S&P cuts HealthSouth, on watch

Standard & Poor’s downgraded HealthSouth Corp. and kept it on CreditWatch with negative implications. Ratings lowered include HealthSouth’s $1 billion 7.625% notes due 2012, $1.25 billion senior unsecured revolving credit facility due 2007, $200 million 7.375% senior notes due 2006, $250 million 6.875% senior notes due 2005, $250 million 7% senior notes due 2008, $375 million 8.5% senior unsecured notes due 2008 and $400 million 8.375% senior notes due 2011, cut to B- from BB-, and $350 million senior subordinated notes due 2008 and $568 million 3.25% convertible subordinated debentures due 2003, cut to CCC from B.

S&P said the downgrade reflects uncertainty about HealthSouth’s true historical and future profitability, as well as its financial position after the U.S. Securities and Exchange Commission charged both the company and the CEO with accounting fraud. The large alleged earnings overstatement related to the fraud also places into doubt the company’s future profit-generating potential.

In addition, S&P said there is lack of clarity over senior management direction; unclear prospects for ongoing liquidity as the company pursues a bank amendment to revise covenants to help avoid a possible covenant violation; questions about how responsive the company’s bank group will be should it need their assistance in refinancing an estimated $345 million of convertible notes due April 1, 2003 given the recent allegations of fraud and overstated earnings; and the possible adverse implications on the company’s future financial position should the allegations of fraud be proven true.

The CreditWatch placement reflects the company’s uncertain liquidity position as it seeks an amendment on its bank facility as well as the possible negative fallout on the company related to these serious allegations, S&P said.

Moody’s cuts HealthSouth, still on review

Moody’s Investors Service downgraded HealthSouth Corp., affecting $3 billion of debt, including lowering its senior unsecured notes to Caa1 from Ba3 and senior subordinated notes to Caa3 from B2. The ratings remain on review for further possible downgrade.

Moody’s said the action is based on the filing of a Complaint for Injunctive and Other Relief by the Securities and Exchange Commission which claims that the company has overstated earnings and assets and has engaged in other fraudulent activity with the intent to improve earnings.

The downgrade to Caa1 also reflects Moody’s concern that the company may not, as a result of this development, be able to make timely payment on its debt obligations, including the April 1, 2003 maturity of its convertible notes.

Although the company has a $1.25 billion revolving credit facility in place, Moody’s believes that the availability of this facility is in question due to representations and warranties that must be met at time of borrowing, Moody’s said. Further, Moody’s notes that the existence of a negative pledge under this facility and the bond indenture may be a complicating factor, limiting the ability of the company to provide security to its lenders.

Moody’s cuts Fleming multiple notches

Moody’s Investors Service downgraded Fleming Cos., Inc., affecting $2.2 billion of debt including its $800 million secured credit facility to B2 from Ba3, $355 million 10 1/8% senior notes due 2008 and $200 million 9¼% senior notes due 2010 to Caa2 from B2, $400 million 10 5/8% senior subordinated notes due 2007, $150 million 5¼% convertible senior subordinated notes due 2009 and $260 million 9 7/8% senior subordinated notes due 2012 to Ca from B3 and its speculative-grade liquidity rating to SGL-4 from SGL-3. The outlook is negative. The action concludes a review begun on Jan. 29.

Moody’s said the action was prompted by Fleming’s constrained liquidity position and concerns about its ability to quickly and sharply reduce expenses following the abrupt loss of the Kmart volume, to improve wholesale efficiency despite significant volume declines, and to complete the retail divestiture in a timely manner.

The immediate need for bank covenant relief, as well as the small cushion for operating cash flow to cover minimal obligations, caused downward revision of the speculative-grade liquidity rating, Moody’s added. The rating agency noted that Fleming intends to obtain a new or amended bank facility before the end of the first quarter of 2003.

The negative outlook reflects Moody’s opinions that substantial challenges remain in adjusting the company’s cost structure for a smaller revenue base and that liquidity will remain pressured over the intermediate term.

Moody’s said it does not believe that sustainable leverage and fixed charge coverage improvements can reliably be expected over the intermediate term.

S&P cuts Precision Partners

Standard & Poor’s downgraded Precision Partners Inc. including cutting its $100 million 12% senior subordinated notes due 2009 to D from CCC- and $25 million revolving credit facility and $44 million four-year term loan to CC from CCC+.

S&P said the downgrade follows Precision Partners’ failure to make its March 15 interest payment on the 12% notes.

S&P also noted that Precision Partners has indicated to the SEC that it will no longer be providing public financial information and has requested that S&P withdraw its ratings, which will occur shortly.

The company is in discussions with its bondholders about the missed interest payment, and potentially restructuring the debt, S&P said. Precision Partners continues to experience very challenging market conditions especially in aerospace and power generation, both of which are critical markets for the company, and have significantly declined over the past couple of years.

