S&P lowers Lucent outlook

Standard & Poor's lowered its outlook on Lucent Technologies Inc. to negative from stable and confirmed its ratings including its senior secured and senior unsecured debt at B+ and preferred stock at CCC+.

S&P said it changed Lucent's outlook because of continued stresses in market conditions and increasing uncertainty as to the company's ability to return to profitability.

Lucent's June quarter sales were $2.95 billion, 16% below the March quarter, although the company had anticipated only a 10%-15% decline in its mid-June guidance update, S&P noted. Revenues were $5.4 billion in the June 2001 quarter.

Industry conditions are not expected to improve materially over the next year, as carriers continue to defer capital expenditures in light of renewed economic concerns and lack of marketplace visibility, S&P added. Lucent's ability to meet prior revenue targets, given that challenging market conditions had become increasingly problematic, and the company is not providing guidance for the September 2002 quarter.

Moody's puts A&P on review

Moody's Investors Service put The Great Atlantic & Pacific Tea Co., Inc. on review for downgrade. Ratings affected include A&P's $425 million secured revolving credit facility at Ba2 and $22 million 7.70% senior notes due 2004, $272 million 7.75% senior notes due 2007, $275 million 9.125% senior notes due 2011 and $200 million 9.125% senior notes due 2039, all at B2.

Moody's said the review is in response to concerns about the impact of disappointing operating performance during the second half of 2002 and full year 2003 on debt protection measures.

Moody's cuts Nutritional Sourcing notes

Moody's Investors Service downgraded the notes Nutritional Sourcing Corp. (formerly known as Pueblo Xtra International, Inc.) and gave the company a negative outlook. Ratings lowered include Nutritional Sourcing's $177.3 million 9.5% senior notes due August 2003, cut to Ca from Caa3, its senior implied rating, cut to Caa3 from Caa2, and issuer rating, cut to Ca from Caa3. Moody's also confirmed its $40 million revolving credit facility at B3.

Moody's said the action is in response to Nutritional Sourcing's announcement it likely will not make the forthcoming senior note interest payment.

Moody's added that the ratings reflect its belief that the company's reorganization value is substantially less than its outstanding debt, its leveraged financial condition, the increasingly competitive food retailing environment in Puerto Rico, and the geographic concentration of the company's operations in Puerto Rico.

However, the ratings are supported by Pueblo's market position as the most important supermarket chain in Puerto Rico and the U.S. Virgin Islands.

The B3 rating on the revolving credit facility recognizes that virtually all assets of the company, including the capital stock of company subsidiaries, and its subsidiaries secure the bank loan, Moody's said. In a default scenario, the orderly liquidation value of the company's assets likely will exceed the bank commitment, Moody's said.

The Ca rating on the senior unsecured notes recognizes that they are structurally subordinated to a significant amount of more senior debt, Moody's added. The notes are issued by the holding company but do not have guarantees from the operating subsidiaries. As a result, obligations at the operating companies, such as $54 million of vendor accounts payable, are senior to the rated senior notes. In a default scenario. Moody's said it believes that senior noteholders would suffer a significant loss.

Moody's rates Newfield notes Ba3

Moody's Investors Service assigned a Ba3 rating to Newfield Exploration's proposed $225 million of senior subordinated notes and confirmed its existing ratings including its $175 million 7.625% senior unsecured notes due 2011 and $125 million of 7.45% senior unsecured notes due 2007 at Ba2 and Newfield Financial Trust I's $144 million of 6.5% convertible trust preferred stock at Ba3. The outlook is stable.

Moody's said the ratings are pro forma for Newfield's pending purchase of EEX Corp. for $650 million, including 7.1 million of Newfield common shares issued in exchange for EEX common and preferred shares and the assumption of roughly $400 million of EEX debt.

Newfield's three pro-forma operating subsidiaries do not guarantee the proposed parent senior subordinated notes, existing senior notes, or the parent's current (and pro-forma) $425 million senior unsecured bank borrowing base facility, Moody's noted. As a result parent debt is structurally subordinated to $226 million of pro-forma subsidiary liabilities ($101 million of secured EEX debt and $125 million of other liabilities).

