S&P rates Southern Star Central notes B+

Standard & Poor's assigned a B+ rating to Southern Star Central Corp.'s planned $180 million senior secured notes due 2010 and a BBB- rating to subsidiary Southern Star Central Gas Pipeline Inc.'s existing $175 million 7.375% senior notes due 2006 and new $60 million senior secured credit facility. The outlook is stable.

The BB corporate credit rating on Southern Star Central reflects the company's high leverage, balanced by its above-average business position.

S&P said Southern Star Central's business position benefits from a good market position, transporting gas from the northern Rockies, which has increasing supply and insufficient pipeline transportation, and out of Oklahoma, which has long-lived reserves; a strong competitive position as one of the lowest cost carriers among the many pipelines that transport gas in the Midwest market area, eight on-system gas storage fields, allowing it to offer more flexible services and prices; and a strong customer base drawing over 80% of revenues from contracts with customers that have had relationships with Central Pipeline for more than 20 years.

Pro forma for the financing, Southern Star Central's consolidated debt to total capital is 70%, higher than the 55% to 60% typical of companies with above-average business profiles that carry investment-grade corporate credit ratings, S&P said. As a result, pretax interest coverage is less than 2.0x, the minimum level for investment-grade ratings. Cash flow interest coverage (funds from operations before changes in working capital), is reasonably strong at just under 3.0x, but as a percentage of total debt cash flow is only 12% to 13%.

Moody's puts Millennium Chemicals on review

Moody's Investors Service put Millennium Chemicals Inc.'s Millennium America Inc. on review for possible downgrade including its $1.2 billion guaranteed unsecured notes due 2006 through 2023 at Ba1 and $175 million guaranteed senior secured revolving credit facility due 2006 and $49 million guaranteed senior secured term loan due 2006 at Baa3.

Moody's said the review was prompted by its concern that weaker North American demand for titanium dioxide (Ti02) combined with pricing pressure could translate into weaker credit metrics and free cash flow for the near-term.

Millennium significantly reduced guidance for the second quarter of 2003 based on lower than anticipated TiO2 sales volumes stemming from unfavorable North American weather and competitive pricing pressures.

The company also announced that TiO2 operating results for the third quarter are expected to be weaker as the company balances inventories.

A potential downgrade, if any, could be more than one ratings notch depending on Moody's assessment of several items.

Moody's puts Shaw on review

Moody's Investors Service put The Shaw Group on review for possible downgrade including its secured guaranteed bank credit facility at Ba1, guaranteed notes at Ba2 and senior unsecured LYONs at Ba3.

Moody's said the review was prompted by the greater than anticipated earnings deterioration and cash flow burn that Shaw has experienced over the last two quarters, the likelihood that this situation may not change materially over the next several quarters and the contraction in liquidity available to meet the May 2004 LYONs put and the possibility of covenant issues as quarterly earnings contract.

S&P cuts Tropical Sportswear, rates loan BB-

Standard & Poor's downgraded Tropical Sportswear International Corp. and kept it on CreditWatch developing in cluding cutting its $100 million 11% senior subordinated notes due 2008 to B- from B. S&P rated its new $95 million senior secured revolving credit facility due 2006 at BB-.

The company was put on watch on June 3 after it said it has retained Merrill Lynch & Co. to act as a financial advisor to explore strategic alternatives to maximize long-term shareholder value.

S&P said the bank loan is rated one notch above the corporate credit rating, reflecting the strong likelihood of full recovery of principal under a default scenario.

S&P said the downgrade reflects weaker-than-expected financial performance, which has resulted in credit protection measures that are below its expectations.

Tropical Sportswear's performance has been affected by the weak economy and challenging conditions in the retail apparel industry, S&P noted. Revenues and operating profits were affected by adverse weather conditions during the spring and early summer selling season that reduced store traffic especially at department stores, destocking by retailers, greater than expected sales returns and allowances and heavy discounting on excess inventory.

