S&P cuts WestPoint, still on watch

Standard & Poor's downgraded WestPoint Stevens Inc. including cutting its $475 million 7.875% senior notes due 2008 and $525 million 7.875% senior notes due 2005 to CC from CCC+ and kept it on CreditWatch with negative implications.

S&P said the actions follow WestPoint Stevens' recent statement that its Form 10-K filing would be further delayed. According to the statement, the delay is due to "continuing negotiations on a new agreement with its lenders under the company's senior credit and second-lien facilities."

The filing also stated that the "company anticipates that if these negotiations were not successful, its auditor would issue a going concern qualification in its audit report." As a result, the company will delay its 10-K filing until the conclusion of the negotiations.

S&P cuts WHX, on developing watch

Standard & Poor's downgraded WHX Corp. including cutting its $300 million 10.5% senior notes due 2005 to CCC from CCC+ and put it on CreditWatch with developing implications.

S&P said the actions reflect the heightened concerns regarding WHX's pending resolution of the Pension Benefit Guaranty Corp.'s attempt to involuntarily terminate WHX's pension plan and the potential negative impact to the company's liquidity should the PBGC prevail.

The PBGC recently announced that it is seeking to involuntary terminate the WHX pension plan because of its concern that WHX's plan could increase significantly if it is not terminated.

WHX's subsidiary, Wheeling-Pittsburgh Corp. filed for bankruptcy Nov. 16, 2000. WPC has continued to operate since that time and recently obtained an approval of a $250 million loan guarantee that would help it to emerge from Chapter 11 bankruptcy protection. The approval of the guaranty is subject to the satisfaction of various conditions including a resolution of the treatment of the WHX pension plan acceptable to the PBGC.

The PBGC estimates that the WHX pension plan has $300 million in assets to cover more than $443 million in benefit liabilities, resulting in a funding shortfall of roughly $143 million. The PBGC also contends that plant shutdown liabilities of the WHX pension plan, if a shutdown were to occur, would exceed $378 million.

WHX is contesting the PBGC's termination plan and disputes the PBGC's calculation of liabilities and shutdown claims, estimating that the actual amount of these liabilities may be substantially less. Furthermore, WHX disputes the PBGC's assumption regarding the likelihood of large-scale shutdowns at WPC.

Should WHX be able to negotiate a lower and more manageable payment plan with the PBGC, and otherwise limit its exposure to Wheeling-Pittsburgh, WHX's ratings could be restored to their former level because WHX's total liquidity (comprising cash, short-term investments, net of related investment borrowings and funds available under bank credit arrangements), totaling $139.3 million at Dec. 31, 2002, could be sufficient in this case to meet its obligations, S&P said.

However, at the extreme, WHX could be forced into bankruptcy if the PBGC were to prevail and Wheeling-Pittsburgh fails to reorganize, as WHX is unlikely to be able to fund Wheeling-Pittsburgh's shutdown liabilities at the value placed on these by the PBGC.

S&P keeps American Airlines on developing watch

Standard & Poor's said on AMR Corp. and subsidiary American Airlines Inc. remain on CreditWatch with developing implications including their corporate credit ratings at CCC.

S&P's comments come after approval by American's flight attendants of a concessionary contract. The April 16 vote reversed a negative outcome of a day earlier and averted immediate threatened bankruptcy filings by AMR and American.

The flight attendants' approval completes a package of $1.8 billion in labor concessions that should materially improve American's operating cost structure, narrowing the airline's losses and operating cash outflow, S&P said.

American, the world's largest airline, continues to face a weak revenue environment and AMR carries a consolidated total of $22 billion of debt and leases, leaving the companies' financial condition improved but still fragile.

The labor savings, when fully implemented, imply daily cash savings of over $5 million, and should become effective fairly quickly, S&P said. American's daily cash losses worsened in March and April from a January 2003 "burn rate" of about $5 million, but should narrow going forward with the normal spring seasonal upturn and as the Iraq war winds down.

S&P said it will review AMR's and American's ratings for a possible modest upgrade in light of the labor savings. Ratings could still be lowered if a significant deterioration in airline industry revenues due to renewed terrorism or other factors endangers the companies' solvency.

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