Moody's puts Hollywood Casino on upgrade review

Moody's Investors Service put Hollywood Casino Corporation on review for possible upgrade including its $310 million 11.25% senior secured notes due 2007 and $50 million floating-rate senior secured notes due 2006 at B3.

Moody's said the review is based on the expectation that the acquisition of Hollywood Casino by Penn National Gaming, Inc. will occur and that Hollywood Casino's notes will be refinanced.

The transaction is expected to close at the end of February 2003.

Moody's puts Hollywood Casino Shreveport on downgrade review

Moody's Investors Service put Hollywood Casino Shreveport on review for possible downgrade including its total of $189 million 13% first mortgage notes due 2006 at B3.

Moody's said the review is in response to the current performance of the casino property relative to initial expectations.

In addition, Moody's said there is uncertainty about how Hollywood Casino Shreveport's $189 million of notes will be dealt with following the completion of Penn National Gaming, Inc.'s acquisition of Hollywood Casino Corp.

At the time the acquisition announcement was made, Moody's expected that Penn National would likely replace Hollywood Casino Shreveport's high coupon bonds with less expensive financing when the bonds become callable in August 2003. As a result, Hollywood Casino Shreveport would eventually give up its unrestricted and non-recourse status, and become part of the combined entity's restricted group.

Moody's changed Hollywood Casino Shreveport's ratings outlook to positive from stable based on that assumption.

However, at this point, Hollywood Casino Shreveport only generates $20 million to $25 million of EBITDA compared to an annual interest burden of $25 million and total debt of $189 million, Moody's said. EBITDA results so far are significantly below original expectations. The Shreveport market has also reported flat results through 2002, and competition is expected to increase in the near-term.

This creates a situation where Penn National may not satisfy the put option contained in the Hollywood Casino Shreveport mortgage indenture, or call the bonds in August 2003, particularly since Penn National is not a direct party to Hollywood Casino Shreveport's non-recourse mortgage indenture.

According to Hollywood Casino Shreveport's mortgage note indenture, if a change in control occurs, the company must offer to purchase all of the notes at 101% of their principal amount plus any accrued and unpaid interest. While Penn National has arranged funding to accommodate the change in control put option, it is not contractually required to honor it.

Moody's rates Penn National loan B1

Moody's Investors Service assigned a B1 rating to Penn National Gaming, Inc.'s proposed $1 billion secured bank credit facility including its $100 million revolver due 2008, $100 million term loan A due 2008, $600 million term loan B due 2009, $100 million second draw term loan B due 2009 and $100 million second priority facility due 2010 and confirmed the company's existing ratings including its $75 million revolver due 2005 at Ba3 (to be withdrawn at closing) and $200 million 11.25% senior subordinated notes due 2008 and $175 million 8.875% senior subordinated notes due 2010 at B3. The outlook is stable.

Proceeds from the new bank facility will be used to facilitate the purchase of Hollywood Casino Corp. and refinance Hollywood Casino's debt.

The ratings consider that the addition of the Hollywood properties will lower Penn National's dependence on its Charles Town, W.Va. property, Moody's said.

Although leverage will increase as a result of the acquisition, 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.

Free cash flow should benefit from lower near-term capital expenditure requirements and lower financing costs, Moody's added noting that by the time the transaction closes it expects that both Penn National and Hollywood Casino will be close to completing their respective capital expenditure programs.

The stable ratings outlook takes into account the strong operating performance of Charles Town and the addition of Hollywood Casino's Chicago facility. The Chicago facility operates in a market with favorable growth prospects and will account for about 30% of pro forma property-level EBITDA.

As far as the new loan is concerned, Moody's said the similarity between the company's secured bank loan rating and senior implied rating reflects the significant amount of secured debt in the pro forma capital structure. The one-notch rating differential between Penn National's existing secured bank loan rating and senior implied rating takes into consideration the small amount of secured debt relative to other debt obligations in the company's current capital structure.

S&P cuts Pegasus

Standard & Poor's downgraded Pegasus Communications Corp. and removed it from CreditWatch with negative implications. The outlook is negative. Ratings lowered include Pegasus Satellite Communications Inc.'s $100 million 9.75% senior notes due 2006, $115 million senior notes due 2005, $155 million 12.5% notes due 2007, $175 million notes due 2010, $192.835 million 13.5% senior subordinated notes due 2007 and $195 million 12.375% senior unsecured notes due 2006, cut to CCC- from CCC+, Pegasus Communications' $300 million 6.5% convertible preferred stock series C, cut to CC from CCC, and Pegasus Media & Communications Inc.'s $225 million senior secured bank loan series B due 2005 and $275 million senior secured bank loan due 2004, cut to B- from B+, and $83.2 million 12.5% notes series B due 2005, cut to CCC- from CCC+.