Newfield's states that roughly 65% of pro-forma production and 53% of reserves are at the parent, assisting the subordinated notes to be rated one notch under the senior implied rating, instead of two, and the senior notes to be rated at the senior implied level.

The ratings are supported by a history of sound funding and business strategies; Newfield's stated intention to quickly begin reducing effective debt; larger reserve scale and diversification and the important addition of EEX's onshore team; intensified core areas onshore Texas with EEX's sound Gulf Coast and South Texas properties; Newfield's long established core position in the shallow water Gulf of Mexico with deeper horizon potential; an increased prospect and data base in the deep water Gulf of Mexico; attractive operating margins that typically cover high reserve replacement costs; and Newfield's ability so far, through effective hedging to internally fund its high reserve replacement costs during weaker market prices, Moody's said.

Negatives are rising combined unit costs (production, G&A, interest and preferred dividends, and reserve replacement costs) relative to unhedged mean prices; fairly high pro-forma leverage on proven developed (PD) reserves, especially including the trust preferreds and in light of the short PD reserve life; reduced liquidity after EEX and smaller pending acquisitions; Newfield's flat second quarter 2002 production versus the year before, netting out a one time adjustment for to production royalty accounting; reinvestment risk and capital needs associated with Newfield's 4.6 year pro-forma PD reserve life (second quarter run-rate); potentially higher front-end costs, risks, and lead times inherent to Newfield's move into deepwater Gulf of Mexico activity; and ratings flexibility needed for additional strategic moves.

S&P rates Newfield notes BB-, lowers outlook

Standard & Poor's assigned a BB- rating to Newfield Exploration Co.'s planned of $225 million of subordinated notes, confirmed its existing ratings including its senior unsecured debt and bank loans at BB+ and preferred stock at B+ and revised the outlook to negative from stable.

S&P said the change in outlook reflects Newfield's decision to change the sources of funding for its $643 million acquisition of EEX Corp. in a manner that has worsened Newfield's credit quality.

In the new financing package, Newfield will fund about two-thirds of the purchase price with debt (including the new subordinated notes), versus about one-third in the prior package. As such, Newfield's credit statistics will worsen, with pro forma total debt to projected 2002 EBITDA dropping from about 1.2 to 1.7 and pro forma total debt per mcfe of proved reserves rising to $0.48 to $0.65, S&P said.

In addition, Newfield's liquidity (as defined as cash plus available borrowing capacity) at June 30, 2002, pro forma for the transaction, will drop to about $94 million, although Newfield anticipates generating roughly $40 million in free cash flow in the second half of 2002 that can be applied toward the reduction of bank debt, S&P added.

S&P said Newfield's leverage and liquidity have stretched the limits of its BB+ rating and further increases in leverage likely will trigger a ratings downgrade.

Moody's cuts PG&E National Energy to junk

Moody's Investors Service downgraded PG&E National Energy Group, Inc., affecting $3.8 billion of debt. Ratings lowered include National Energy's senior debt, cut to Ba2 from Baa2, PG&E Gas Transmission Northwest's senior unsecured debt, cut to Baa2 from Baa1, and USGen New England, Inc.'s senior debt, cut to Baa3 from Baa1. The outlook for all ratings is negative.

Moody's said it lowered National Energy because of its declining operating performance, including weaker than expected operating cash flow for the first half of the year; near-term liquidity challenges; and the adverse outlook for wholesale energy merchant prices which drive an increasing portion of National Energy's future cash flows.

National Energy's negative outlook reflects the weak prospects for the merchant energy market, considers the risk that the banks may not renew or extend the revolving credit facility on August 22, 2002, and reflects other near-term substantial claims on liquidity that could arise from trading agreements and performance guarantees, Moody's said.

PG&E Gas Transmission and USGen were lowered because of increased pressure that may be placed on subsidiary cash flow and liquidity to help support the parent's energy merchant business.

