Moody's cuts Charter, still on review

Moody's Investors Service downgraded Charter Communications Inc. and its subsidiaries and kept it on review for possible downgrade, affecting $22 billion of debt. Ratings lowered include Charter Communications' convertible senior debt, cut to Caa2 from B3, Charter Communications Holdings, LLC's senior debt, cut to B3 from B2, Charter Communications Operating, LLC's senior secured bank debt to B1 from Ba3, CC VIII Operating, LLC's senior secured bank debt to B1 from Ba3, Falcon Cable Communications, LLC's senior secured bank debt to B1 from Ba3 and CC VI Operating, LLC's senior secured bank debt, to B1 from Ba3.

Moody's left unchanged CC V Holdings, LLC (formerly Avalon Cable LLC)'s senior unsecured debt at B2 and Renaissance Media Group LLC's senior unsecured debt at B2 and Charter Communications' liquidity rating at SGL-2. But it said these ratings are somewhat more weakly positioned in their rating categories.

Moody's said its downgrades of Charter reflect growing concerns about operating performance, as supported by recent disclosures of disappointing third quarter results and the removal of the company's chief operating officer, and subsequent downward revisions to Moody's expectations governing future performance over the ensuing rating horizon.

Specifically, Moody's said it believes that cash flow growth at sub-double digit levels, spurred in large part by heightened customer churn and bad debt expense, will fall considerably short of prior expectations with respect to affecting targeted deleveraging and balance sheet strengthening by 2004.

Describing the actions as "interim," Moody's said they represent the rating agency's belief that the negative operating trends and broader risks facing the company are greater than it previously thought and may not be imminently reversed and/or mitigated.

Moody's said the review does not reflect the ongoing grand jury investigation and said any further negative developments in this area could cause additional downward rating pressure.

Moody's cuts 7 Sprint PCS affiliates

Moody's Investors Service downgraded seven Sprint PCS affiliates: AirGate PCS, Inc., Alamosa (Delaware), Inc., Horizon PCS, Inc., iPCS, Inc., IWO Holdings, Inc., UbiquiTel Operating Co. and US Unwired, Inc., concluding a review begun in June 2002. The outlook is negative.

Ratings lowered include:

* AirGate's $300 million 13.5% subordinated discount notes due 2009 to Caa2 from Caa1;

* Alamosa's $225 million senior secured credit facility to B3 from B2 and $350 million 12.875% senior discount notes due 2010, $250 million 12.5% senior notes due 2011 and $150 million 13.625% senior notes due 2011 to Caa3 from Caa1;

* Horizon's $250 million senior secured credit facility to B3 from B1 and $295 million 14% senior discount notes due 2010 and $175 million 13.75% senior notes due 2011 to C from Caa1;

* iPCS, Inc.'s $140 million senior secured credit facility to B3 from B1 and $300 million 14% senior discount notes due 2010 to Ca from Caa1;

* IWO Holdings, Inc.'s $160 million 14% senior notes due 2011 to Ca from Caa1;

* UbiquiTel Operating Co.'s $300 million senior secured credit facility to B3 from B2 and $300 million 14% subordinated discount notes due 2010 to Ca from Caa1; and

* US Unwired, Inc.'s $170 million senior secured credit facility to B2 from Ba3 and $400 million 13.375% subordinated discount notes due 2009 to Caa2 from B3.

Moody's said the actions reflect the weaker business fundamentals for the wireless industry and for Sprint PCS and its affiliates in particular.

The Sprint PCS business model has come under pressure as Sprint sought to exploit some underpenetrated market segments of poor credit quality, Moody's said. These subscribers have had difficulty paying their wireless bills and Sprint PCS has been removing them from the subscriber rolls in growing numbers over the past few quarters.

Further, it has become increasingly more difficult to replace these "churned" customers with new subscribers as the marketplace nears saturation, Moody's continued. This has exacerbated the pressure on the business model of the Sprint PCS affiliates, as these companies are later to market than Sprint and their customer bases are more heavily comprised of the sub-prime customer segment.

The weakness of the Sprint PCS franchise arrangement, already flawed from a credit perspective as the affiliates lack their own spectrum, has been further exposed by the affiliates' lack of control over the marketing and customer service as this is handled by Sprint, Moody's said.

