Moody's puts Alamosa on upgrade review

Moody's Investors Service put Alamosa (Delaware), Inc. and its subsidiary Alamosa Holdings, LLC on review for possible upgrade including Alamosa (Delaware)'s $350 million face 12.875% senior discount notes due 2010, $250 million 12.5% senior notes due 2011 and $150 million 13.625% senior notes due 2011 at Caa3 and Alamosa Holdings' $25 million senior secured revolving credit facility maturing 2008 and $200 million senior secured term loan maturing 2008 at B3.

Moody's said the review follows Alamosa's launch of an exchange offer that would, if successful, significantly reduce the company's debt burden.

Moody's recognizes the offer as a distressed exchange, and thus a default on the existing three series of Caa3 rated notes. However, the review also recognizes that a successful exchange, combined with expected amendments to Alamosa's PCS operating agreements with Sprint, will improve the company's financial flexibility.

If accepted by 100% of the existing noteholders, the exchange would reduce the company's debt burden by $240 million. The exchange would also lower Alamosa's interest expense burden by approximately $20 million in 2004 growing to over $40 million when the discount notes turn cash-pay in 2006, Moody's noted. The company also projects saving $15 million annually due to the Sprint amendments.

Moody's added that it remains concerned that the company must still grow cash flow considerably to meet its upcoming bank debt amortization requirements of $22.5 million in 2004 and $45 million in 2005.

Moody's confirms Avon Energy

Moody's Investors Service confirmed Avon Energy Partners Holdings' senior unsecured debt at Caa1 with a negative outlook and also confirmed Aquila Networks' issuer rating at Baa3 and Midlands Electricity plc's guaranteed debt at Ba3 with a developing outlook, concluding a review for upgrade begun on May 22.

The actions are in response to the announcement by Scottish and Southern Energy plc that it was terminating its efforts to acquire Aquila Sterling Ltd., the owner of Avon Energy, which in turn owns Aquila Networks via Midlands Electricity plc.

Moody's confirmation of Avon Energy's Caa1 rating with its negative outlook reflects continuing uncertainties regarding the impact on bondholders at the holding company level of a potential sale of the business or the need in the future to refinance debt at this holding company level if a sale is ultimately not concluded.

In Moody's view, the Baa3 credit profile of Aquila Networks continues to be underpinned by the protection offered by the regulatory ring-fencing provisions of its distribution license combined with its relatively stable cash flows and debt protection measures on a stand-alone basis. The developing rating outlook reflects the continued uncertainty surrounding the group's future ownership and capital structure profile, which Moody's will continue to monitor as the situation evolves.

Fitch confirms Avon Energy

Fitch Ratings confirmed Avon Energy Partners Holding's senior unsecured debt at CC with a negative outlook and Midlands Electricity and Aquila Power Networks' ratings at BBB-. Midlands and Aquila Networks were removed from Rating Watch Evolving and assigned stable outlooks.

Fitch said the action follows the announcement by Scottish and Southern Energy plc of the termination of discussion with Avon Energy Partners Holding's bondholders as a result of their unsuccessful bid.

The confirmation of Avon Energy's ratings is predicated upon the visible open market valuation of the business in the light of SSE's formal offer, representing a shortfall to the value of the debt held in the group (i.e. 86% of subordinated bonds' nominal value), Fitch said. The behavior of Avon Energy's bondholders' shows, on one side, a very determined position in preventing any agreement that might be detrimental to the subordinated debt nominal value and to the advantage of equity holders. On the other side, it shows a high degree of confidence in their ability of gaining control of the company in two years time when the Avon Energy sterling bond dated 2006 becomes due.

Unless an undisclosed second bidder is coming along with a better offer, Fitch believes that Avon Energy's bondholders are highly exposed to the risk that Midlands will not be able to refinance its debt in 2006.

S&P says Interep unchanged

Standard & Poor's said Interep National Radio Sales Inc.'s ratings are unchanged including its corporate credit at CCC+ with a negative outlook following the announcement that the company has closed on a $10 million senior secured revolving credit facility with Commerce Bank.