Moody's confirms Hovnanian

Moody's Investors Service confirmed the ratings and stable outlook of Hovnanian Enterprises, Inc. Ratings affected include Hovnanian's $150 million 10.5% senior unsecured notes due 2007, $150 million 9.125% senior unsecured notes due 2009 and $100 million 8% senior unsecured notes due 2012, all at Ba3 and $150 million 8.875% senior subordinated notes due 2012 at B2.

Moody's said the ratings reflect Hovnanian's increased size and improved credit statistics in recent years, strong market position within its respective markets, continued success in geographically diversifying deliveries and operating profits, and its 43-year history.

The ratings also incorporate Hovnanian's high debt leverage, long land position (approximately six years, largely optioned, or 4.6 years on a forward FY 2003 basis), and the cyclical nature of the homebuilding industry, Moody's said.

The stable outlook reflects the company's weaker credit statistics than those of its peers and its appetite for acquisitions and the resultant integration risks, the rating agency added.

S&P cuts Nutritional Sourcing

Standard & Poor's downgraded Nutritional Sourcing Corp. (formerly Pueblo Xtra International Inc.) including lowering its corporate credit rating to D from CC, its senior unsecured debt to D from C. S&P also confirmed Nutritional Sourcing's senior unsecured bank loan at CCC.

S&P said it lowered Nutritional Sourcing because the company did not make the Aug. 2 interest payment on its $177 million senior unsecured notes due 2003.

S&P lowers dj Orthopedics outlook

Standard & Poor's lowered its outlook on dj Orthopedics Inc. to stable from positive and confirmed its ratings.

S&P said the lower outlook reflects the recent erosion in dj Orthopedics' operating margins, which, combined with other factors, could make sustainable near-term credit improvement less likely.

Although the company has initiated a new cost restructuring program that could strengthen operating margins over the next several quarters, additional special charges are likely in the near term, S&P said.

S&P cuts Amkor

Standard & Poor's downgraded Amkor Technology Inc. The outlook is now stable. Ratings lowered include Amkor's $425 million 9.25% notes due 2006 and $500 million 9.25% senior notes due 2008, cut to B from B+, $200 million 10.5% senior subordinated notes due 2009, $250 million 5.75% convertible subordinated notes due 2006 and $258.75 million 5% convertible subordinated notes due 2007, cut to CCC+ from B-, and $200 million revolving credit agreement bank loan due 2005 and $250 million senior secured term loan B, cut to B+ from BB-.

S&P said the downgrade is in response to volatile conditions in the semiconductor market and a sustained deterioration in profitability and debt-protection measures, offset by Amkor's adequate near-term liquidity.

While Amkor has retained its leading market share among independent providers, the company is not expected to materially outperform the semiconductor packaging segment overall, which has suffered from a protracted period of overcapacity, S&P said.

While S&P said it continues to have a positive view of the long-term outsourcing trend in semiconductor packaging, it believes that sequential improvements in demand are expected to be modest over the near term.

Amkor aggressively expanded in 1999 and 2000, increasing the company's debt leverage following the purchase of four packaging factories from 42%-owned Anam Semiconductor Inc. of Korea. More recently, the company has made a number of joint venture and other investments to increase its packaging presence in Japan, Taiwan, and China, all places where Amkor sees future growth opportunities, S&P said.

As a result, the company's high cost structure, manufacturing intensity, and underutilized capacity are expected to delay attempts by Amkor to materially improve profitability and cash flow measures, S&P added.

Moody's cuts Telewest

Moody's Investors Service downgraded Telewest plc, affecting £6 billion of debt. The outlook is negative. Ratings lowered include Telewest Communications Networks Ltd.'s senior secured bank facility rating downgraded, cut to B3 from B2, Telewest Communications plc's senior unsecured bonds cut to Ca from Caa3 and Telewest Finance (Jersey) Ltd.'s senior unsecured bonds, cut to Ca from Caa3.