The market for wireless services in the US has decelerated rapidly, and carriers such as the Sprint PCS affiliates are particularly poorly positioned due to their low penetrations in their markets, the rating agency added. Going forward, the majority of subscriber gains that any carrier is likely to achieve are now likely to come from other carriers. Sprint PCS suffers from a perception of poor customer service, making share gains more difficult, and the affiliates have very limited liquidity to improve network quality to attract and retain subscribers.

On specific companies, Moody's said IWO suffers from being among the least developed Sprint PCS affiliates, with the fewest subscribers and smallest revenue base, and likely to be in violation of its covenants in 2003.

IWO was the last Sprint PCS affiliate to tap the public debt markets and given conditions at the time found itself more reliant on bank debt than its peers, Moody's said. Further, IWO was not able to issue a PIK instrument, instead issuing cash pay notes with the first six interest payments put into escrow. This arrangement provides far less financial flexibility than a capital structure with a five year discount note and a smaller bank deal.

On Airgate, Moody's said the ratings are supported by the relative maturity of the AirGate PCS operations and the decent operating and financial performance of the company to date, as well as the relatively loose covenant structure of the company's $153.5 million senior secured credit facility (not rated by Moody's) through 2003.

AirGate PCS is one of the oldest Sprint PCS affiliates and its network covers a greater percentage (roughly 85%) of its franchise territory than any other Sprint PCS affiliate, and its subscriber penetration of that covered territory (5.6%) is also greater than its peers, Moody's said. However, due in large part to this maturity and the maturity of the wireless market in general, subscriber growth for AirGate was among the slowest of all affiliates in the second quarter of 2002.

On iPCS, Moody's said the company is less developed than some of its peers, has difficulty in achieving required subscriber growth, and is likely to breach some of the covenants in its secured credit facility in the near term.

At the end of June 2002, iPCS had $19.6 million of cash and $30 of undrawn revolving credit. In the first six months of 2002, iPCS consumed $50 million of cash. Going forward liquidity could be augmented by the sale of the company's tower assets, however, it is increasingly likely that such proceeds could instead be used to repay bank debt rather than for more general corporate purposes, Moody's said. There was $110 million in outstanding bank debt at June 30, 2002.

For Ubiquitel, Moody's said the company has experienced a number of challenges in recent quarters, particularly with regard to the operations of the acquired California Central Valley franchise from VIA Wireless. This area is highly competitive and the subscribers acquired from VIA were of poor quality, this has led higher churn levels at UbiquiTel, over 4% per month, than its peers.

While UbiquiTel was able to amend its credit agreement in July 2002, Moody's is concerned that this relief may still not provide enough cushion as the operating environment has continued to worsen since then.

Horizon is unlikely to maintain covenant compliance in the medium term despite recent modifications to its credit agreement, Moody's said. The C rating on the senior note issues reflects their structurally subordinated position behind that $250 million credit facility, as well as the thinner asset base of Horizon PCS as the company utilizes another company's network in approximately 30% of its franchise territory, leaving unsecured creditors poorer prospects of recovery in the event of default.

Alamosa is one of the largest and most mature of the Sprint PCS affiliates, with a larger franchise territory (15.6 million POPs) and subscribers (571,000 at the end of 2Q02) than any of its peers, Moody's said. However, Alamosa also has the most debt outstanding in absolute dollars at $855 million at June 30, 2002.

Moody's has in the past been concerned with Alamosa's use of debt to expand its business plan before the company had more fully matured. As the market for wireless services slows and becomes even more competitive, this heavy debt load becomes even more burdensome. While Alamosa has achieved positive EBITDA in the first two quarters of this year, it totals less than $10 million, and Alamosa has consumed over $90 million in cash for the first six months of this year.

US Unwired has a decent liquidity position with $40 million of cash and its entire $78 million revolving credit undrawn, but is constrained by subscriber growth much slower than its peers and a worsening churn situation, Moody's said. The secured credit facility is rated B2, above the senior implied rating, due to its relatively modest size in the US Unwired capital structure, as well as the additional assets that secure those loans as compared to the typical Sprint PCS security package.

Moody's noted that subscriber growth has slowed at US Unwired faster than at any other Sprint PCS affiliate, as the company added only 7,000 subscribers in 2Q02 in its southeast territory, the credit base for the ratings under discussion, despite the acquisition of Georgia PCS in the beginning of the quarter that brought additional franchise territory to sell into.

Further pressuring the company's credit ratings is the steep decline in the reciprocal roaming rate that the company will receive beginning in 2003, Moody's said. US Unwired enjoys a rate two times higher than any other Sprint PCS affiliate at $0.20 per minute through December 2002.

