it had reached an agreement with its lenders to restructure terms under an existing $3.85 billion credit facility, including extending the maturity to June 30, 2005 from Oct. 10 and eliminating mandatory commitment reductions. In return, the company has agreed to seek SEC authorization to pledge its 81% interest in the capital stock of Texas Genco Holdings Inc. as collateral.

"In analyzing the impact of the new bank agreement and the likely pledge of TGN capital stock to those lenders upon CNP's unsecured bondholders, Fitch believes that the issue of structural subordination is largely offset by the removal of near-term refinancing risk, as well as the fact that the value of the pledged stock represents less than 5% of total consolidated assets. Moreover, unsecured bondholders and bank lenders will continue to share equally in the residual value of both CNP Electric and CNP providing meaningful asset coverage for both secured and unsecured creditors," Fitch explained.

Underlying ratings reflect the weakness in the company's post-restructuring credit profile offset by low business risk and the prospects for de-leveraging by 2005.

The company's negative outlook remains in place since Fitch believes that the company needs to de-leverage and reduce dependency on bank debt, Fitch added.

CenterPoint Energy Resources negative outlook reflects the need to refinance a fully drawn $350 million revolver by March 31. A $350 million bridge loan is available if the company is unable to place capital market bonds.

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