S&P cuts American Airlines

Standard & Poor's downgraded AMR Corp. and its subsidiary American Airlines Inc. and revised the CreditWatch to developing from negative. Ratings lowered include AMR's senior secured debt, cut to B- from BB-, and senior unsecured debt, cut to CCC from B, and American Airlines's senior secured debt, cut to B- from BB-. Equipment trust certificates were cut to B+ from BB+ and passthrough certificates lowered three notches.

S&P said the downgrade is in response to continuing heavy losses and diminishing liquidity, with the potential for a voluntary bankruptcy filing by midyear if American is not able to negotiate significant concessions from its labor groups.

Ratings on most non-enhanced equipment trust certificates were lowered to the level of the corporate credit rating, as collateral for these obligations (mostly B757-200s, MD82s, and B767-300s from the late 1980s and early 1990s) has lost considerable value and S&P said it anticipates that American would seek to renegotiate the equipment trust certificate terms in any bankruptcy proceeding.

AMR reported a net loss of $529 million in the fourth quarter of 2002, a decline from the $734 million net loss, before special items, in the prior-year period, and a full-year 2002 net loss of $3.5 billion ($2.0 billion before special items), an increase from the $1.4 billion net loss, before special items, in 2001, S&P noted.

Any war between the U.S. and Iraq, a prospect that has already raised airline fuel prices, would cause a further erosion of revenues and raise already high fuel costs (at least for awhile), widening the company's losses, S&P added.

American has accelerated negotiations with its unions and is seeking about $1.8 billion of annual concessions from employees, equal to about 21% of 2002 labor expense, S&P noted. Although securing labor concessions outside of bankruptcy has historically been very difficult for airlines, prospects for success are bolstered by the severe pay and benefit reductions that have been negotiated or imposed on employees at bankrupt competitor United Air Lines Inc., with further concessions anticipated. That precedent shows that the sacrifices imposed on employees in any bankruptcy would be even more onerous than what American's management is proposing.

S&P cuts Shaw to junk

Standard & Poor's downgraded Shaw Group Inc. to junk including cutting its senior secured debt to BB+ from BBB- and senior unsecured debt to BB from BBB- and assigned a BB senior unsecured rating to its proposed $250 million note offering due 2010. The outlook is now stable.

S&P said the rating action reflects its heightened concerns that Shaw's liquidity will decline over the next several quarters mainly due to working capital usage as the firm works off its power EPC backlog and because of weaker-than-expected profitability on certain projects, which has led the company to reduce its earnings guidance to $1.32 per share -$1.37 per share in 2003, versus prior expectations of $1.92-$2.08.

Furthermore, financial flexibility may decline because three projects that have been cancelled may require additional near-term funding on Shaw's part, while cash inflows from either future asset dispositions or legal remedies are uncertain, S&P noted.

Nonetheless, the new senior note issue and expected cash on hand should make the likely put on Shaw's remaining outstanding LYONs balance in May 2004 manageable.

Although Shaw has experienced project delays and cancellations with some independent power suppliers, its largest remaining power plant construction projects in backlog are with regulated utilities, reducing the potential of further project cancellations, S&P said. Over time, Shaw's power EPC operations should benefit from Clean Air legislation projects, and its pipe fabrication business may experience growth from recent global alliances.

The firm's environmental and infrastructure service operations dramatically increased with the acquisition of the IT Group Inc.'s assets in 2002, S&P added. Shaw should experience fair growth opportunities driven by the trends of Department of Defense outsourcing, increasing Homeland Security spending, and its efforts to win back commercial customers that used other service firms during IT's financial hardships.

The financial risk profile is characterized as moderately aggressive, with total debt (including the present value of operating leases) to capital of about 52% at Nov. 30, 2002, S&P said.