Moody's rates new Sinclair notes B2

Moody's Investors Service assigned a B2 rating to Sinclair Broadcast Group Inc.'s new $125 million senior subordinated notes due 2012 and confirmed its existing ratings including its $600 million senior secured credit facilities at Ba2, $860 million senior subordinated notes and Sinclair Capital's $200 million Hytops at B2, $173 million convertible preferred stock at B3 and speculative grade liquidity rating at SGL-2. The outlook is stable.

Moody's said Sinclair's ratings reflect the risks posed by its high financial leverage and modest cash flow coverage of interest and dividends after capital expenditures; high planned capital investment; the financing and integration risks associated with potential acquisitions; the need to renegotiate several affiliation agreements; the relatively weak position the company's stations have in their markets, and the greater impact that economic downturns have on lower ranked stations; and exposure to the cyclical advertising environment.

Supporting the ratings are the size and geographic diversity of Sinclair's station portfolio; the more than ample collateral coverage provided to creditors, even in times of distress; margin performance at or above the levels of its industry peer group; a willingness to monetize assets to reduce debt leverage; and the company's focus on increasing local advertising revenue, which has proven more resilient than national advertising revenue during uncertain economic times, Moody's added.

The company also has a good liquidity position. Moody's said it expects Sinclair to produce positive free cash flow through the rating horizon and believes that the company's $225 million revolving credit facility is amply sized and will rarely be drawn upon for normal working capital activity exclusive of the financing of potential future acquisitions.

The stable outlook incorporates the expectation of near-term improvement in the company's financial performance, off-set by the likelihood that growth will be modest in 2003 due to the lack of political revenue and uncertain economy, Moody's said. If Sinclair pursues further stations sales that result in debt reduction, the company can achieve positive ratings momentum. The pursuit of debt financed acquisitions that further leverage the company's balance sheet would result in a ratings downgrade.

Moody's assigns Champion Enterprises SGL-3 liquidity rating

Moody's Investors Service assigned an SGL-3 speculative grade liquidity rating to Champion Enterprises, Inc.

Moody's said the rating indicates adequate liquidity for the next 12 months, reflecting Champion's comfortable current cash balance and Moody's expectation that the company will be free cash flow positive over the next 12 months.

Although Champion generated positive free cash flow in each of the years 1999-2001, which were difficult years for the industry, it began burning cash in 2002 and may end up the year with negative free cash flow, primarily from larger-than-expected operating losses, Moody's said. While the company has attempted to size its labor force and both its manufacturing and retail bases to ensure that both segments can be profitable even at the current low level of industry shipments, it is likely to experience seasonally weak cash flow until the second quarter of 2003, when the seasonal build up of cash typically begins.

However, the company is expecting upwards of $40 million in tax refunds in April 2003. Combined with its unrestricted cash balance of $92 million at Sept. 28, 2002, the company's liquidity for the coming year appears sufficient to fund working capital and capital spending requirements, barring a substantial further slide in industry shipments of manufactured homes.

Fitch rates Williams Communications loan B

Fitch Ratings assigned a B rating to the senior secured bank facility of Williams Communications, LLC, a wholly owned subsidiary of Wiltel Communications, Inc., which recently emerged from Chapter 11 bankruptcy proceedings. The rating was removed from Rating Watch Negative and Fitch assigned a negative outlook. Fitch also withdrew the senior unsecured debt and preferred stock ratings of Williams Communications Group, Inc.

Fitch said its rating reflects the industry and business risks Wiltel faces as it emerges from bankruptcy, namely the low demand for voice and data long-distance transport services.

Fitch anticipates that the low growth in demand will continue to persist for at least the short term and in Fitch's view will continue to pressure the company's pricing strategy and operating margins.

Considering these factors, Fitch expects that the company may find it difficult to drive significant profit improvements within its network over the immediate term.

Fitch's rating is supported by the favorable amortization schedule of the company's debt and its sizable cash position. There is no significant debt amortization scheduled until 2005.

Fitch would expect that if business conditions persist or deteriorate, the company could minimize its capital expenditures and other cash requirements so that existing balance sheet cash could possibly carry the company into 2004.

S&P cuts Klabin

Standard & Poor's downgraded Klabin SA, including cutting its corporate credit rating to CCC+ from B+, and kept the company on CreditWatch with negative implications.