Borrowings will be used to repay Interep's existing $10 million senior secured loan.

The company's new senior secured agreement contains less restrictive covenants and somewhat lowers borrowing costs.

However, Interep's liquidity is still very thin and revenue visibility remains limited, S&P said. In addition, Interep's operating results are weak and its ability to reach breakeven discretionary cash flow is uncertain.

S&P puts Phibro on developing watch

Standard & Poor's put Phibro Animal Health Corp. on CreditWatch developing including its $100 million 9.875% senior subordinated notes due 2008 at CCC- and assigned a B- rating to its planned $105 million in senior secured notes.

The watch placement is in response to the note issuance plan. The proceeds will be used to repay looming maturities, including existing bank debt, an obligation to Pfizer Inc., and existing senior subordinated notes.

If the proposed deal is completed, the corporate credit rating on Phibro would be raised to B- from CCC+, S&P said.

Should Phibro fail to complete the offering, the corporate credit rating would be lowered to CCC- from CCC+ and the senior subordinated debt rating would fall to CC from CCC-. The CreditWatch listing would be changed to negative, given that the company does not have sufficient cash to repay upcoming near-term debt maturities as they come due.

S&P cuts Anvil Knitwear

Standard & Poor's downgraded Anvil Knitwear Inc. including cutting its $130 million 10.875% senior notes due 2007 to CCC+ from B-. The outlook is negative. The preferred stock remains at D.

S&P said the rating actions reflect Anvil's continued weak operating performance and S&P's expectation for materially weaker credit protection measures. The decline in profitability is due to higher yarn prices, lower selling prices for basic T-shirts, a shift in product mix toward lower margin goods, and higher costs related to the consolidation of Anvil's textile operations.

S&P said it is concerned that Anvil's financial performance will continue to be pressured by challenging business conditions in the intermediate term. Moreover, the timing of any recovery in credit protection measures is uncertain.

The rating actions also take into consideration S&P's concerns about the company's ability to refinance its credit facilities maturing in March 2004. Despite the automatic renewal provision of the existing credit agreement, S&P believes that continued deterioration in operating performance could hurt the company's ability to either renew or refinance its credit facilities.

Lease-adjusted EBITDA coverage of interest was about 1.5x and lease-adjusted total debt to EBITDA was about 5.7x for the 12 months ended Aug. 2, 2003. S&P said it believes Anvil will be challenged to maintain credit protection measures at these levels given current industry conditions.

Moody's cuts Crown Central

Moody's Investors Service downgraded Crown Central Petroleum Corp. including cutting its $125 million 10.875% senior unsecured notes due 2005 to Caa3 from Caa1. The outlook remains negative.

Moody's said the downgrade reflects Crown's continued weak financial performance, highlighted by recurring consolidated operating losses despite mid-cycle conditions for the first half of 2003; the overall decline in the value of Crown's assets relative to debt; already tight liquidity and limited capital resources burdened by heavy working capital needs, especially during high commodity prices; heavy Tier II capital spending requirements; high leverage; and significant pension liabilities.

The ratings benefit from the support from Rosemore, a privately held company owned by the family of Henry Rosenberg which owns 100%; and the diversity of earnings from Crown's retail network.

Though having been aided by some asset sales, liquidity is still very tight during periods of the working capital cycle. The company has a $125 million secured revolver in place, but is limited to $50 million of cash borrowings by the note indenture. During the crude purchase period, the company tends to draw down almost the entire $50 million allowed under the revolver and utilize borrowings from the parent in the form of unsecured, uncommitted facilities. Given the recurring operating losses and the inherent volatility of cash flows, Moody's believe the availability of the revolver could be critical for Crown to meet the next six months of interest expense (approximately $9 million), including the $7 million bond coupon in February, $1 million per month of planned capital expenditures, and working capital needs which continue to be high given commodity prices.

Further, the revolver matures in January 2004, a couple of weeks before the next bond coupon due date. Though the facility was previously extended in June 2003 to January 2004, Moody's believes another extension will likely depend on significant progress of asset sales by that time. Crown's ratings would be pressured if the facility is not extended or if asset sales have not materially progressed.

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