S&P rates Chesapeake notes B+, convertibles CCC+

Standard & Poor's assigned a B+ rating to Chesapeake Energy Corp.'s new $300 million senior unsecured notes due 2013 and a CCC+ rating to its $200 million convertible preferred stock. Existing ratings are confirmed including its senior secured debt at BB, senior unsecured debt at B+ and preferred stock at CCC+ and remain on CreditWatch with positive implications.

S&P noted it put Chesapeake positive watch on Feb. 25 following Chesapeake's announcement that it has signed agreements to purchase oil and gas exploration and production ssets from El Paso Corp. and Vintage Petroleum Inc. for a total consideration of $530 million.

The positive watch reflects that: Chesapeake is acquiring properties with low cost structures in its core Mid-Continent operating area that have a high degree of overlap with Chesapeake's operations, which should provide cost-reduction opportunities; Chesapeake intends to fund the transactions with a high percentage of equity; Chesapeake has announced an offering of 8 million common shares (about $160 million of net proceeds are expected) and $200 million of convertible preferred securities with the balance funded with debt; Chesapeake has hedged a high percentage of its 2003 production, which in combination with a favorable outlook for natural gas prices in 2003 will assure the company of ample cash flow for debt service, reserve replacement capital spending, and capital for growth; Chesapeake is issuing $300 million of new notes, which will improve financial flexibility by extending its debt maturity profile.

Nevertheless, Chesapeake still remains highly indebted (about $0.72 per million cubic feet equivalent pro forma the El Paso and Vintage transactions) and intends to continue growing aggressively through acquisitions, S&P said.

Moody's rates William Lyon notes B3

Moody's Investors Service assigned a B3 rating to William Lyon Homes, Inc.'s planned $200 million senior unsecured notes and confirmed its existing ratings including its B3 senior unsecured issuer rating. The outlook is stable.

Moody's said the ratings reflect William Lyon Homes' heavy geographic concentration in California, the rising number of top 20 national homebuilders in its markets, the moderately heavy debt leverage employed, and the historical record of impairment losses, although none have been taken since 1997.

At the same time, the ratings acknowledge the shift in the company's capital structure away from one top-heavy with secured debt, the substantial growth in the company's equity base since 1997, its strong shares in key California markets, and its healthy profitability, Moody's added.

Despite the growth in its equity base and the gradual reduction in its debt since 1997, William Lyon Homes remains moderately heavily leveraged, with a pro forma total debt (excluding mortgage company debt) to capitalization ratio of 58.4% and a pro form debt/EBITDA ratio of 2.7x as of Dec. 31, 2002, Moody's said.

Fitch cuts Ahold, still on watch

Fitch Ratings downgraded Koninklijke Ahold NV to junk and kept it on Rating Watch Negative. Ratings lowered include senior unsecured debt, cut to BB- from BBB-.

Fitch said the downgrade reflects substantial tightening of Ahold's liquidity and new funding that worsens the position of parent bondholders due to their expected legal and structural subordination following drawing of the intended €1.35 billion secured facility.

Recent information highlights that the level of liquidity likely to be available to the group is more constrained than originally thought. In addition to about $550 million of drawings outstanding under the existing $2 billion term facility, a further $600-$650 million of uncommitted drawings will require near-term refinancing.

The secured €1.35 billion element of the new total €3.1 billion bank financing package is therefore earmarked for immediate use, with little additional headroom, Fitch said. As a result it will be critical for the company to achieve the conditions precedent (including satisfactory sign-off of audited accounts for certain subsidiaries) in order to drawdown the unsecured element of the hastily-arranged bank financing package.

Conceivably, further secured funding may be arranged if unsecured funding is not forthcoming, Fitch added.

Fitch said it believes that the ability of the group to quickly raise further secured funding will take into consideration negative pledge covenants in existing capital markets issues. A typical weakness in European bonds is the exclusion of bank secured debt from such negative pledge provisions.

Fitch added that it maintains the view that Ahold remains a viable operating entity. US Food retail, the Dutch operations as well as ICA Ahold continue to support the sales and cash generative ability of the group. US Foodservice is but one business within the group.

