Moody's puts Georgia-Pacific on review

Moody's Investors Service put Georgia-Pacific Corp. on review for downgrade, affecting $9 billion of debt including its senior unsecured notes, debentures and industrial revenue bonds at Ba1, G-P Canada Finance Co.'s notes at Ba1 and Fort James Corp.'s senior unsecured notes, debentures and medium-term notes at Ba1.

Moody's said the action follows Georgia-Pacific's disclosure of increased asbestos costs and weak business conditions in its building products division, increased price competition in its consumer products segment and higher raw material costs.

Georgia Pacific experienced higher asbestos costs in 2002, contributing to the need to record an additional $315 million charge for asbestos costs, and indicating the underlying uncertainty associated with asbestos litigation, Moody's noted.

Further, operating conditions in many of its key building products and consumer markets remain very competitive, making it difficult to achieve anticipated debt reduction, the rating agency added.

S&P cuts Cogentrix

Standard & Poor's downgraded Cogentrix Energy Inc. and kept it on CreditWatch with negative implications. Ratings lowered include Cogentrix's $100 million 8.1% senior notes due 2004, $100 million 8.75% notes due 2008 and $255 million 8.75% senior notes due 2008, all cut to BB from BB+.

S&P said the downgrade reflects the recent credit deterioration of National Energy Group and Dynegy Inc. and the significant investment associated with gas turbines for a project that never broke ground.

The credit deterioration of National Energy and Dynegy had a significant impact on Cogentrix's offtaker credit profile, S&P said. Cogentrix has three 810-MW gas-fired combined-cycle projects selling to National Energy and Dynegy under long-term tolling agreements.

Even though Dynegy is current with its payments and plants selling to National Energy are still in construction, S&P said it expects these projects to dividend minimal cash flow to Cogentrix.

Cogentrix had purchased $185 million of turbines and heat recovery steam generator equipment for a project in Indiana, S&P added. However, the downturn in the U.S. power sector led to the project's abandonment and the project never reached the construction stage. Cogentrix is actively trying to place the equipment in a new project. If Cogentrix is unsuccessful, it may attempt to sell the equipment in the secondary market.

The combination of lower cash flow and higher debt burden reduces Cogentrix's cash flow to parent interest coverage to 2.0x to 2.5x, S&P added. Prior to these negative developments, Cogentrix had consistently generated an above 3.0x cash flow to parent interest coverage.

Moody's cuts Citgo to junk

Moody's Investors Service downgraded downgraded Citgo Petroleum Corp.'s senior unsecured long-term debt to Ba2 from Baa2, affecting $700 million of debt.

Moody's said the action reflects continuing uncertainty stemming from the general strike in Venezuela and the disruptions to Citgo's crude imports from its indirect parent, Petroleos de Venezuela (PDVSA).

It also reflects tighter liquidity constraints and the risk that Citgo could in some form leverage its own balance sheet to support debt owed by its direct parent, PDV America, Inc.

Citgo depends on crude supplied under long-term supply contracts with PDVSA for approximately half of its crude, Moody's noted. Netback pricing under the contracts has, overtime, tended to stabilize Citgo's margins in a highly volatile industry. The steady crude diet also benefits refinery efficiency.

Citgo is taking some cargoes at a reduced level from Venezuela and is operating at normal rates purchasing spot market crude, but it is not clear how soon a normal level of Venezuelan shipments can be restored, Moody's added.

Citgo's liquidity is also being adversely affected by a thin margin environment and increased working capital requirements based on higher crude costs and shorter trade terms than it enjoys under its contracts with PDVSA, Moody's said. In addition, the company will need to rely more heavily on its revolving credit facilities and establish other sources of liquidity in the wake of the downgrade, with its accounts receivable financing facility subject to a termination event.

Fitch cuts Tesoro

Fitch Ratings downgraded Tesoro Petroleum Corp. including cutting its senior secured credit facility to BB- from BB and subordinated debt to B from B+. The outlook remains negative.

