Moody's cuts DPL to junk

Moody's Investors Service downgraded DPL Inc. to junk including cutting its senior unsecured debt to Ba1 from Baa2, Dayton Power and Light Co.'s senior secured debt to Baa1 from A2 and preferred stock to Ba1 from Baa2 and the trust preferred securities issued by DPL Capital Trust II to Ba2 from Baa3. The outlook is stable.

Moody's said the downgrade of parent company DPL's ratings reflects DPL's higher reliance on regulated utility Dayton Power and Light to service parent company debt and dividends; the uncertainty and unpredictability of cash flow being generated from its financial investment portfolio; and the minimal anticipated cash flow contribution from its wholesale merchant generation portfolio over the next several years.

On July 24 the Public Utility Commission of Ohio approved DPL's request to refinance $471 million of utility debt but did not authorize $279 million of first mortgage bonds at the utility to partially refinance a $500 million senior unsecured note due at the parent company in April 2004. As a result, Moody's believes that DPL's financial flexibility has been diminished as it now must refinance this debt at the parent company level.

Moody's noted that approximately 70% of DPL's $2.1 billion consolidated long-term debt is at the parent company, with only 30% at the DP&L utility level. The relatively high proportion of debt at the parent company level, where debt service coverages are considerably lower than at the utility, remains a significant risk factor.

The rating action also incorporates concerns about the reliability of future cash flow from DPL's financial investment portfolio, which consists for the most part of private equity securities, considering the uncertain conditions that have existed in parts of the private equity markets over the last several years, Moody's said. In addition, DPL's wholesale merchant generation expansion strategy has not been as successful as expected because of low power prices and poor wholesale energy market conditions and thus will not generate as much cash flow to service parent company obligations as anticipated for at least the next several years.

S&P says Louisiana-Pacific unchanged

Standard & Poor's said Louisiana-Pacific Corp.'s ratings are unchanged including its corporate credit rating at BB with a stable outlook following the company's announcement of second-quarter earnings.

Higher wood fiber, energy, and resin costs and the negative effect of the stronger Canadian dollar hurt operating results, S&P noted. In addition, losses related to discontinued operations and additions to contingency reserves were only partly offset by gains on timberland sales.

However, a significant rise in oriented strandboard prices beginning toward the end of June and continuing into July bode well for third-quarter results, although prices fluctuate widely and could fall again toward the end of the quarter.

The company is moving toward completion of a major asset sale program with a large timberland transaction expected to close shortly. Also, the company announced that it intends to divest or discontinue operating its lumber and interior hardboard operations, which it estimates could generate an additional $80 million to $90 million.

Net debt has declined significantly to about $400 million as of June 30, 2003, and the company is considering various options for reducing its remaining debt, which essentially consists solely of public debt, S&P noted. The company is also in discussions with its banks regarding the elimination of covenants that prohibit dividends and share repurchases.

S&P cuts Manitowoc

Standard & Poor's downgraded The Manitowoc Co. Inc. including cutting its $125 million revolver, $150 million term B loan due 2006 and $200 million term A loan due 2005 to BB- from BB and $175 million 10.5% senior subordinated notes due 2012 and €175 million senior notes due 2011 to B from B+. The outlook is stable.

S&P said the downgrade follows Manitowoc's weaker-than-expected operating performance due to the prolonged weakness in the crane market, especially in the crawler crane business, and in the marine services operations.

The deterioration in the crane business has resulted from a severe decline in nonresidential construction spending of about 10% in 2003 after a decline of about 16% in 2002, S&P said. The weakness in Manitowoc's crane operations was more pronounced in the heavy-duty/high-capacity crawler crane market. Worldwide, volumes have declined for several years, and this has severely affected earnings in the crawler crane segment.

Furthermore, the marine business performance has been weaker than expected, mainly because of project deferrals and a 44-day strike at its marine operations, which has been settled. These two factors have caused a significant shortfall in marine services earnings. The food-service segment is still performing well.