The continuing negative watch reflects the potential need for negotiation of additional liquidity lines, the continuing uncertainty over the amount of overstated earnings, and a requirement for further details of assets pledged as security, Fitch said.

S&P rates Barry Callebaut notes BB-

Standard & Poor's assigned a BB- rating to the €150 million subordinated notes to be issued by the Barry Callebaut Services NV subsidiary of Barry Callebaut AG. The outlook is stable.

S&P said Barry Callebaut's ratings reflect its position as the world's largest and sole independent global supplier of chocolate products to the food industry, its growing downstream expansion into finished products, and its relatively limited exposure to volatility in cocoa prices.

These positive factors are offset to some extent by the company's relatively aggressive financial profile, and its significant reliance on short-term funding, S&P added.

Barry Callebaut's main business (56% of estimated sales volume for fiscal 2003,) is the provision of chocolate products to food manufacturers. This division is the market leader in both Europe (41% market share) and North America (29%). It generates stable margins, as prices are set on a "tolling" basis (i.e. per volume processed), which broadly limits the impact of commodity price fluctuations on profitability.

Barry Callebaut's financial profile is in line with the expectations for the rating category, with funds from operations covering about 18.5% of net debt (adjusted for operating leases, securitized receivables, and unfunded post retirement benefits) and EBITDA cover of lease-adjusted net financial charges of 5.1x in fiscal 2002, S&P said. The latter measure is expected to drop to around 4.2x in fiscal 2003 and 2004 following the debt-funded acquisition of Stollwerck and a higher average interest cost on the group's debt.

S&P puts Elwood on watch

Standard & Poor's put Elwood Energy LLC's $402 million 8.159% senior secured bonds due 2026 rated BB+ on CreditWatch with negative implications.

S&P said the action reflects its recent downgrade of Aquila Inc.'s rating to B+/Watch Neg from BB/Negative.

Under a power sales agreement, Aquila provides about 48% of Elwood's contractual net operating cash flow through 2012 and thereafter 100% of contractual cash flow until 2017, S&P noted.

Under the PSA, Aquila is now required to post 12 months of capacity payments, or $37 million, as collateral to back up its offtake obligations. Aquila already posted to Elwood an LOC for six months of capacity payments, or $18.7 million, after its rating was lowered in November 2002. The sponsors have issued a request to Aquila to provide the additional security. If Aquila does not post the collateral by March 10, Aquila will be in default under the PSA.

S&P rates Hollinger notes B

Standard & Poor's assigned a B rating to Hollinger Inc.'s planned $110 million senior secured notes due 2018 and maintained the company's ratings on CreditWatch with negative implications.

S&P said Hollinger was put on watch on Dec. 11 because of its concerns over near-term maturities at the Hollinger Inc. holding company level.

Hollinger Inc. recently has announced that it has received an extension to March 14 from Feb. 28 on the US$44.0 million payment that was due under its C$90.8 million bank facility. The proposed refinancing would allow Hollinger Inc. to repay all of the outstanding facility, thus removing concerns about refinancing risk, S&P said.

The resolution of the CreditWatch placement is dependent upon the successful completion of the announced transaction at Hollinger Inc. before March 14 after which the long-term corporate credit ratings will be affirmed at BB- with a negative outlook.

The anticipated negative outlook following the CreditWatch resolution reflects Hollinger's financial profile and policy that remain aggressive for the rating category, S&P added.

Moody's cuts Beghin-Say

Moody's Investors Service downgraded Beghin-Say's senior unsecured ratings to Ba3 from Ba1, affecting €40 million of debt.

Moody's said the downgrade reflects the increased financial risk as the significant indebtedness of the company is now based on a reduced operating scope after its acquisition by Origny-Naples, a special purpose company owned by Union SDA and Union BS, and the expected divestment of certain assets.

