Moody's lowers CSC Holdings

Moody's Investors Service downgraded Cablevision Systems Corp.'s CSC Holdings unit and put the ratings on review for possible further downgrade, affecting $5.8 billion of debt. Ratings lowered include CSC's $3.7 billion of senior unsecured notes to B1 from Ba2, $600 million of senior subordinated notes to B2 from Ba3 and $1.5 billion of preferred stock to B3 from B1.

Moody's said the downgrade principally reflects lingering concerns about the company's perceived funding shortfall as expected to occur in 2003 and the insufficiency of the company's actions to address this critical concern to date in accordance with expectations, notwithstanding past opportunities to do so.

Moody's added that it believes the company's viable options to enhance its still diminishing financial flexibility are now much more limited given current market conditions, from both capital access and asset valuation perspectives.

Although Moody's said the underlying asset value is adequate to support CSC's obligations it said it is less certain whether the company would be able to monetize part of those assets.

"The probability of default has risen in recent periods and is likely to worsen over the forward rating horizon," Moody's added.

Moody's said capital spending reductions announced Thursday are bigger than it believes appropriate and raise the prospect of potentially curtailed growth and other adverse consequences in the future.

Corporate overhead restructuring, closure of the underperforming WIZ stores, and curtailment of the Northcoast PCS roll-out will also save the company fairly meaningful sums of money over the coming periods, although these will not occur without some fairly substantial cash costs in the interim, Moody's added.

Proceeds from selling Clearview Cinemas are not likely to be that meaningful, the rating agency added.

S&P puts Cablevision on watch

Standard & Poor's put Cablevision Systems Corp. on CreditWatch with negative implications. Ratings affected include CSC Holdings Inc.'s notes at BB-, senior notes at BB+ and preferred stock at B+.

S&P said the action is in response to its heightened concerns about Cablevision's liquidity and business position.

The company has announced cost-cutting initiatives, including capital expenditure and headcount reductions, that are expected to reduce overall external funding requirements through 2003, S&P noted.

However, the level of operating cash flow for the combined cable, programming, and entertainment businesses in 2003 remains uncertain, in light of ongoing competition from direct broadcast satellite providers, and uncertain prospects for the company's Madison Square Garden and The Wiz consumer electronics operations, S&P said.

Moreover, to date Cablevision's roll-out of digital television services has been very limited, and its ability to rapidly ramp up this business, as well as provide Internet telephony services to subscribers, remains unclear, S&P added.

S&P rates ConMed's loan BB-

Standard & Poor's rated ConMed Corp.'s $75 million five-year senior secured revolver and $100 million senior secured term loan due 2009 at BB-. The credit facility is currently under negotiation and upon closing of the transaction a final rating will be assigned.

Furthermore, S&P affirmed the company's BB- corporate credit rating and B subordinated debt rating. The outlook is negative.

ConMed's ratings reflect S&P's ongoing concern that the company, although well established in its niche surgical markets, faces the continuing challenge of competing with larger, better financed companies in all of its markets, the rating agency said said.

The negative outlook reflects the concern that if ConMed is unable to refinance its bank debt, liquidity would be limited, S&P said. However, if the refinancing is successful, the outlook would be revised to stable.

The company's lease adjusted EBITDA interest coverage is 3 times and debt to capital is about 45%.

Moody's raises California Steel outlook

Moody's Investors Service raised its outlook on California Steel Industries, Inc. to stable from negative and confirmed its ratings including its $150 million of 8.5% senior notes due 2009 at Ba3 and $130 million senior secured credit facility due 2004 at Ba2.

Moody's said the outlook change is in response to California Steel's improved financial performance as a result of the positive pricing effects brought on by Section 201 tariffs and idled industry capacity as well as improvements in and stabilization of energy costs and supply.

The Section 201 ruling has favorably impacted California Steel's business, Moody's said. Under Section 201, California Steel can continue importing slabs without tariffs while enjoying higher prices on its finished goods.

California Steel reported sales of $189 million in the second quarter of 2002, up from $167 million in the second quarter of 2001.

