S&P cuts AES, on watch

Standard & Poor's downgraded AES Corp. and put it on CreditWatch with negative implications. Ratings lowered include AES' senior unsecured debt, cut to B+ from BB-, subordinated debt, cut to B- from B and trust preferred securities, cut to CCC+ from B-, Ipalco Enterprises Inc.'s senior unsecured debt, cut to BB+ from BB-, Indianapolis Power & Light Co.'s senior secured debt, cut to BB+ from BBB-, senior unsecured, cut to BB- from BB+, and preferred stock, cut to B+ from BB, and AES Eastern Energy LP's $550 million pass through certificates and $50 million working capital facility bank loan to BB+ from BBB-.

S&P said the action follows AES' launch of a $1.62 billion secured bank facility, combined with up to $350 million in senior secured exchange notes maturing December 2005.

AES has tendered for some of its existing debt, offering either cash and new notes or just new notes. The exchange notes rank pari passu with the bank facility in the security package, which includes 100% of AES' equity interests in its "tier 1" domestic businesses and 65% of the equity in its "tier 1" foreign businesses.

If this transaction is successful, it will increase AES' flexibility by pushing off any substantial maturities for up to three years; however, the downgrade reflects continued deterioration in AES' Latin American businesses, and anticipation that cost cutting and improved performance at other businesses will not make up for those losses to the extent that AES had projected in its guidance provided after the second quarter, S&P said.

If the tender is successful, AES will not be paying down maturities out of operating cash flow as they come due, as had been AES' plan, but rather will be paying down debt as proceeds from asset sales are realized, which will likely result in less timely deleveraging than had been anticipated, S&P added.

Many of AES' businesses provide solid, stable cash flow, with 44% of anticipated 2002 distributions coming from contract generation or large utilities in North America, and about one-third of anticipated distributions going forward coming from these assets, S&P noted. The remainder comes from a diversified mix of global businesses that include utilities, distribution companies, contract generation, and merchant generation. However, AES' concentration in Latin America has hurt its financial performance over the past two years. That, combined with general market conditions in the sector, has severely restricted AES' access to capital and placed it in a position where it needs to sell assets to reduce leverage to a more manageable level.

If AES closes the transaction, S&P will maintain its corporate credit rating at B+ with a negative outlook due to the need to execute on the remainder of the asset sale program.

With the security package that will be in place and the disadvantaged position of all other debtholders, senior unsecured notes would be lowered to B-, subordinated notes to CCC+ and trust preferred securities to CCC.

If AES is not successful with the transaction, the corporate credit rating would fall to B or further depending on the circumstances, and would remain on CreditWatch Negative, S&P added.

Ipalco and its subsidiaries and AES Eastern were downgraded because of their linkage to AES.

Fitch cuts AES

Fitch Ratings downgraded AES Corp. and kept it on Rating Watch Negative. Ratings lowered include AES' senior unsecured notes, cut to B from BB-, senior subordinated notes, cut to B- from B, and convertible junior debentures and trust preferred convertible preferred securities, cut to CCC+ from B-. AES' senior subordinated and junior subordinated notes were left unchanged at B-. Fitch also cut AES subsidiary Ipalco Enterprises including cutting its senior unsecured debt to BB from BB+ but left unchanged the ratings of Indianapolis Power and Light. Both were put on Rating Watch Negative.

Fitch said the action is in response to AES' launch of a $1.6 billion multi-tranche three-year senior secured credit facility and offer to exchange up to $500 million of senior notes with a combination of cash and secured notes.

Fitch said the proposed transactions are a positive step for AES with the prospect of eliminating grave refinancing risks that currently overshadow the corporate credit.

If the bank refinancing and exchange offer are successful, AES will have minimal debt maturities until the fourth quarter of 2005, Fitch noted.

Assuming that AES is successful in closing the senior credit facility and the exchange offer, Fitch said it expects to rate the senior secured bank facility and the senior notes BB-, remove the Negative Rating Watch. The outlook would then be stable on the senior notes and bank facility.

If these transactions fail, the newly assigned B senior unsecured rating may be further reduced to reflect the company's imminent liquidity crisis and refinancing risk, Fitch said.