Fitch said the downgrade is in response to Tesoro's constrained capital structure and weak credit protection in a weak refining margin environment in recent quarters.

The continuing negative outlook reflects continued volatility and uncertainty in global crude markets and the U.S. refining sector as the company works to repair its balance sheet.

Like other refiners, Tesoro continues to suffer through a severe downturn in the refining cycle that has lasted more than four quarters, Fitch said. The company has been hampered by the significant debt added to finance the acquisitions of the Golden Eagle refinery in May of this year and the Mandan and Salt Lake City refineries in September 2001.

The downturn in the industry cycle has resulted in credit protection for Tesoro as measured by EBITDA-to-interest of only 1.2 times for the 12 months ended Sept. 30, 2002, Fitch added.

Fitch cuts AES Gener

Fitch Ratings downgraded AES Gener SA's senior unsecured foreign currency rating to BB- from BBB- and put it on Rating Watch Negative.

Fitch said the action is because of near-term liquidity constraints and longer term refinancing concerns.

Gener continues to work through its liquidity issues, Fitch noted. The company successfully refinanced two bank loans in the third quarter of 2002, which resulted in an amortization schedule that closely tracks projected free cash flow available for debt service and limits financial flexibility.

The recent refinancings plus semiannual interest payments on the $503 million convertible bond and $200 million Yankee bond have resulted in total required debt service payments in 2003 of approximately $159 million, assuming the near-term sale of certain assets and application of a portion of those proceeds.

The sale of that investment should improve liquidity and provide additional financial alternatives, Fitch said. Given ongoing negotiations and continued interest by both parties, Fitch believes that an agreement to sell such asset is likely in the near term and should provide sufficient liquidity to stabilize the credit while it focuses on its longer-term refinancing efforts. However, the Rating Watch status will remain until the transaction is closed.

S&P cuts Amerco preferred stock

Standard & Poor's downgraded Amerco's $150 million preferred stock series A to D from C and removed it from CreditWatch with developing implications. The senior unsecured debt remains at CC on CreditWatch with developing implications.

S&P said it cut the preferred stock after Amerco failed to pay the dividend payable on Dec. 1, 2002.

Amerco's auditors have also determined that the company's continuation as a going concern is dependent, in part, on its success in completing a financial restructuring that it is currently pursuing, S&P noted.

If the company is successful, ratings could be raised modestly. However, if the company is unsuccessful, it would very likely default on other financial obligations, which could result in a Chapter 11 bankruptcy filing.

Moody's lowers Hitachi Zosen outlook

Moody's Investors Service lowered its outlook on Hitachi Zosen Corp. to negative from stable affecting its senior unsecured debt at Ba3.

Moody's said the change reflects its growing concern over Hitachi Zosen's ability to improve its credit profile over the medium term.

In line with its "Hitz-Advance" mid-term management plan, Hitachi Zosen is currently restructuring its business portfolios and focusing on environmental systems and solution services as a core operation.

The company spun off its shipbuilding operation, another core business, in October 2002, merging it with NKK Corporation's shipbuilding division to form a 50-50 joint venture, Universal Shipbuilding Corp.

As a result of this spin-off and an acceleration in its restructuring activities, Hitachi Zosen has announced that it will report for the fiscal year ending March 2003 ¥44.2 billion in extraordinary losses, such as special payments for retirement benefits, restructuring charges related to its affiliates, etc., Moody's noted.

The company has further released additional restructuring plans - including a reduction in employees and wages - to further increase its cost competitiveness.

However, Moody's said it is concerned that given the increasingly severe operating conditions for environmental-related businesses, Hitachi Zosen may not be able to increase orders received and stabilize earnings.

In addition, Moody's said it is concerned that it may take longer-than-expected for the company to achieve meaningful results from its new businesses, such as IT- and solutions-related activities.