Moreover, S&P said it expects Tropical Sportswear's credit ratios will remain weak in the near term, despite management's efforts to consolidate and reorganize its Savane division, dispose of unprofitable businesses, shift production to the Dominican Republic and reduce operating expenses. Sales and operating earnings will continued to be affected by the intense competition within the apparel industry.

Moody's rates Morris Publishing notes Ba3, loan Ba1

Moody's Investors Service assigned a Ba3 rating to Morris Publishing Group LLC's proposed $200 million senior subordinated notes and a Ba1 rating to its proposed $450 million senior secured credit facility. The outlook is stable.

Moody's said the ratings reflect Morris Publishing's prominent position in its newspaper markets and its focus on local advertising, which has provided some cushion from the recent market slowdown in newspaper advertising spending.

The ratings also benefit from relatively strong newspaper asset value coverage, supplemented by the value of affiliated operations, including outdoor, radio and magazine publishing.

The ratings are constrained, however, by the company's slow top line growth, generally softening circulation, high leverage and the dependence of the non-publishing affiliates upon the liquidity provided by the newspaper division, Moody's added.

The stable outlook incorporates the relative stability of Morris's core business model, which has borne the brunt of the recent industry downturn with relatively modest disruption.

S&P rates National Beef notes B

Standard & Poor's assigned a B rating to National Beef Packing Co. LLC's proposed $160 million senior unsecured notes due 2011. The outlook is stable.

The company will use the proceeds of the senior unsecured notes along with a $265 million senior secured credit facility, for part of its $472 million refinancing and acquisition of Farmland Industries' 71.2% ownership in Farmland National Beef Packing Co.

The ratings reflect National Beef's debt levels, which are relatively high for a largely commodity-oriented protein processor with low margins operating in a very challenging environment, S&P said. Somewhat mitigating factors are the company's niche position in value-added cuts, a broad customer base, experienced management team, and the high barriers for competitors entering the industry.

The sector is inherently volatile, with results affected by several factors outside of the firm's control, including weather, supply of other proteins and disease. Still, the company focuses its value-added business segment, which has represented about a quarter of sales and over half of EBITDA, providing some cushion, S&P said.

The company's credit measures are appropriate for the rating given its below-average business risk, S&P said. Following the transaction, National Beef will be highly leveraged with a pro forma total debt to operating EBITDA for the fiscal year ended Aug. 31, 2003, of nearly 3x and operating EBITDA interest coverage expense of about 4x. Total capital expenditures should run about $25 million to $30 million annually, with about $10 million for maintenance spending, and the balance for facility upgrades and expansions. S&P said it expects that National Beef will use cash flow to reduce outstanding debt obligations and fund plant expansion.

S&P upgrades Packaging Corp.

Standard & Poor's upgraded Packaging Corp. of America including upgrading its corporate credit rating to BBB from BBB- and assigned a BBB senior unsecured debt rating to its $150 million 4 3/8% senior unsecured notes due 2008, $400 million 5¾% senior unsecured notes due 2013 and new five-year $150 million credit facility.

S&P said the upgrade reflects the refinancing, which reduces the company's annual interest expense by more than half, or $33 million, and the strengthening of its financial profile, which is expected to continue.

Packaging Corp. reduced debt by more than $1.2 billion to $777 million (including capitalized operating leases) since becoming a stand-alone company in 1999. As one of the lowest cost producers in the industry, even at the bottom of the cycle, PCA generates solid cash flow, which is expected to be used to repurchase shares, finance bolt-on acquisitions, and continue to modestly reduce debt, S&P said.

The ratings reflect the company's competitive cost position within a cyclical industry, flexible fiber and energy capabilities, its strengthening financial profile, and moderate financial policies.

The company's operating margins are attractive compared with most competitors and should average in the low-20% area over the course of an industry cycle, S&P said. In the short term, Packaging Corp.is expected to experience continued price pressure due to sluggish demand. However, it should benefit from positive industry supply conditions when the economy improves.