S&P cuts Tesoro

Standard & Poor's downgraded Tesoro Petroleum Corp., removed it from CreditWatch with negative implications and assigned a negative outlook. Ratings lowered include Tesoro's $300 million 9% senior subordinated notes due 2008, $215 million 9.625% senior subordinated notes due 2008 and $450 million 9.625% senior subordinated notes due 2012, cut to B from B+, and its $225 million senior secured credit facility due 2006, $750 million senior secured credit facility due 2007 and $250 million senior secured term loan due 2006, cut to BB from BB+.

S&P said the downgrade reflects the effect of "dismal" refining crack spreads throughout 2002 on Tesoro's cash flow at a time when the company has been attempting to delever its balance sheet.

Reduced cash flow in 2002 and 2003 will likely result in material delay in execution of Tesoro's debt reduction plan announced in June 2002, S&P said.

However, S&P said it expects the company to ultimately accomplish its target of $500 million in debt repayment, albeit over a longer period of time.

Delayed deleveraging has resulted in a weakened financial profile and could expose Tesoro to potential liquidity constraints, should refining margins fail to recover to midcycle ranges by mid-2003, S&P said.

S&P cuts some Telewest ratings

Standard & Poor's downgraded some ratings of Telewest Communications plc and its subsidiaries and removed them from CreditWatch with negative implications.

Ratings lowered include Telewest's $300 million 9.625% senior debentures due 2006 and $1.536 billion 11% senior discount debentures due 2007, both cut to D from C, and Telewest Communications Networks Ltd.'s £250 million senior secured bank loan due 2008 and £2 billion senior secured bank loan due 2007, cut to C from CCC-.

Ratings confirmed include Telewest's $350 million 11.25% senior notes due 2008, £300 million convertible notes due 2007, £325 million 9.875% senior discount notes due 2009, £180 million 9.875% notes due 2010, $450 million senior discount notes due 2010 and $350 million 9.875% senior notes due 2010 and Telewest Finance (Jersey) Ltd.'s $500 million 6% convertible bonds due 2005, all at C.

S&P lowers AMD outlook

Standard & Poor's lowered its outlook on Advanced Micro Devices Inc. and confirmed its ratings. Affected debt includes AMD's $200 million 4-year secured revolver at B+ and $500 million convertible senior debentures due 2022 at B.

S&P said the outlook change reflects AMD's announcement that it would report revenues in the September 2002 quarter of about $500 million, compared to $600 million in the June quarter. Earlier, the company had expected a moderate sequential increase in revenues.

At the $500 million revenue level, AMD expects to report an operating loss well above $100 million for the quarter, S&P noted, adding that it anticipates that AMD's operating cash flows will also be substantially negative.

Cash balances at June 30, 2002, were $1.1 billion, having declined $175 million in June on a $100 million operating loss.

S&P said it expects AMD to report that cash balances declined materially in September as operating losses accelerated. While operating performance in December cannot currently be assessed, losses and negative cash flows remain likely.

Fitch cuts Mississippi Chemical

Fitch Ratings downgraded Mississippi Chemical Corp.'s senior secured credit facility to CCC+ from B+ and its senior unsecured notes to CCC- from B-. The ratings have been placed on Rating Watch Negative.

Fitch said the downgrade reflects heightened refinancing risk associated with Mississippi Chemical's secured credit facility and continued weak financial performance.

Refinancing risk has increased as the Nov. 25, 2002 expiration of the $200 million secured credit facility draws closer, Fitch added. The company has $110 million outstanding on the facility as of June 30, 2002.

Mississippi Chemical has approximately $2 million cash on the balance sheet as of June 30, 2002 and operating earnings remain weak, Fitch noted.

The company continues to struggle through the fertilizer cycle's trough. As of June 30, 2002, the company's total debt-to-EBITDA is 25.4 times and EBITDA-to-interest incurred is 0.5x, Fitch said. EBITDA (before unusual items) for fiscal year 2002 ended June 30, 2002 was $12.8 million on revenue of $451 million and net free cash flow was approximately $15 million.

S&P raises Orbital Sciences

Standard & Poor's upgraded Orbital Sciences Corp. and removed it from CreditWatch with positive implications. Ratings affected include Orbital Sciences' $135 million 12% second priority secured notes due 2006, raised to B from CCC+. The outlook is positive.