The credit metrics will be weak for some years, but that financial risk is mitigated in the intermediate term by the sound business profile of the company, supported by the current sugar regulatory regime, Moody's added. It also reflects that the cash-flow generation capacity of Beghin-Say might be affected by possible significant changes in the European sugar regime that could be implemented in 2006.

S&P lowers Stewart outlook

Standard & Poor's lowered its outlook on Stewart Enterprises Inc. to negative from stable and confirmed its ratings including its senior secured credit facility at BB, senior secured notes at BB- and subordinated debt at B+.

Although the company should be able to withstand modestly weaker earnings without much impact on its financial profile until conditions improve, the length and severity of adverse business trends are uncertain and could lead to a lower rating should unexpected cash operating requirements jeopardize Stewart's ability to meet its debt maturities, S&P said.

Stewart recently completed the sale of all its foreign operations. The success of this initiative has enabled the company to reduce debt and focus resources on improving its operations, financial performance, and cash flow, S&P noted.

Significant focus now is being placed on the company's product mix and the marketing of services in existing markets to improve revenue growth, S&P added. These efforts position the company well to benefit from a demographic trend that continues to indicate a long-term increase in death rates. However, recently weak death rates and continued soft economic conditions have hurt key business trends.

Weakness in sales of pre-need funeral services for instance, is being influenced by the national economic downturn, and prospects in the near term are weaker than previous expectations, S&P said. As a result, EBITDA for the company's businesses retained after asset sales declined nearly 9% in 2002 from 2001.

However, despite lower earnings, credit protection measures have improved as a result of debt reduction, as lease-adjusted debt to capitalization was reduced to 42% in 2002 from 49% in 2001, S&P said.

S&P lowers TriMas outlook

Standard & Poor's lowered its outlook on TriMas Corp. to stable from positive and confirmed its ratings including its senior secured debt at BB- and subordinated debt at B.

S&P said the outlook revision is due to TriMas' recent acquisition of two companies for a total of about $210 million.

Although these acquisitions are strategic to the company's Transportation Accessories Group, now called Cequent, it raises its leverage and reduces the near-term prospects for significant deleveraging that S&P had expected.

These acquisitions were funded partly by the proceeds from its recent offering of $85 million 9 7/8% senior subordinated notes due 2012, cash on hand, revolver drawdown, and some equity from its sponsor, Heartland Industrial Partners LP, S&P noted.

The company is highly leveraged, with total debt to EBITDA at about 4.8x on a pro forma basis for these acquisitions, S&P said. This will put some pressure on meeting its leverage covenants in the near term, although the company is expected to generate free cash flow and amend covenants if required. S&P expects the company to operate with total debt to EBITDA of around 4x, and EBITDA to interest coverage in the 2.5x-3x area, which is appropriate for the rating; it is currently at 2.5x.

S&P cuts Prime Hospitality

Standard & Poor's downgraded Prime Hospitality Corp. including cutting its $200 million 8.375% senior subordinated notes due 2012 to B from B+ and removed it from CreditWatch with negative implications. The outlook is negative.

S&P said it lowered Prime because of its weaker-than-expected hotel portfolio performance; credit measures that are weak for the ratings, with prospects for further deterioration in 2003; and the company's emphasis on potential acquisitions and share repurchases.

All three of Prime's brands have yet to achieve strong national brand recognition, which is reflected in its revenue per available room (RevPAR) performance, S&P said. The company's owned and leased hotels experienced a 5.0% decline in RevPAR in the fourth quarter of 2002 and 9.2% for the full year.

Some 60% of Prime's portfolio is comprised of AmeriSuites hotels, which primarily rely on business travelers, S&P noted. Because these hotels are generally located in office parks and suburban areas, it has been more challenging for these properties to attract a substantial number of leisure customers to offset the decline in business traveler demand. Additionally, the Wellesley Inns & Suites branded hotels experienced a 7.6% RevPAR decline in 2002, compared to an average decrease of 0.6% for the domestic mid-priced without food & beverage price segment as reported by Smith Travel Research.

