S&P raises Comstock outlook

Standard & Poor's raised its outlook on Comstock Resources Inc. to stable from negative and confirmed its ratings including its senior unsecured debt at B-.

S&P said the outlook revision reflects Comstock's improved liquidity, debt reduction, and likely continued debt repayment during the remainder of 2003. A total of $15 million in bank debt was repaid during first-quarter 2003, with roughly an additional $30 million expected to be repaid during the remainder of 2003.

The ratings for Comstock reflect challenges the company faces as an independent E&P company with a small, concentrated reserve base (614 billion cubic feet equivalent as of year-end 2002; 80% natural gas; 66% proved developed) and high debt leverage, S&P said. These risks are partially offset by competitive finding costs and substantial operating leverage to North American natural gas, a commodity with attractive medium-term supply and demand fundamentals.

EBITDA and expenses (EBITDAX) interest coverage is expected to be above 5x for 2003 because of strong expected commodity prices, especially natural gas, S&P said. If natural gas prices remain strong through 2004, coverage could approach 6x. The 2003 capital expenditure budget of $100 million (exploration and development) should be funded through internal cash flows and allow for some repayment of bank debt. Debt leverage is expected to decline to the mid-50% range during 2003, with further reductions dependent on the strength of hydrocarbon pricing. These solid statistics, however, are not indicative of potential results during times of nonrobust pricing, especially given Comstock's policy of not hedging.

Moody's rates MSW Energy notes Ba1

Moody's Investors Service assigned a Ba1 rating to MSW Energy Holdings LLC's and MSW Energy Finance Co., Inc.'s new $200 million senior secured notes due 2010. The outlook is stable.

Moody's said the rating reflects the deep structural subordination of the notes to approximately $1.3 billion of debt at the subsidiary waste-to-energy projects and at the intermediate holding company, American Ref-Fuel LLC and that distributions to MSW Energy Holdings require the maintenance of a backward and forward looking rolling four-quarter debt service coverage ratio of 1.75x at American Ref-Fuel, which could trap cash at the American Ref-Fuel level if the financial performance of the projects deteriorates.

Positively, the ratings reflect relatively stable cash flows generated by the underlying waste-to-energy projects and that all of the underlying waste-to-energy projects are located in the attractive Northeast region of the country, which is characterized by dense population and limited waste disposal alternatives.

Moody's said MSW Energy Holdings exhibits acceptable coverage ratios, despite high consolidated leverage, with debt service coverage on the notes increasing from a low of 2.27x in 2003 and averaging 2.92x under base case projections.

Moody's noted that in 2002, American Ref-Fuel derived approximately 62% of its revenue from the waste side of its business, for the most part from long-term contracts with a diverse group of municipalities. The remaining 38% of revenue is derived from power sales, most of which are under long-term contracts.

Moody's cuts DVI, still on review

Moody's Investors Service DVI's senior unsecured debt rating to B3 from B2 and left the rating on review for possible further downgrade.

Moody's said the action is a result of growing concern about the company's financial flexibility, which was recently exacerbated by its independent auditor's resignation.

DVI is a healthcare finance company. Like all finance companies it has constant funding needs and its funding is highly confidence sensitive. During its rating review, Moody's will focus on the company's ability to renew its maturing lines of credit and its ability to garner the confidence of asset-backed market participants.

In Moody's view it is imperative for the company to do this in order to maintain its business model. Similarly, Moody's will review DVI's plans to refinance its maturing unsecured debt that comes due in February 2004.

Fitch puts DVI on watch

Fitch Ratings put DVI, Inc.'s B+ senior unsecured debt rating on Rating Watch Negative.

Fitch said that since 2002 it has been concerned about DVI's ability to successfully refinance its $155 million of senior unsecured debt due in February 2004. This, coupled with DVI's weak operating results and increased managed leverage, was the basis for the Negative Rating Outlook.

A series of events over the last week has further increased Fitch's concern regarding the successful refinancing of the unsecured debt. On June 4, DVI announced that its long-time auditor, Deloitte and Touche LLP had resigned. The resignation stems from a disagreement between DVI and Deloitte over the placement of a paragraph in the company's March 31, 2003 10-Q filing indicating that Deloitte completed its audit with the exception of a single related-party investment. Separately, the company's 8-K filing on June 9, 2003 also indicated that in a June 2002 management letter, Deloitte cited several reportable conditions including that the company had material weaknesses in its ability to monitor non-performing and impaired assets. Management represents that these weaknesses have been addressed and are no longer issues.

Fitch said it believes that neither the auditor's resignation nor the reportable conditions stem from any fundamental accounting errors or disagreements. However, DVI, after a weak fiscal-year 2002, has been striving to regain investor confidence and was pursuing a series of actions to strengthen its balance sheet and risk profile. Deloitte's resignation is likely to slow DVI's momentum, if for no other reason, the new accountants may elect to reaudit the company's fiscal year 2001 and 2002 financial results in addition to their audit for the fiscal year ending June 30, 2003.

As a result, DVI's capital markets initiatives may be delayed pending the completion of the 2003 audit. Therefore, the timely selection of a new auditor will be crucial. Fitch expects the Rating Watch to be resolved once a new auditor is in place and has completed audited financial statements, and DVI has made meaningful progress towards the refinancing of its senior unsecured debt.

Moody's puts Pilgrim's Pride on review

Moody's Investors Service put Pilgrim's Pride Corp. on review for possible downgrade including its $200 million 9.625% senior unsecured notes due 2011 at Ba3.

Moody's said the review follows Pilgrim's Pride's announcement of its proposed acquisition of ConAgra's chicken division for $590 million.

The financing of the acquisition will consist of approximately 60% debt ($100 million borrowed under existing credit lines and a $255 million senior subordinated note to be held initially by ConAgra), and 40% equity (consisting of Pilgrim's Pride common stock).

The ratings review will consider the benefits associated with the company's increased scale, wider customer base, and broadened distribution capability, Moody's said. The review also will consider the integration challenges of almost doubling the business platform and the risks and timing associated with realizing projected synergies. In addition, the review will assess the near term prospects for U.S. poultry markets (which have been pressured over the past year by difficult export conditions, high grain prices, and oversupply of competing proteins), and the ability of the company, post-acquisition, to restore credit statistics to levels more consistent with its current rating level.

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