California Steel's top line is expected to continue to increase in the next couple of quarters, but could be tempered beyond that as steel imports are likely to regain a share of the West Coast steel market, Moody's said. At current prices, the West Coast market looks very attractive to foreign steel, even for products subject to Section 201 tariffs. Restarts of idled steel capacity can also have the same effect.

Moody's cuts Nova Chemicals

Moody's Investors Service downgraded Nova Chemicals to junk, affecting $1.4 billion of securities. Ratings lowered include Nova's senior unsecured debt, cut to Ba2 from Baa3, and its Canadian Originated Preferred Securities (COPrS) to Ba3 from Ba2. The outlook is stable.

Moody's said the action was prompted by concerns over increasing volatility in Nova's raw material costs, as well as weak economic conditions that may constrain operating cash flow and prevent a reduction in Nova's high debt levels over the next 12 months.

Moody's said it estimates the effective level of debt at Nova is $2.0 billion (versus balance sheet debt of $1.2 billion); this includes roughly $200 million of accounts receivable financing and $580 million of preferred securities.

Moody's said it had previously assumed that Nova would use operating cash flow to reduce its effective debt level well below $2.0 billion. However, Moody's views the near term ability of Nova to generate free cash flow and repay debt as increasingly uncertain, despite the increase in second quarter sales and earnings.

While Nova and its competitors have been able to increase margins due to a surge in demand, unanticipated plant outages, and turnarounds at several facilities, Moody's said does not believe that this increase is sustainable for the remainder of the year.

In addition, the uneven and slow pace of recovery in the US will limit Nova's ability to increase earnings and free cash flow over the next 12 months, the rating agency added.

Moody's withdraws Intertek ratings

Moody's Investors Service withdrew its ratings on Intertek Testing Services plc including its senior secured credit facilities rated Ba3.

Moody's said the action follows the refinancing of all publicly rated instruments as a result of the company's recent initial public offering, which raised £244.5 million, and a new £300 million senior secured credit facility.

Moody's cuts Alestra

Moody's Investors Service downgraded Alestra, S de RL de CV including cutting its $270 million senior unsecured notes due 2006 and $300 million senior unsecured notes due 2009 to Ca from Caa1. The outlook is negative.

Moody's noted that on July 30 Alestra announced that its cash from operations will not be sufficient to meet the interest payment on its senior notes due in November 2002.

Alestra has retained a financial advisor to assist in analyzing available options to address the company's financial condition, including its liquidity position, Moody's added.

At the end of June 2002, Alestra recorded cash of $26 million. On July 1 it made a $12.5 million payment under its $25 million bank credit facility and has announced that it will permanently retire the remaining balance of $12.5 million by Oct. 1, 2002. We consider that third quarter cash flow will be largely used for capital expenditures and interest expense.

Accordingly, Alestra expects to have insufficient cash to make November 2002 coupon payments totaling $35 million.

Alestra has been pursuing a proposed $50-$70 million syndicated bank loan, however management now advises that the terms of the proposed facility did not fulfill Alestra's needs, Moody's said.

S&P lowers Penn Traffic outlook

Standard & Poor's lowered its outlook on The Penn Traffic Co. to negative from positive and confirmed its senior secured bank loan at BB- and senior unsecured debt at B-.

S&P said the outlook change is in response to Penn Traffic's announcement that it will restate its fiscal 2002 first quarter and the past three fiscal years' financial statements after discovering overstated inventory at its Penny Curtiss bakery manufacturing subsidiary. Penn Traffic has preliminarily estimated that the total amount of the accounting misstatement was $10 million to $11 million.

The revised outlook reflects the uncertainty of the total impact of the restatement on the company's credit measures and liquidity, S&P said.

This uncertainty will not be fully resolved until the company's bank group waives the technical default under the bank agreement created as a result of the accounting misstatement, and the investigation and restatement are completed, the rating agency added.

Fitch confirms U.S. Steel, rates loan BB+

Fitch Ratings confirmed U.S. Steel's senior unsecured long-term ratings at BB and assigned a BB+ rating to its senior secured revolver. The outlook is stable.