S&P said the downgrade is in response to increased concerns about the adequacy of Pegasus' liquidity.

Discretionary cash flow remained negative for the 12 months ended Sept. 30, 2002, but scaled back growth enabled Pegasus to generate positive cash flow in the 2002 third quarter, S&P noted.

Longer-term cash flow growth is expected to be constrained by considerable churn and the meaningful cash outlays required to retain and replace subscribers amid intense competition, S&P said.

Absent financial transactions, liquidity is likely to become more strained in the near term, S&P warned. Debt maturities substantially will rise in 2004 and 2005, and the company's 13.5% discount notes will require cash interest payments in 2004.

Pegasus did not declare the semiannual cash dividend payable July 1, 2002, on its 12.75% debt-like, exchangeable preferred stock. The company also did not declare the scheduled quarterly dividends payable on its Series C preferred stock for three quarterly periods.

At the 2002 third quarter end, Pegasus had borrowing availability of approximately $117 million under its reducing revolving credit facility maturing in 2004. Cash balances declined to approximately $48 million at Sept. 30, 2002.

S&P said it had viewed the company's cash cushion as an important source of intermediate-term liquidity. Potential divestitures of Pegasus' broadcast television assets could provide modest alternative sources of liquidity.

S&P says Fresh Del Monte unchanged

Standard & Poor's said Fresh Del Monte Produce Inc.'s ratings including its BB corporate credit rating with a stable outlook are not affected by the company's acquisition of Standard Fruit and Vegetable Co.

The acquisition will enhance Fresh Del Monte's product portfolio with tomatoes, potatoes, and onions, three products it does not offer, S&P noted.

Standard Fruit and Vegetable will also expand Fresh Del Monte's distribution in the Southwest.

S&P said it expects Fresh Del Monte to sustain credit measures above those appropriate for its rating category by offsetting the higher business risk associated with the commodity fruit and vegetable industry.

Fitch rates Levi Strauss loan BB

Fitch Ratings assigned a BB rating to Levi Strauss & Co.'s new $750 million secured bank facility maturing in 2006. Fitch rates Levi's $2.1 billion of senior unsecured debt at B+. The outlook remains negative.

The two-notch differential between the secured bank facility and the senior unsecured debt reflects the significant asset protection provided by the security, Fitch said.

The continuing negative outlook reflects the ongoing challenges Levi faces in sustaining the growth in revenues it reported in its most recent quarter, Fitch said.

Fitch cuts Deutsche Nickel, still on watch

Fitch Ratings downgraded Deutsche Nickel Technology Group's senior unsecured rating to BB- and kept it on Rating Watch Negative.

The rating watch will continue pending the outstanding test of financial covenants for fiscal 2002, Fitch added.

Fitch said its action reflects the slower than expected recovery of profitability levels following a downturn started in fiscal 2001.

Fitch said it expects that non-ferrous metals businesses, where Deutsche Nickel supplies to manufacturers of electronic consumer goods (e.g. PCs, TV and Hi-fi equipment) will remain exposed to competition in mature market segments.

Amid the weaker profitability, fiscal 2001 EBITDA-based credit protection measures have deteriorated. Net debt/EBITDA was 3.6x (from 3.4x in fiscal 2000) and EBITDA/net interest cover fell back to 3.8x, close to fiscal 1998 levels.

S&P cuts Beghin-Say to junk

Standard & Poor's downgraded Beghin-Say to speculative grade and removed it from CreditWatch with negative implications. The outlook is stable. Ratings lowered include Beghin-Say's €180.76 million floating-rate notes due 2004 and €45.735 million zero-coupon notes due 2006, both cut to BB- from BBB+.

S&P said the action follows the announcement by the Origny Naples consortium that it had obtained 95.6% acceptance of its public bid for Béghin-Say's equity. Origny Naples is equally owned by Union des Sucreries et Distilleries de l'Aisne (USDA), a cooperative primarily active in sugar-processing and refining, alcohol production, and starch manufacturing; and Union BS, a special-purpose entity controlled by French beet growers.