In the fourth quarter of 2002, Prime reported EBITDA of about $10 million, which was almost 50% lower compared with the same period a year ago, S&P said. Roughly half of the decline was due to asset sales and the rest to lower operating performance. The company generated $74 million in EBITDA in 2002, which was 34% lower than 2001.

Given management's expectations for a RevPAR decline of 5%-6% for the first quarter of 2003, S&P said it anticipates that Prime's credit measures could likely deteriorate this year.

Fitch rates Star Gas notes BB, cuts subsidiaries

Fitch Ratings assigned a BB rating to Star Gas Partners, LP's $200 million 10.25% senior notes due 2013 and lowered the senior secured ratings of its operating subsidiaries, Petroleum Heat and Power Co. and Star Gas Propane, LP to BBB- from BBB and removed then from Rating Watch Negative where they were placed on Jan. 28 following the public announcement of the proposed note issuance. The outlook for all the companies is stable.

Fitch said Star Gas' 'BB' rating reflects its subordinated position to approximately $379 million of secured debt at Petro and Star Propane including $92 million of working capital borrowings.

Credit measures at Star Gas and its affiliates will be affected by the application of the note proceeds, Fitch added. Star Gas is using approximately $150 million of the proceeds to repay lower cost debt at Petro and Star Propane. The remaining net proceeds of approximately $40 million are targeted for future acquisitions.

As a result of the financing, annual consolidated interest costs will increase by about $7 million. However, the debt reductions at Petro and Star Propane will result in these companies having stronger standalone quantitative credit measures and will lessen near-term liquidity risk, Fitch said. Since no acquisitions have been made to date and the profitable heating season is about 70% completed, Fitch does not expect future acquisitions to contribute positive cash flow during Star Gas' fiscal year ending Sept. 30, 2003. However, given cold weather conditions and favorable volumes and margins, free cash flow and consolidated credit measures for fiscal 2003 should improve over 2002 even with higher interest costs.

The one notch downgrades to BBB- for the secured debt of Petro and Star Propane primarily reflects the credit risk associated with Star Gas' debt offering, Fitch added. While standalone credit measures will meaningfully improve with the reduction of debt at both operating companies, default risk increases with the added parent company debt. Of particular concern is Star Gas' BB rating and the existence of a cross default trigger between Star Gas and Petro.

S&P cuts Panda Funding

Standard & Poor's downgraded Panda Funding Corp.'s $105 million 11.625% pooled project bonds series A due 2012 to B+ from BB-. The outlook is negative.

S&P said the downgrade follows reports of forced outages at Panda's Brandywine facility that will weaken its cash flow for the next two years.

Forced outages at Brandywine affected two months of operation in 2002 and, the availability during that period averaged about 57%, S&P noted. The average availability for the entire year, however, was closer to 92%. The corresponding reduction in capacity payments lowered Panda Funding's 2002 debt service coverage ratio (DSCR) to 1.14x and its consolidated DSCR to 1.04x.

Partly due to the outage in 2002, the company decided to defer its scheduled maintenance into 2003 and 2004, S&P noted. Because the scheduled maintenance periods will count against the units' availability, Brandywine will receive lower capacity payments and incur higher maintenance expenses in 2003 and 2004.

The negative outlook reflects the concern that Panda Funding has a smaller margin of error and its financials could deteriorate quickly if Brandywine fails to achieve a very high availability outside of its scheduled maintenance period in 2003 and 2004, S&P said.

S&P cuts Advanced Lighting

Standard & Poor's downgraded Advanced Lighting Technologies Inc. including cutting its corporate credit rating to D from SD and its $50 million credit facility to D from CCC.

S&P said the downgrade follows Advanced Lighting's Chapter 11 filing.

The senior unsecured debt had already been cut to D after the company failed to pay the $4 million interest payment due Sept. 16, 2002 on its 8% senior notes within the 30-day grace period.