Moody's rates Casella notes B3, loan B1

Moody's Investors Service assigned a B3 rating to Casella Waste Systems, Inc. proposed $150 million senior subordinated notes due 2013 and a B1 rating to its proposed $325 million senior secured credit facility maturing 2010. Moody's also confirmed the company's existing ratings including its senior implied at B1, senior unsecured issuer at B2 and stable outlook.

Proceeds from the debt issuance will be used to refinance Casella's existing debt.

Casella's ratings are constrained by the company's low consolidated EBIT return on total assets and weak balance sheet; its acquisition risk coupled with significant unused borrowing capacity and deficient acquisition parameters related to the KTI acquisition that led to write-downs in goodwill and the sale of under-performing, non-core assets; and anticipated expenditures needed to expand disposal capacity, Moody's said.

Positives include the benefits associated with the divestiture of lower-margin, non-core assets; good EBIT returns on MSW assets in its most mature business segment which is handicapped by the consolidated measure; and leading market shares in its geographical markets.

The stable outlook reflects improving earnings and cash flow generation as a result of divesting the under-performing assets of KTI (purchased in December 1999).

Moody's said it believes that recent enhancements to existing management will contribute more discipline to the company's acquisition analysis and to fiscal policy.

In addition, Moody's believes that the significantly higher returns on assets in the company's more mature Central Region may provide guidance as to the company's potential for earnings improvement.

While the proposed transaction is intended to improve Casella's financial flexibility, its balance sheet remains weak, Moody's said.

The new transaction will result in approximately $310.52 million of total funded debt (pro forma for the 12 months to Oct. 31, 2002, assuming no draw down on the revolving facility), which is 3.4 times pro forma EBITDA (inclusive of preferred stock, leverage is 4.1 times EBITDA), Moody's said. Pro forma leverage measured as total debt to free cash flow (defined as operating cash flow after capital expenditures) is very high, at approximately 13.8 times exclusive of preferred stock (inclusive of preferred stock, leverage is 16.6 times free cash flow) for the 12 months ending Oct. 31, 2002.

S&P says Radio One unchanged

Standard & Poor's said Radio One Inc.'s ratings are unchanged including its corporate credit at B+ with a positive outlook on the company's agreement to make a direct cash investment of up to $70 million over four years to help launch a new cable network.

Expected to be launched in mid-2003, the network will target the 25-54 year-old African-American audience. The network will likely generate losses for the next few years, S&P noted.

Radio One maintains adequate liquidity at the rating level, derived from cash balances of about $65.9 million at Sept. 30, 2002, and $189 million in borrowing availability under its revolving credit agreement, S&P said.

The positive outlook incorporates the expectation that strengthening ad demand and station revenue share gains could contribute to longer-term financial improvement while the company continues to pursue growth opportunities if the pace of acquisitions moderates from recent year's levels, S&P said. However, debt-financed acquisitions, consistent with the company's historical pace, could limit potential upside over the near to intermediate term.

S&P upgrades Per-Se

Standard & Poor's upgraded Per-Se Technologies Inc. including raising its $175 million 9.5% senior notes due 2005 and $50 million revolver due 2004 to B+ from B. The outlook is stable.

S&P said the upgrade reflect its belief that Per-Se will sustain profitability and cash flow protection improvements achieved over the past few years.

The ratings on Per-Se Technologies reflect the company's good, although still developing, market position, substantial recurring revenues, and improved operating efficiency, offset by the risks inherent in an evolving and fragmented marketplace, S&P said.

The company completed a broad restructuring over the past few years, divesting non-core operations; settled outstanding litigation; and added electronic medical transaction-processing capabilities. In addition, cost reductions and productivity improvements in its core outsourcing business led to improved operating profitability and positive free cash flow, despite single-digit revenue growth expectations for 2002, S&P added.

Management's ongoing challenge is to successfully leverage its large installed customer base to achieve continued revenue growth, while maintaining profitable operations.