With moderate capital spending needs, Packaging Corp.is expected to continue generating more than $100 million of free operating cash flow each year even without a significant economic recovery, S&P said. With continuing modest debt reduction and meaningfully lower interest expense, key financial measures should improve substantially from current levels (EBITDA interest coverage of about 4x, funds from operations to debt in the low-30% area, and total debt to EBITDA in the mid-2x area). In addition, prudent financial policies are a key support for the ratings.

S&P confirms Sea Containers, off watch

Standard & Poor's confirmed Sea Containers Ltd. and removed it from CreditWatch negative including its $100 million 12.5% subordinated debentures due 2004, $100 million 7.875% senior notes due 2008, $115 million 10.75% senior notes due 2006 and $25 million 12.5% senior subordinated debentures series B due 2004 at B. The outlook is negative.

S&P said the confirmation follows Sea Containers' completion of the sale of the Isle of Man Steam Packet Co. in July, proceeds of which were used to refinance outstanding debt. The company redeemed $158 million of debt that matured on July 1, 2003 with a new $158 million bridge facility and the exchange of $22.5 million of the maturing notes for new debt securities, alleviating near-term refinancing concerns.

Sea Containers' ratings reflect its heavy upcoming debt maturities and reduced financial flexibility, partially offset by fairly strong competitive positions in its major businesses, S&P said.

Sea Containers' earnings and cash flow have recovered somewhat since 2002, due to improving conditions at the passenger transport and GESeaCo operations, but are still below levels achieved in the late 1990s, S&P said.

Silja's results were consolidated from May 1, 2002 on, and demand for marine cargo containers has remained strong since mid-2002. Leisure operations have continued to be negatively affected by reduced travel levels that began in 2001.

However, despite the improvement in earnings and cash flow, the company's credit ratios remain at relatively weak levels and will likely continue to be constrained by its high debt leverage and increasing financing costs, S&P said.

In addition, the company's financial flexibility has weakened. It has substantial debt maturities through 2004, which it has reduced somewhat through asset sales and the exchange of certain outstanding debt securities for new debt securities with higher coupons and longer maturities, S&P said. While the assets that were already sold or are in the process of being sold are noncore, their sale will leave the company with reduced cash flow and fewer assets available for sale if financial difficulties persist.

S&P rates Concentra notes B-, loan B+

Standard & Poor's assigned a B- rating to Concentra Operating Corp.'s planned $150 million senior subordinated notes due 2010 and a B+ rating to its $100 million revolving credit facility due 2008 and $335 million term loan due 2009. S&P also confirmed its existing ratings including Concentra Inc.'s senior secured debt at B- and Concentra Operating's senior secured debt at B+ and subordinated debt at B-. The outlook is negative.

S&P said ratings reflect Concentra's vulnerability to economy-driven changes in national employment levels, as well as the competitive limitations on Concentra's pricing power.

Despite the effects of the proposed transaction, the company's leverage continues to be high, resulting from its 1999 sale to financial sponsor Welsh, Carson, Anderson, & Stowe, which still has a material equity stake in the company.

Weakness in the U.S. economy, particularly depressed employment levels have placed pressure on Concentra's sales levels, S&P said. The company's care management segment and its independent medical exam services have most recently been affected by lower referral rates and volumes, which follows the base-line contraction in the health services and network services segments in 2002. This contraction was obscured in part by Concentra's acquisition of two companies in 2001 and by two smaller transactions in late 2002. Recently, Concentra has enjoyed a slight volume and pricing rebound in health services. Review volumes and achieved savings levels in network services have also improved somewhat.

For the near-term, Concentra is expected to generate financial measures in line with the rating category, S&P said. At March 31, 2003, the company's operating margin was about 15%, return on permanent capital above 12%, and funds from operations to total debt about 12%.

However, given Concentra's vulnerability to economic swings, relatively high fixed-cost base, appetite for frequent small acquisitions and limited financial insulation, operating efficiency remains critical. Recent staff reductions in the care management segment and other areas are positive steps.

The company's pro forma capital structure continues to reflect an aggressive 1999 recapitalization, with total debt (including holding company obligations) to EBITDA of approximately 5.5x on a last 12-months basis, S&P said.

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