Since the beginning of the year, the prices of hot-rolled and cold rolled steel sheet have risen dramatically and with them U.S. Steel's profits, Fitch noted. On shipment increases of 619 thousand tons and price realizations of $12/ton more, U.S. Steel has turned an operating loss of $61 million in the first quarter of 2002 into an operating profit of $47 million in the second quarter.

Price increases have been announced effective in August and September; the company's order book is extended into October; and the weaker dollar in concert with 30% disputed steel tariffs should temper future imports, Fitch added.

U.S. Steel's seven domestic furnaces are operating at near capacity, and the company is projecting a profit for the year, Fitch said. Liquidity is strong following the company's mid-May stock offering.

S&P lowers McDermott outlook

Standard & Poor's lowered its outlook on McDermott International Inc. to negative from stable and confirmed its ratings including its senior debt at B, subordinated debt at CCC+, McDermott Inc.'s senior unsecured debt at B and J. Ray McDermott SA's senior unsecured debt at B.

S&P said it made the outlook revision because settlement terms for Babcock & Wilcox Co.'s bankruptcy negotiations eliminate ratings upside potential for McDermott because Babcok & Wilcox's cash flows will not become available to McDermott.

In addition, when a settlement becomes probable McDermott estimates that it may have to record an after-tax charge against earnings of between $100 million and $130 million, reflecting the present value of contributions and contemplated payments to the created trusts, S&P said.

Moody's confirms Cooperative Computing

Moody's Investors Service confirmed Cooperative Computing, Inc. including its $100 million 9% senior subordinated notes due 2008 at B3 and $11 million guaranteed senior secured term loan A facility due 2003, $29 million guaranteed senior secured term loan B facility due 2004 and $47.5 million guaranteed senior secured revolving credit facility due 2003 at B1. The outlook remains negative.

Moody's said the outlook remains negative because of concerns about ongoing access to the bank revolver.

The ratings would be lowered if the company fails to refinance the revolving credit facility, Moody's said. Further material revenue deterioration would also likely cause a ratings downgrade.

The arrangement of a new credit facility with financial covenants that are reconciled to the company's transition numbers could bring about a stable ratings outlook, Moody's added. A ratings improvement would be contingent upon the company achieving sustained revenue growth in both its automotive and hardlines and lumber businesses, ameliorating the balance sheet capitalization, and strengthening its cash position.

S&P lowers Cinemark outlook

Standard & Poor's lowered its outlook on Cinemark USA Inc. to stable from positive and confirmed its ratings including its subordinated debt at B+. S&P withdrew its BB- rating on the company's proposed $250 million bank facility.

S&P said the action follows Cinemark USA's postponement of its planned initial public equity offering and refinancing of its bank loan.

The postponement of the IPO, due to weak market conditions, will delay the expected improvements to Cinemark's capital structure and liquidity that were factored into the previously assigned positive outlook, S&P said. Proceeds from the IPO were expected to reduce the company's debt by about $180 million and, together with the bank loan refinancing, would have also reduced near term debt maturities and increased revolving credit borrowing capacity.

As a result, the likelihood of a near-term upgrade has been pushed back, making a stable outlook more appropriate, S&P said.

Cinemark expects to proceed with the IPO and the bank loan refinancing when market conditions improve, although timing is uncertain. S&P said it will reevaluate Cinemark's outlook upon the rescheduling of the stock offering and bank debt refinancing.

Moody's puts Sealy on review

Moody's Investors Service put Sealy Mattress Co. on review for possible downgrade including its $100 million senior secured revolving credit facility due 2002, $125 million senior secured term loan A due 2002 and $330 million senior secured AXEL term loans due 2004-2006, all at B1, and its $250 million 9.875% senior subordinated notes due 2007 and $128 million 10.875% senior subordinated discount notes due 2007, both at B3.

Moody's said it put Sealy on review because of uncertainties related to the nearing maturities on its bank lines and on increased concerns about affiliated retailer sales concentrations and financial commitments.