S&P said the upgrade follows Orbital Sciences' refinancing of its $100 million subordinated notes that matured on Oct. 1. The subordinated notes were paid using the proceeds from the issuance of $135 million second-priority secured notes due 2006.

The rating on Orbital Sciences reflects the company's modest size and risks inherent to the space launch business, offset by leading positions in market niches and increased military spending, especially for the National Missile Defense (NMD) program, S&P said.

Demand for communications satellites has been weak, but the company's small GEO satellites could benefit from their lower capital costs and ability to add incremental capacity, S&P noted. The launch vehicle segment has been bolstered by a contract with Boeing Co., valued at over $900 million over the next six to eight years, to develop the booster for one segment of the NMD program.

Orbital's near-term liquidity has improved due to the successful refinancing of its $100 million subordinated notes, S&P added. Orbital remains fairly highly leveraged, with total debt to capital of around 65%. Profitability will likely improve materially in 2002 from net losses the past two years due to the turnaround in the company's satellite operations and the Boeing contract. S&P expects that operating margins before depreciation are likely to approach 10% in 2002.

S&P rates Aerostructures loan BB-

Standard & Poor's assigned a BB- rating to Aerostructures Corp.'s new bank loan including the $35 million revolving credit facility due 2007 and $130 million term loan B due 2008. The outlook is positive.

S&P said that after the refinancing the new facility will comprise Aerostructures' entire debt structure.

The facility is secured by all of the assets of Aerostructures and its subsidiaries and contains financial covenants related to maximum leverage, as well as minimum interest and fixed-charge coverage, S&P noted adding that it believes that in a simulated default scenario the proceeds from the sale of assets or a distressed enterprise value of the firm would be insufficient to fully repay outstanding principal; however, a meaningful recovery (greater than 50%) of principal is likely.

Aerostructures' ratings reflect its participation in the cyclical and competitive commercial aerospace industry and relatively modest scale of operations (annual sales $300 million-$350 million), offset somewhat by the firm's major positions in its markets and much improved financial profile, S&P said.

Credit protection measures are somewhat above average for the rating, following substantial debt reduction from internally generated funds, and better profitability, S&P said. A financial turnaround under new management, which also focused on increased productivity, contributed to profitable operations in 2001, reversing several years of losses, a trend that is likely to continue in 2002 despite weaker revenues.

S&P cuts Viasystems

Standard & Poor's downgraded Viasystems Group Inc. to D including its $628.1 million senior secured credit facility, previously at CC.

S&P said the action follows Viasystems' filing of a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

S&P rates Genesis Health loan B+, lowers existing loan

Standard & Poor's assigned a B+ rating to Genesis Health Ventures Inc.'s $200 million term B bank loan due 2007, confirmed its corporate credit rating at B+ and lowered its existing $150 million senior secured bank credit facility, $282 million senior secured term loan, $80 million senior secured amortizing term loan, all due in 2006, to B+ from BB, and its $242 million senior secured amortizing rollover notes due 2007 to B- from B. S&P also put the ratings on CreditWatch with developing implications.

S&P said it will resolve the CreditWatch when it has a clarification of the likely magnitude and application of proceeds of its sale of its core ElderCare nursing home and assisted living division, which generates the majority of current sales, but which faces significant reimbursement uncertainties and growing insurance expenses.

Genesis also is attempting to acquire an institutional pharmacy company, S&P noted. If it completes both transactions, Genesis will be entirely transformed from an eldercare service provider to an institutional pharmacy company.

The downgrades reflect the additional $200 million principal burden on the pledged collateral package and S&P's view that although asset coverage presently appears ample for the senior credit facilities the likelihood of full principal recovery of the larger obligation could diminish under a default scenario.

Moody's assigns SPX liquidity rating

Moody's assigned an SGL-1 rating to SPX Corp., reflecting that operational cash flow should adequately cover capital spending, scheduled debt amortization and other financial commitments over the next 12 months.

SPX has built up a sizable cash balance and there is no balance outstanding on its $600 million committed revolving credit facility. It should also remain comfortably in compliance with bank financial covenants, Moody's said.

The company may be required to purchase all or a portion of its 0% convertible notes, with total face value of $1.4 billion, beginning May 9, 2003. However, the company may at its option, choose to pay in cash and/or stock.

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