As a result, credit measures have been weak, with total debt to EBITDA at more than 4.5x at the end of June 2003 and EBITDA interest coverage at slightly more than 2x (credit measures are adjusted for operating leases), S&P said. Operating performance should improve because of several cost-cutting and restructuring initiatives and a gradual improvement in demand. Over time, S&P expects total debt/EBITDA to average about 4x, interest coverage at 2.5-3x, and funds from operations/total debt to average around 15%.

S&P rates Alderwoods loan BB-

Standard & Poor's assigned a BB- rating to Alderwoods Group Inc.'s proposed $325 million senior secured bank facility comprised of a $275 million senior secured term loan due 2008 and a $50 million revolving credit facility due 2008. The outlook is stable.

S&P said the secured bank loan is rated one notch above the corporate credit rating because its review of the collateral package in a distressed default scenario suggests estimated asset values that offer a strong likelihood of full recovery of bank debt in the event of a default.

S&P said Alderwoods' ratings reflect its highly leveraged profile, the uncertain success of the company's implementation of a new business plan and its vulnerability to periods of business weakness.

These factors are mitigated by the relatively favorable long-term predictability of the funeral home and cemetery business.

The company's focus on improving operating performance since its re-emergence from bankruptcy on Jan. 2, 2002, has led it to identify for disposal a number of underperforming or non-strategic assets, S&P noted. Its commitment to strengthen its balance sheet is demonstrated by the company's $77 million reduction in debt in 2003 and $158 million reduction since January 2002, using proceeds from asset sales and free cash flow.

S&P said it expects Alderwoods to remain committed to a financial policy that includes the use of asset sales proceeds and free cash flow for further debt reduction.

Still, S&P added that it does not expect a significant decline in its current high leverage, and lease-adjusted debt to EBITDA should remain near 5x for the next couple of years.

Moody's raises Concentra outlook, rates loan B1, notes B3

Moody's Investors Service assigned a B3 rating to Concentra Operating Corp.'s proposed senior subordinated notes of $150 million due 2010 and a B1 to its proposed $100 million senior secured revolving credit facility due 2008 and proposed $335 million senior secured term loan due 2009. Moody's confirmed Concentra's existing ratings including its bank facilities at B1 and subordinated notes at B3. The outlook was raised to stable from negative.

Moody's said the actions follow Concentra's announcement that it intends to refinance existing debt through the issuance $150 million of new senior subordinated notes due 2010 and a new $335 million term loan due in 2009. Concentra will use proceeds and $30 million of cash on hand to fully repay its existing term loan of $335 million, to repay $135 million of $180 million of senior discount notes at the parent company and to exit certain interest rate hedge agreements totaling $29 million.

Concentra's ratings reflects its position as the leading provider of services to the workers compensation market and a diversifying of services to the group health insurance market, as well as its ability to consistently generate positive operating cash flow, Moody's said.

However, the rating also reflects Concentra's very slim level of free cash flow generation relative to its high debt levels, its relatively weak balance sheet with negative tangible equity, the susceptibility of its results to the economic environment, particularly trends in blue-collar employment and the risks associated with its ongoing strategy of acquiring new health centers and constructing de novo health centers.

The change in rating outlook to stable from negative reflects Concentra's demonstrated ability to internally fund interest payments, capital expenditures, and acquisitions during very challenging economic conditions; several quarters of modestly improving results, helping to alleviate Moody's earlier concerns that the poor economic environment would lead to reduced cash flow generation and weakened credit metrics; and an improvement in liquidity from the refinancing, which will reduce Concentra's cash interest payments and extend many of its debt maturities.

At the close of Concentra's proposed refinancing, Concentra's capital structure will reflect operating company debt of approximately $630 million and parent holding company debt of approximately $107 million, including a $57 million bridge loan due in June 2004. Moody's anticipates pro forma 2003 total debt/EBITDA of approximately 4.5, EBITDA-capex/interest of approximately 1.9 times (which excludes non-cash interest on the holding company discount notes), and free cash flow to total debt of approximately 5-6%.

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