S&P keeps Sweetheart on developing watch

Standard & Poor's said Sweetheart Holdings Inc. remains on CreditWatch with developing implications including its subordinated debt at CCC- and Fonda Group Inc.'s subordinated debt at CCC-.

S&P's comments came after Sweetheart filed an amended form S-4 regarding an exchange offer for its $110 million senior subordinated notes due 2003.

Sweetheart's amended offer is to exchange its $110 million senior subordinated notes due in September 2003 for the same amount of senior notes with similar terms and conditions due in July 2004.

If the exchange is executed under the proposed terms, S&P said it will deem it a distressed exchange and will lower the corporate credit rating to SD and the rating on the Sweetheart notes to D.

Following a successful completion of the exchange offer, the corporate credit rating could be revised from SD to as high as B- to reflect the easing of refinancing pressures, S&P added. In addition, the new senior notes would be rated two notches below the corporate credit rating, reflecting the significant amount of secured debt and operating leases ranking ahead of them in the capital structure.

If Sweetheart is unable to exchange or refinance the existing notes, its $235 million primary bank credit facility, under which about $180 million was outstanding as of Dec. 31, 2002, will become due on March 1, 2003, S&P noted. The company has requested a 120-day extension of this accelerated maturity. Management is also pursuing a number of strategic options including a sale of the entire business or of certain brands and related assets that generate net sales of $220 million, and earnings before interest, taxes, and depreciation of $25 million.

Moody's cuts Romacorp

Moody's Investors Service downgraded Romacorp, Inc. including cutting its $57 million 12% senior unsecured notes due 2006 to Caa1 from B3. The outlook is negative.

Moody's said the downgrade reflects its expectation that operating margins will remain pressured during 2003, the company's weak liquidity position, and the likely recovery values in the event of a default.

The ratings reflect the company's long-term history of net losses, the modest cash flow cushion for debt service and, given Tony Roma's identification as a rib restaurant, the difficulty of modifying the food offering according to changes in the supply/ demand balance for pork and beef ribs, Moody's said.

The ratings also recognize the skewing of day-part sales to dinner, customer perceptions of Tony Roma's as expensive for a casual-dining restaurant, and competition from other much larger casual dining chains. However, the ratings consider the well-known nature of the brand name "Tony Roma's - Famous for Ribs", the concentration of domestic restaurants in fast-growing regions, the use of franchisee capital to develop most new Tony Roma's restaurants, and the company's ownership of a significant proportion of its restaurant real estate.

Moody's said the negative outlook indicates its opinion that ratings will remain pressured until the company demonstrates the ability to improve results by reversing comparable store sales declines, growing revenue, and increasing cash flow.

Moody's confirms U.S. Industries

Moody's Investors Service confirmed U.S. Industries, Inc.'s ratings including its long-term rating at B3 and assigned a B3 rating to its new 11.25% notes due 2005. The outlook is stable.

Moody's said the confirmation reflects U.S. Industries' success in executing its plan to dispose of non-core assets and its use of the proceeds to make the scheduled permanent reductions of senior debt that were required under the restructured bank credit facilities.

The confirmation also reflects the additional reduction of debt and extension of its debt maturity profile through the successful tender offer for roughly $54 million of its 7.25% notes due 2006 and the successful tender and exchange of most of its 7.125% notes due 2003 for $104.8 million of cash and the issuance of $133 million of new 11.25% notes due 2005.

These actions resulted in the banks extending the bank revolving credit facility maturity to October 2004.

Moody's said U.S. Industries' long-term B3 debt rating reflects its leading market position in the global bath and plumbing market, as well as its significant brand name strength worldwide; but also noted that although the asset disposal program has improved U.S. Industries' debt profile, the company's financial results will be impacted by the loss of cash flow diversification going forward, and that U.S. Industries' credit metrics will only improve moderately over the near-to-intermediate term.