One such retailer has recently defaulted on its bond interest payment, while another continues to be in violation of its credit agreement and is operating under a forbearance agreement, Moody's noted.

Sealy has indicated that it may consider supporting these retail affiliates with further guarantees (currently $1.8 million), additional direct loans and investments (currently $22.7 million, net of write-offs), and increased trade receivable extensions ($13.3 million, net of reserves).

In December, Sealy's $100 million revolver and term loan A will mature and interest on its discount notes will become semi-annually payable in cash ($13.8 million p.a.) further pressurizing free cash flow performance, Moody's said. Furthermore, amortization payments on its AXEL term loans increase to around $32 million in 2003 and to between $77 million and $100 million in each of the next three years.

S&P takes Cogentrix off watch

Standard & Poor's removed Cogentrix Energy Inc. from CreditWatch with positive implications. The outlook is now stable. Ratings affected include Cogentrix's $100 million 8.1% senior notes due 2004, $100 million 8.75% notes due 2008 and $255 million 8.75% senior notes due 2008, all at BB+.

S&P said the action follows the termination of Cogentrix's merger with Aquila (BBB/CreditWatch negative/--).

As a stand-alone entity, Cogentrix's BB+ rating reflects a combination of low-business risk profile and a high financial leverage, S&P said.

The company maintains a low-risk business profile by selling power under long-term contracts to avoid merchant exposure. However, because a high percentage of the contract revenues have been monetized with project finance debt, Cogentrix relies on the residual cash flow upstreamed from the projects to cover its corporate expenses and debt service, S&P addeed.

Despite the current turmoil in the electric power market, Cogentrix's rating appears to be stable for the foreseeable future, S&P said.

Moody's confirms Penn National, raises Hollywood outlook

Moody's Investors Service confirmed the ratings of Penn National Gaming, Inc. and revised Hollywood Casino Corp. and Hollywood Casino Shreveport's outlooks to positive. Ratings affected include Penn National's $75 million senior secured revolving credit facility due 2005 at Ba3, $200 million 11.25% senior subordinated notes due 2008 confirmed and $175 million 8.875% senior subordinated notes due 2010 at B3, Hollywood Casino's $310 million 11.25% senior secured notes due 2007 and $50 million floating-rate senior secured notes due 2006 at B3 and Hollywood Casino Shreveport's $150 million 13% first mortgage notes due 2006 and $39 million 13% first mortgage notes due 2006 at B3.

Moody's said the action follows the announcement that Penn National will acquire Hollywood Casino.

Pro forma debt to last 12 months EBITDA is about 5.4 times, Moody's said.

Addition of the Hollywood properties will lower Penn National's dependence on the Charles Town, W.Va. property, Moody's added. On a pro forma basis, Charles Town will account for about 25% of property-level EBITDA, down from about 40%.

Leverage will increase as a result of the acquisition, however, it will still be at a level consistent with a B1 senior implied rating, particularly given the increased geographic diversification of the combined entity and Moody's expectation that free cash flow will be applied towards debt reduction, the rating agency said.

Free cash flow should benefit from lower near-term capital expenditure requirements and lower financing costs, Moody's added.

By the time the transaction closes, Moody's said it expects that both Penn National and Hollywood Casino will have completed their respective major capital expenditure programs.

Once the transaction closes, Moody's said it expects to withdraw Penn National's existing bank loan rating on the basis that the existing bank debt will be replaced with a new and larger credit facility that will be used to finance the transaction.

Currently, the one-notch rating differential between the Penn National's senior secured bank loan rating and senior implied rating takes into consideration the relatively small amount of secured debt relative to other debt obligations in the company's capital structure. Any rating on a future bank facility will take into consideration the mix of secured and unsecured debt of the company's capital structure at that point in time, and may or may not be rated the same as the company's senior implied rating, Moody's said.

The change in ratings outlook to positive from stable for Hollywood Casino Corporation and Hollywood Casino Shreveport reflects the favorable credit profile of the pro forma combined entity relative to Hollywood's existing credit profile and the increased expectation that the ratings could be raised if the transaction is completed as currently planned, Moody's said.

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