Moody’s rates MTR Gaming notes B2

Moody’s Investors Service assigned a B2 rating to MTR Gaming, Inc.’s proposed $130 million senior notes due 2010. The outlook is stable.

Moody’s said MTR’s ratings reflect its dependence on a single property, the potential for competition from neighboring states, and Moody’s expectation that capital spending for future development activities will exceed the company’s free cash flow through 2004.

The ratings also consider that the note indenture will allow MTR to repurchase up to $30 million of common stock.

Positives include MTR’s operating performance which has, and should continue to, benefit from West Virginia’s demonstrated overall support for gaming, Moody’s said. Since Mountaineer began operations in 1994, gaming revenues have grown at a significant pace. In 2002 alone, gaming revenues grew about 25% over 2001.

The B2 rating on the new senior notes considers that the notes will effectively rank junior to a secured revolving credit facility, and will be unconditionally guaranteed on a senior unsecured basis by all current and future operating subsidiaries.

Debt/EBITDA is expected to remain below 3.5x and EBITDA/cash interest is expected to be above 3.0x, Moody’s said.

S&P rates El Paso Energy Partners notes BB-

Standard & Poor’s assigned a BB- rating to El Paso Energy Partners LP’s offering of $250 million senior subordinated notes due 2010. The company’s ratings remain on CreditWatch with negative implications.

S&P said it continues to evaluate El Paso Energy Partners’ degree of independence and the prospect of future steps that parent El Paso Corp. and El Paso Energy Partners could take to further insulate the credit profile of El Paso Energy Partners.

The companies have accomplished, or publicly announced their intention to implement a series of actions designed to establish more independence in the business affairs and governance of El Paso Energy Partners, including an expansion of the El Paso Energy Partners board of directors to create a majority of outside directors, creating a governance and compensation committee of the board comprising its outside directors, and an active program to reduce the related-party activities between El Paso and El Paso Energy Partners , S&P said.

El Paso Energy Partners’ ratings are supported by the firm’s leading position as a provider of midstream gas services in Texas, New Mexico, and the Gulf of Mexico, where increasing production is expected to benefit El Paso Energy Partners’ strategically located gas pipelines and storage assets, S&P said.

Moody’s confirms Revlon

Moody’s Investors Service confirmed Revlon Consumer Products Corp. including its speculative grade liquidity rating at SGL-4, $117.9 million senior secured term loan due 2005 and $132.1 million senior secured revolving credit facility due 2005 at B3, $363 million 12% senior secured notes due 2005 at Caa1, $250 million 9.0% senior notes due 2006 and $250 million 8.125% senior notes due 2006 at Ca and $650 million 8.625% senior subordinated notes due 2008 at C. The outlook remains negative.

Moody’s said the confirmation follows Revlon’s release of its year-end fiscal 2002 operating results and fiscal 2003 spending plans, which were in line with Moody’s expectations for continued material negative cash flow.

The ratings consider Revlon’s improved very near-term liquidity as a result of the recent bank amendment and $190 million supplemental financing plan (increasing to $215 million in 2004) from parent company MacAndrews & Forbes as well as gains in market share and gross sales in the fourth quarter of 2002, Moody’s said.

But the rating agency said it continues to be concerned about Revlon’s longer-term cash flow generation and access to borrowing given increased and accelerated cash outlays for its aggressive growth plan.

S&P cuts Marconi

Standard & Poor’s downgraded Marconi Corp. plc including cutting its $900 million 7.75% bonds due 2010, $900 million 8.375% bonds due 2030, €1 billion 6.375% notes due 2010 and €500 million 5.625% notes due 2005 to D from C.

S&P said the downgrade follows Marconi’s failure to make a coupon payment due March 17 on its Yankee bonds and the subsequent announcement on March 18 that pending the outcome of the Schemes of Arrangement filed with the High Court the group does not intend to make payments on its bonds.

S&P says Goodyear unchanged

Standard & Poor’s said Goodyear Tire & Rubber Co.’s ratings are unchanged including its corporate credit at BB- with a negative outlook on the announcement that the company will make adjustments to shareholders’ equity in 2002.

The actions will not directly affect cash flow and are not expected to impede the ongoing negotiations to establish a new credit facility, S&P said.

Of the adjustments made, a $1.1 billion charge will establish a valuation allowance against the company’s net deferred tax assets, since the likelihood that future profits will allow for use of these deferrals has diminished. A $1.3 billion adjustment reflects an increase in the company’s unfunded pension benefit obligations, due to continued lackluster performance of the company investments.

Although the actions do not have a direct affect on cash flow, they reduce Goodyear’s net worth below the level required by bank loan covenants, S&P said. The banks have waived compliance with the covenants through April 4, which is the deadline set by lenders for Goodyear to restructure its loans.