The stable outlook reflects the growth in revenue, earnings and cash flow prospects for the company's remaining businesses - Jacuzzi and Eljer bath and spa products, Zurn commercial and industrial plumbing products and Rexair's Rainbow vacuum cleaners over the near-to-intermediate term, Moody's added.

S&P cuts Champion

Standard & Poor's downgraded Champion Enterprises Inc. including cutting its $170 million 7.625% unsecured notes due 2009 to B- from B and Champion Home Builders Co.'s $150 million 11.25% senior unsecured notes due 2007 to B- from B. The ratings were removed from CreditWatch with negative implications and a negative outlook assigned.

S&P said the downgrade follows Champion's recent earnings announcement, which reflected a weaker-than-expected fourth quarter, driven by continued losses within Champion's retail division, additional charges related to realignment efforts, and the carrying costs associated with the company's new finance arm.

S&P said it believes the company has adequate liquidity to support the revised ratings, given current unrestricted cash balances and revolver capacity, the absence of any near-term debt maturities and minimal capital expense needs for the coming year. However, given continued slippage in shipment levels - the result of limited consumer financing availability and competition from repossessions - conditions will remain challenging for Champion, the industry's largest producer.

Following the restructuring, EBITDA (adjusted for impairment charges and other reported closing costs) was materially weaker than anticipated when the ratings were placed on CreditWatch, S&P said. Adjusted EBITDA was negative $4.4 million in the seasonally slower fourth quarter and negative $19.3 million for the full year, which ended Dec. 28, 2002.

Moody's cuts FelCor preferred

Moody's Investors Service downgraded FelCor Lodging LP's preferred stock to B3 from B2 and confirmed its senior unsecured debt at Ba3. The outlook remains negative.

Moody's said the action follows a review of FelCor's liquidity position, leverage structure and business strategy.

The negative outlook reflects what is anticipated to be a continued challenging operating environment for the lodging sector, at least through 2003, Moody's added.

Moody's said that during 2002 FelCor's negative 8.1% RevPAR trend underperformed the broader lodging industry. Its underperformance can be attributed to hotel concentrations in weaker markets and exposure to underperforming brands.

However, FelCor continues to maintain some financial flexibility, having a moderately leveraged balance sheet (on a book basis) and a material level of unencumbered assets. Despite the REIT's weak 2002 performance, as of Feb. 28, 2003, the REIT remained in compliance with the covenants of its bank credit facility and senior unsecured bonds.

Moody's also noted that as of Feb. 28, 2003 with $175 million of cash, FelCor should retain sufficient liquidity to meet all its capital requirements and fixed charge obligations over the next 12 months.

Moody's said the B3 preferred stock rating reflects the increased likelihood of non-payment of preferred dividends should FelCor's interest coverage fall below 2.0X under its bond indentures.

Moody's confirms Host Marriott

Moody's Investors Service confirmed Host Marriott Corp.'s senior unsecured debt at Ba3 and preferred stock at B3 and maintained a negative outlook.

Moody's said the confirmation follows its review of the REIT's 2002 operating results, as well as an assessment of Host Marriott's near-term liquidity position and financial flexibility, and longer-term business strategy and financial policies.

The negative outlook reflects what is likely to be another challenging year for hotel owners, particularly in the full-service segment, in 2003.

The confirmation of Host Marriott's ratings reflects the REIT's strong liquidity position, good relative performance of its upscale hotel portfolio, and management's success in obtaining greater financial and strategic flexibility through renegotiations of management contracts which allow for greater flexibility to sell non-core assets, Moody's said.

Host Marriott's liquidity position is supported by $361million of unrestricted cash and continued access to its undrawn $300 million bank credit facility.

Host Marriott continues to focus on improving the quality of its portfolio, as demonstrated by its asset sales and purchases during 2002. The REIT is expected to sell assets during 2003, the proceeds of which will be used to reduce leverage, Moody's noted.