The downgrade reflects increasing likelihood that Klabin will not be able to meet required amortizations on the local debenture and fixed-rate notes maturing on Nov. 1 and Nov. 4, respectively, S&P said.

The company is finalizing a long-term, local debt structure with the support of BNDES and its major local banks to resolve these maturities and at the same time most of its refinancing requirements until the second semester of 2003.

Although the deal is not yet closed, S&P said it believes that the company and its banks will reach an agreement. However, as the due date of these maturities approaches, the company might not be able to make these payments on a timely basis.

If the negotiation of the local deal fails, Klabin is likely to default on its public debt, and the ratings would be lowered further, S&P said.

S&P cuts SOLA

Standard & Poor's downgraded SOLA International Inc. and maintained a negative outlook.

Ratings lowered include Sola's $100 million 6.875% senior unsecured notes due 2008 and €205 million 11% senior notes due 2008, cut to BB- from BB and $45 million senior secured revolving credit facility due 2004, cut to BB from BB+.

S&P withdraws IFCO ratings

Standard & Poor's withdrew its ratings on IFCO Systems NV including its €200 million 10.625% senior subordinated notes due 2010 previously at D and $100 million revolver due 2006 and $78 million acquisition facility due 2006 previously at CC.

S&P said IFCO is currently in the process of restructuring the credit facility, which will likely result in impairment to current holders.

S&P upgrades Tropical Sportswear

Standard & Poor's upgraded Tropical Sportswear International Corp. including raising its $100 million 11% senior subordinated notes due 2008 to B from B- and $110 million revolving credit facility due 2003 to BB from B+. The outlook is stable.

S&P said the upgrade reflects Tropical Sportswear's improved financial profile resulting from a $64 million equity infusion, of which about $32 million was used to reduce outstanding debt.

In addition, the company's financial performance and related credit measures have improved during the past several years, despite the difficult retail environment and the weak economy, S&P said.

Sales are highly concentrated, with Tropical Sportswear's five largest customers representing just over one-half of the company's sales, S&P noted. As retailers consolidate and gain purchasing power, it is increasingly difficult for manufacturers to obtain price increases.

However, under its private-label programs, Tropical Sportswear produces for a range of distribution channels, from department stores to price clubs, S&P added. These programs are important because they usually generate better margins for the retailer than the national brands.

In June 2002, the company completed a public offering of 3.0 million shares of its common stock. The company received net proceeds of approximately $64 million, of which $32.0 million was used to repay outstanding debt.

The challenging conditions of fiscal 2001 have continued in fiscal 2002 as the slowing U.S. economy dampens consumer spending. Tropical Sportswear's sales were down about 8% in fiscal 2001 and margins deteriorated somewhat as the retail climate continued to be weak, S&P said. Sales year-to-date through July 2002 rebounded with a 5% increase, although margins remain pressured. On an operating lease-adjusted basis, S&P said it expects both total debt to EBITDA and EBITDA interest coverage of about 3.0x for the fiscal year ended September 2002.

Moody's raises Ispat Inland

Moody's Investors Service upgraded Ispat Inland Inc. and Ispat Inland LP, affecting $1.25 billion of debt. Ratings raised include Ispat Inland Inc.'s senior secured first mortgage bonds, to Caa1 from Caa2, and unsecured industrial revenue bonds, to Caa3 from Ca, and Ispat Inland LP's $700 million senior secured term credit facilities and $160 million senior secured letter of credit facility, to Caa1 from Caa2. The outlook is stable.

Moody's said the actions reflect Ispat Inland's improved operating performance, expectations for more favorable sales contract pricing for 2003, and the moderation of its exposure to financial difficulties at its parent, Ispat International NV, through an amendment to its term loan agreement.

However, Moody's said the ratings are limited by the company's significant near-term cash requirements, potential for increasing operating costs, and substantial debt burden.

Ispat Inland's financial performance improved notably during the year, with third quarter 2002 operating profit at $40 million compared to an operating loss of $11.3 million in the third quarter of 2001, excluding unusual items.

Rising steel prices, improved production volumes, and market share gains as a supplier to the automotive industry (now about 31% of revenues) have supported Ispat Inland's year-to-date revenue growth, Moody's said. Concurrently, cost reduction efforts, including corporate spending curtailments and workforce reductions, combined with lower natural gas costs further enhanced Ispat Inland's operating performance.