S&P confirms Klabin, off watch

Standard & Poor’s confirmed Klabin SA and removed it from CreditWatch with negative implications including its foreign-currency corporate credit rating at CCC+. The outlook is now developing.

S&P said the confirmation reflects the still high concentration of maturities in the short-term, and consequent vulnerability to refinancing risk in a scenario of very illiquid capital and bank markets.

Although the local debentures issued by Klabin in December 2002 allowed the company to meet debt requirements, they failed to provide a long-term solution to debt maturities, S&P added.

Through a bridge loan and later issue of some BrR1 billion in local debentures, Klabin managed to meet two eurobond maturities at the end of 2002 amounting to $110 million, and rolled over other working capital maturities. The conditions of the debentures, however, include acceleration clauses that indicate that about BrR500 million will mature by the end of 2003, S&P said. While the company is expected to continue posting strong results this year, it relies on asset sales and refinancing of working capital loans (mostly trade-related) to meet debt requirements.

Considering the negative economic environment in Brazil, the timing of asset sales might not coincide with debt maturities.

Moody’s downgrades J.B. Poindexter, outlook negative

Moody’s Investors Service lowered the ratings of J.B. Poindexter & Co., Inc. by two notches. The outlook is negative. Ratings lowered include J.B. Poindexter’s $85 million of 12.5% guaranteed senior notes due 2004, cut to Caa2 from B3.

The downgrade follows J.B. Poindexter’s announcement that it has initiated discussions with its bondholders on restructuring its 12.5% senior unsecured notes.

Moody’s said the rating downgrades were in response to recent declines in J.B. Poindexter’s debt protection measures, combined with increasing uncertainty regarding the extent to which a near-to-intermediate-term turnaround in the company’s operating performance will be achieved. In addition, liquidity concerns have intensified because of the company’s poor operating cash flow performance combined with the approaching May 2004 maturity of J.B. Poindexter’s $85 million guaranteed senior notes and the burden of $5.3 million in semiannual cash interest payments associated with the notes.

The downgrades and negative outlook reflect Moody’s belief that J.B. Poindexter cannot repay the $85 million guaranteed senior notes’ principal upon its maturity next year, and additionally that the company may have difficulty servicing the related semiannual cash interest obligations during 2003.

S&P raises Elizabeth Arden outlook

Standard & Poor’s raised its outlook on Elizabeth Arden Inc. to stable from negative. and confirmed its ratings including its senior secured debt at B and senior unsecured debt at CCC+.

S&P said the outlook revision is based on improved credit measures, a result of better operating performance stemming largely from successful cost-saving initiatives.

Moreover, S&P said it expects continued growth in revenues and strengthening of credit ratios in the intermediate term due to higher operating profits and lower debt balances.

Elizabeth Arden’s ratings reflect the company’s narrow product portfolio, highly seasonal sales, and concerns about the very competitive fragrance business, S&P added. These factors are partially mitigated by Elizabeth Arden’s solid position in fragrances and wide distribution, especially in the high growth mass-merchandising trade channel.

While the company’s performance suffered in fiscal 2002 due to challenges encountered with integrating the acquired Elizabeth Arden business (a transaction completed in 2001), fiscal 2003 (ended Jan. 31, 2003), represented a turnaround as evidenced by the improvement in operating performance, S&P said. The 12.5% increase in revenues was driven by expanded distribution, new product launches, and increased marketing support. Furthermore, a higher gross margin, better leveraging of the company’s cost structure, and favorable foreign currency translation aided the operating margin.

Credit protection measures (adjusted for operating leases and non-recurring charges) strengthened in fiscal 2003, with debt to EBITDA of about 3.8x, down from 5.3x in fiscal 2002, S&P said. EBITDA interest coverage increased to 2x in fiscal 2003 from 1.5x the previous year.

Moody’s withdraws Glencore Nickel ratings

Moody’s Investors Service withdrew its Ca rating on Glencore Nickel Pty Ltd. following the cash settlement with the company’s secured creditors.

Under the settlement, effected on Feb. 28, Glencore Nickel paid $76 million to secured creditors, mainly bondholders, a recovery of around 25 cents on the dollar.

Moody’s withdraws Murrin Murrin ratings

Moody’s Investors Service withdrew its Ca rating on Murrin Murrin Holdings Pty Ltd. following the cash settlement with the company’s secured creditors.

Under the settlement, effected on Feb. 28, Glencore Nickel paid $114 million to secured creditors, mainly bondholders, a recovery of around 25 cents on the dollar.

S&P cuts TGS

Standard & Poor’s downgraded Transportadora de Gas del Sur SA (TGS) including cutting its $100 million floating-rate bonds due 2003 to D.

S&P said the action follows TGS’ failure to make a $100 million principal payment due on March 18.

The maturity was included in the company’s global debt restructuring process announced on Feb. 24 and presently under way. TGS did comply with the scheduled $850,000 interest payment on the notes.

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