Offsetting these positives is Host Marriott's high leverage, especially secured debt, which provides the REIT with less financial flexibility, especially during this stressed environment, Moody's added. Host Marriott has been in breach of it one of its bond covenants beginning in the third quarter of 2002; this breach is not a default, but does constrain the REIT's ability to increase debt, except for access its bank credit facility. The REIT is operating close to the covenants in its bank credit facility, and will likely need to amend these covenants in order to continue to retain access.

Moody's raises Equity Inns outlook

Moody's Investors Service raised its outlook on Equity Inns, Inc. to stable from negative affecting its cumulative preferred stock at B3.

Moody's said the revision reflects Equity Inns' stable operations through the second half of 2002, with revenue per available room (RevPAR) growing 0.2% for the third quarter of 2002 and 2.6% for the fourth quarter despite the challenging lodging environment.

In addition, the REIT is in compliance with its secured line of credit covenants with a comfortable cushion. The bank line is due on October 2003, and Moody's expects that the REIT will be able to refinance the line in a timely fashion.

This change in outlook is also based on Moody's conclusion that REITs with assets in the limited-service hotel segment, which tend to service drive-by traffic, should experience less RevPAR erosion than the more upscale segments, such as luxury hotel, convention and resort properties, particularly in airport hub cities.

This conclusion considers the significant decline in intermediate-term business and leisure travel, factors that have caused material erosion in the lodging industry's operating environment. Large portions of Equity Inns' assets are in the limited-service segment, Moody's noted. Nevertheless, this segment, too, has been pressured by the recession and travel fears, and will continue to face difficult business conditions for a while.

Moody's rates Resona

Moody's Investors Service assigned a Ba1 senior unsecured debt rating, a Ba2 senior subordinated debt rating and a Ba3 junior subordinated debt rating to Resona Bank Ltd. Resona will assume outstanding rated debt of Daiwa Bank and Asahi Bank. The outlook is stable.

Moody's said the upgrade of junior subordinated debt to Ba3 from B1 reflects its renewed comfort in the expected strength of regulatory forbearance framework for subordinated securities.

Resona Bank and Saitama Resona Bank are wholly-owned banking subsidiaries of Resona Holdings Inc., which is a bank holding company. Resona Bank will be the succeeding entity of Daiwa Bank with expected total banking assets of ¥31 trillion, and will take over the wholesale banking and non-Saitama retail and middle market businesses of Asahi Bank on March 1, 2003. Saitama Resona Bank will be a banking entity with total banking assets of ¥8 trillion, and will assume the retail and middle market operations of Asahi Bank in Saitama and nearby areas. These two banking institutions, with total combined assets of approximately ¥40 trillion, rank among Japan's large banking groups.

Their ratings are based on Resona's domestic nationwide operating franchises, strong regional presence in both Osaka and Saitama areas, weak financial fundamentals of Resona Bank, and Moody's strong expectation of institutional support especially for the depository obligations of large sized banking institution.

Despite its on-going re-capitalization efforts at the holding company level toward March end of 2003, in Moody's view, Resona Holding's consolidated regulatory and economic capitalization remain very weak.

S&P rates Resona

Standard & Poor's assigned BB+ long-term counterparty ratings to Resona Bank Ltd., to be established on March 1, 2003 through the reorganization of Asahi Bank Ltd. and Daiwa Bank Ltd. under the holding company, Resona Holdings Inc. The outlook is negative.

The Resona group has posted high credit costs for several years, and its capital quality is weak, with the majority of its Tier 1 capital comprising deferred tax assets and preferred securities, S&P said. The group is unlikely to resolve its bad asset problems and improve its capital quality quickly.

The Resona group's strategy is to establish a community of local financial institutions by utilizing its strong customer bases in local markets, S&P noted. Key factors for the group will be its success in implementing this strategy and regaining the confidence of customers, while improving its operational efficiency.

Concerns remain over the emergence of new bad assets, amid the deteriorating business environment for some of Resona Bank's major borrowers as well as small and midsize enterprises that are the bank's main customers, S&P said.

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