Moody's said the downgrade reflects the increased certainty that Telewest will require some form of balance sheet restructuring; the ratings indicate Moody's expected recovery prospects for Telewest's different classes of creditors.

Given Telewest's relatively limited growth trends (sequential revenue growth for the quarter ending June 30, 2002 was about 1.8%; about 4.6% compared to the prior year quarter) in the context of the company's highly leveraged balance sheet and resultant high requisite growth requirements, it now appears almost certain that some form of balance sheet restructuring will be required, Moody's said.

The Ca rating of Telewest's holding company notes reflect the significant impairment likely to be realized by par bondholders given the company's very high debt leverage, on-going funding requirements, and a significant amount of subordination to obligations at both the operating and intermediate holding company levels, the rating agency said.

The B3 rating of Telewest Communications Networks' bank facility reflects its structural seniority (at an intermediate holdco) and the benefits of strong covenant and collateral packages, as well as upstream subsidiary guarantees, Moody's added.

S&P cuts Trenwick capital securities

Standard & Poor's downgraded Trenwick America Corp.'s $110 million 8.82% subordinated capital income securities issued by Trenwick Capital Trust I to B from BB.

S&P withdraws Quality Distribution ratings

Standard & Poor's said it withdrew its ratings on Quality Distribution Inc. at the company's request.

Ratings affected include Quality Distribution's bank facility at B+, which was removed from CreditWatch before the withdrawal, and its subordinated debt at D.

Moody's cuts Eletropaulo

Moody's Investors Service downgraded Eletropaulo Metropolitana Eletricidade de Sao Paulo SA to Caa1 from B1 for both local and foreign currency. The outlook is negative.

Moody's said the downgrade is in response to Eletropaulo's continuing lack of success in assuring adequate liquidity to meet its near term debt maturities.

The company has more than $400 million in maturing debt in August and is dependent on funding from BNDES, the Brazilian Development Bank, and on a successful renegotiation of the upcoming bank debt maturity, Moody's said.

The BNDES proceeds were originally expected in March 2002, but the receipt of the second and third installments have been delayed. It appears that the company has negotiated all necessary documentation and proceeds are expected by the second week of August; however, there remains uncertainty with regard to the timing of the BNDES advances.

In order to avoid a payment default, Eletropaulo needs to successfully renegotiate its maturing bank loans in addition to achieving timely receipt of the BNDES loans. While negotiations are ongoing, the current financing environment is extremely difficult. Eletropaulo has not utilized its bank overdraft lines and Moody's said it lacks confidence that these would be available if the maturing debt is not refinanced.

If the company successfully refinances its August maturities, it has additional debt maturities in the fall of this year that will also need to be addressed, Moody's said. While the company has recently started a process to renegotiate the debt due in the second half of this year, the outcome of these efforts are difficult to ascertain at the current time.

S&P cuts Oglebay Norton

Standard & Poor's downgraded Oglebay Norton Co. including lowering its bank debt to B from B+ and its subordinated debt to CCC+ from B-. The outlook is negative.

S&P said the change is in response to difficult end-market conditions, the company's weak financial performance, and its limited free cash-flow generation, which will continue to result in high debt levels.

The ratings reflect Oglebay's very high debt leverage, cyclical end markets, high capital spending requirements relative to operating cash flow, and refinancing risk, S&P said. The ratings also reflect the company's diversified business segments and a focus on productivity and operational improvements.

Oglebay's debt levels have increased over the years due to acquisitions while end-market conditions have weakened, S&P noted.

Total debt of $436 million (adjusted for operating leases) is at an all-time high, resulting in a very aggressive total debt to capital ratio of 78%, S&P said. As a result, the company's credit protection measures have deteriorated. EBITDA to interest coverage is expected to remain in the weak 1.5x to 1.7x range, while funds from operations to total debt should remain near its very weak rolling 12-month average of 8% in the near to medium term.

S&P lowers Banco Comercial

Standard & Poor's downgraded Banco Comercial SA including lowering its $100 million 8.25% bonds due 2007 and $100 million 8.875% bonds due 2009 to CC from B.

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