During 2003, Ispat Inland's revenues are expected to benefit from sales contract renewals (comprising about 65% of sales) at higher prices, Moody's said. However, spot prices have begun to decline with the restart of idled industry capacity and are likely to be pressured during 2003 by the continuing soft economy and by the step-down of steel tariffs scheduled in March.

S&P puts Grant Prideco on watch

Standard & Poor's put Grant Prideco Inc. on CreditWatch with negative implications including its $200 million 9.625% notes due 2007 at BB.

S&P said the watch placement follows Grant Prideco's announced acquisition of Reed-Hycalog from Schlumberger Ltd. for $350 million. The acquisition, which is expected to close by year-end, will be funded with about $255 million in cash, $5 million of assumed liabilities and $90 million of Grant Prideco common stock, which will be issued to Schlumberger,in line accordance with the terms of the transaction.

S&P said it put Grant Prideco on watch because of the potential for lower ratings given the significantly increased pro forma leverage to complete the acquisition of Reed-Hycalog, a manufacturer and marketer of drill bit technology and products, and the company's ability to generate appropriate financial measures with the current ratings.

Although the acquisition diversifies the company's product lines and lowers the volatility of Grant Prideco's cash flow, S&P said it may downgrade the company's ratings because the transaction materially increases Grant Prideco's debt burden during challenging drilling market conditions.

In addition, the acquisition of Reed-Hycalog should improve Grant Prideco's business risk profile by adding a business with profitability throughout the drilling cycle, in contrast to the company's current businesses that rank among the most volatile in the oilfield services sector, S&P said. The broader product platform and relatively more stable cash flow generation ultimately could improve Grant Prideco's credit quality by improving the consistency of its cash flow.

In the longer term, Grant Prideco's cash flow could increase on a secular basis as it plans to grow the drill bit business and should realize synergies in technology, manufacturing and sales throughout the company.

Nevertheless, the acquisition will be funded though an aggressive use of debt, S&P said. Grant Prideco effectively is adding Reed-Hycalog at a 5.0 times debt to EBITDA transaction multiple, which would stretch the company's near term credit protection measures.

S&P upgrades Superior Telecom

Standard & Poor's upgraded Superior Telecom Inc. including raising its $214 million senior secured revolver due 2004, $425 million term loan B due 2005 and $500 million term loan A due 2004 to CCC from SD. The rating was withdrawn on the $200 million 8.5% convertible subordinated notes due 2014, previously at CC. The outlook is negative.

S&P said the action follows Superior Telecom's successful completion of an announced debt restructuring.

As a result of the restructuring, Superior has eliminated its term loan amortization requirements for the remainder of 2002 and for the first six months of 2003, S&P said. In total, amortization payments will be reduced by more than $225 million through year-end 2003.

The company negotiated payment-in-kind interest on its $200 million subordinated notes in 2002 and is negotiating to have the PIK option extend into 2003. S&P said it expects that negotiations with the subordinated note holders will be successful.

The ratings reflect Superior's position as the largest U.S. producer of copper cables and wires, a very aggressive financial profile, an onerous debt maturity schedule, weak end-market demand, and tight liquidity, S&P added. Superior's operations have been negatively affected by weak conditions in the telecommunications market, which are not expected to rebound until the latter half of 2003 at the earliest.

Moody's cuts Trenwick

Moody's Investors Service downgraded Trenwick Group Ltd. and its subsidiaries, affecting $250 million of debt. The review continues with direction uncertain. Ratings lowered include Trenwick's senior debt, cut to B3 from Ba3.

Moody's said the action is in response to concerns over Tenwick's liquidity profile, upcoming debt maturities, and uncertainty surrounding its future business prospects.

The company is currently in violation of a covenant related to its revolving credit facility, Moody's noted. The facility is used to support letters of credit which capitalize the company's Lloyd's operation, primarily Syndicate 839. With the triggering of the covenant violation, the bank syndicate now has the right to demand collateral. Moody's believes that Trenwick does not have sufficient liquidity to meet such funding as may be required for its Lloyd's business as well as to repay senior notes maturing in April 2003.

Given these pressures, and without access to new capital, it is possible that the company will be forced to default on or restructure its near term financial obligations, Moody's said.

Moody's noted that Trenwick is taking aggressive steps to restructure, stabilize and restore confidence in their operations as evidenced by the recently announced fronting agreement between Chubb Re and Trenwick.

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