As a result of its change of control, Béghin-Say's financial flexibility, in particular its access to equity and debt capital has been substantially reduced, S&P said.

S&P added that it believes that Béghin-Say's debt measures will improve over the medium term, although only gradually. In particular, the group's free operating cash flow generation, which is otherwise strong, are expected to remain impaired by restructuring charges through 2004.

Béghin-Say will go through a significant, although low-risk, restructuring of its business base, including the disposal of about 38% of its E.U. sugar quota rights and its Hungarian subsidiary.

Béghin-Say's solidly investment-grade business profile remains largely supported by its highly efficient French operations and its well-positioned, profitable, Brazilian subsidiary, as well as by the protective E.U. sugar regime, which basically sets each E.U. producer's processing margins based on its allocated quota, S&P said.

S&P lowers AT&T outlook

Standard & Poor's lowered AT&T Corp.'s outlook to negative from stable and confirmed its ratings including its senior unsecured debt at BBB+.

S&P said the outlook revision is due to the steeper-than-anticipated decline in business revenues in the fourth quarter of 2002 and the lack of visibility for a material turnaround in the overall business services segment in 2003.

Business segment revenues declined 3% in the fourth quarter of 2002 compared with the same quarter in 2001, S&P noted. The decline reflects the decrease in retail long-distance voice volumes due to the weak economy and the continued softness in information technology spending.

In addition, pricing pressures exhibited in contract renewals, due to competitors' aggressive pricing, impacted revenue growth.

Data revenue growth was also lower in the fourth quarter of 2002, compared with the third quarter of 2002, reflecting continued weakness of IT spending on managed network services. Business services revenue comprises about 70% of total revenue and about 60% of total EBIT.

The decline in the consumer services revenue continued as anticipated due to the impact of wireless substitution, e-mail, and regional Bell operating company entry. Revenue for this segment declined 20% in the fourth quarter of 2002 compared with the same period in 2001. In 2003, the rate of decline is expected to abate slightly, due partially to the company's expansion in the local exchange market, S&P said.

AT&T's debt reduction efforts over the past year have resulted in one of the best capital structures in the industry, S&P noted. At year-end 2002, net debt to EBITDA was about 1.25x, better than anticipated by S&P. On Jan. 23, 2003, the company announced an offer to repurchase $4.3 billion of debt for cash at a price higher than par. The company is committed to further debt reduction via free cash flow.

Moody's lowers Quebecor, Sun Media outlooks, rates Sun notes Ba3

Moody's Investors Service lowered its outlook on Quebecor Media Inc. and two of its subsidiaries, Sun Media Corp. and Videotron Ltee. to negative from stable and put CF Cable TV on downgrade review. Quebecor's senior unsecured debt is rated B2 while Sun Media's senior secured debt is Ba2 and senior unsecured debt is Ba3. CF Cable's senior secured debt is rated Ba3. Moody's also assigned a Ba3 rating to Sun Media's planned senior unsecured notes.

Moody's said the actions for Quebecor, Sun Media and Videotron assuming successful completion of Sun Media's refinancing plans.

Positives for the ratings are Quebecor's refinancing plan, which will rebalance liquidity and covenant flexibility within the group, even though combined net debt is not being affected, the group's continuing positive free cash flow, which is being used to reduce debt, and the decision of Quebecor's shareholders to fully repay a C$429 million Quebecor non-recourse loan out of their own resources rather than partially through Quebecor with a permitted distribution.

Negatives are the modest level of combined free cash flow compared to combined debt, the continuing strike at Videotron, the heavy reliance on Sun Media to service Quebecor's holding company debt, and continuing covenant pressure at Videotron.

The review of CF Cable will examine the impact of its existing security-sharing agreement with the Videotron bank debt on its financial leverage, particularly compared to Videotron's own leverage and ratings.

With the refinancing, Sun Media's net debt will increase by approximately C$220 million, and it will avoid C$300 million of previously scheduled debt amortizations over the next three years, with these funds instead now available to be distributed to Quebecor. Sun's net debt/ EBITDA leverage will increase to about 2.8x.

Moody's said it does not expect much reduction in Sun's net debt levels over the next few years. Liquidity is expected to remain adequate through the next few years, and Moody's does not expect Sun to need to utilize its new C$75 million 5-year revolver.

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