For full-year 2002, Per-Se is expected to report that it generated about $355 million in sales and 15% operating margins and about $10 million in free cash flow, S&P said. At September 2002, EBITDA interest coverage was 3x, and total debt-to-EBITDA fell to about 3.5x from 5x one year earlier.

Moody's cuts Venezuelan heavy oil projects

Moody's Investors Service downgraded of Petrozuata Finance Inc.'s $1 billion senior secured bonds to B1 from Ba2, Cerro Negro Finance, Ltd.'s $600 million senior secured bonds to B1 from Ba2, Sincor Finance Inc.'s $1.2 billion of senior secured loans to B1 from Ba2 and Hamaca Holding LLC's $600 million senior secured loans to B2 from Ba2. The outlook for all ratings is negative.

Moody's said the downgrade is in response to the continued strikes and political upheaval in Venezuela, the ongoing shutdown of all the projects, and the downgrade of the national oil company, Petroleos de Venezuela to B3 on both a local and foreign currency basis.

The Petrozuata and Cerro Negro projects are complete. The Sincor project, while physically complete, is still supported by sponsor guarantees of debt repayment for "non-completion" as defined under the financing documents. All three are supported by funded debt service reserve accounts sufficient to pay the next debt service payment. The Hamaca project was 83% complete as of November 30, 2002. PDVSA is responsible for its share of the sponsor guarantees for Sincor and for significant equity contributions toward the completion of the Hamaca project, as well as for repayment of debt for non-completion. The lower rating of the Hamaca project reflects its greater degree of reliance upon PDVSA and the absence of any funding of the debt service reserve account, Moody's said.

S&P puts Pioneer Standard on watch

Standard & Poor's put Pioneer-Standard Electronics Inc. on CreditWatch with negative implications including its $150 million 8.5% senior notes due 2006 at BB- and Pioneer Standard Financial Trust's $125 million convertible trust preferred securities at B-.

S&P said the watch placement is in response to Pioneer-Standard's announcement that it will sell the net assets of its Industrial Electronics Division to Arrow Electronics Inc. for about $285 million in cash.

Although Pioneer-Standard is exiting its less profitable and more volatile segment, the remaining business - the Computer Systems Division - could not currently support a higher rating level, S&P said. The CreditWatch listing reflects uncertainty as to: the final capital structure of the company; the use of proceeds (which could potentially include cash dividends, share repurchases, debt repayment and/or acquisitions); as well as the longer-term business profile of Pioneer-Standard.

As of Sept. 30, 2002, cash balances were $69 million, and debt plus trust preferred securities totaled $294 million. Gross proceeds from the pending sales will be about $285 million.

S&P cuts BGF

Standard & Poor's downgraded BGF Industries Inc.'s corporate credit rating and $100 million 10.25% senior subordinated notes due 2009 to D from CC. The company's senior secured debt remains at CCC-.

S&P said the downgrade follows BGF's announcement that it does not have sufficient cash available to make the Jan. 15 interest payment on its notes.

The company is working on some alternatives that would permit it to make this interest payment within the 30-day grace period and, if it is successful, ratings could be raised slightly, S&P added.

S&P rates Casella notes B, loan BB-

Standard & Poor's assigned a B rating to Casella Waste Systems Inc.'s planned $150 million senior subordinated notes due 2013 and a BB- rating to its planned $150 million term B bank loan due 2010 and $175 million revolving credit facility due 2008. The outlook is stable. The BB- rating on the existing bank facility is withdrawn.

S&P said Casella's ratings reflect its position as a major regional solid waste services company and a below-average financial profile.

The recently completed divestiture of non-core assets allowed for a material debt reduction from fairly high levels, S&P continued. As a result, credit protection measures have improved to levels appropriate for the rating. In the intermediate term, debt to EBITDA is expected to be about 3.5x, EBITDA interest coverage 3.5x to 4.0x, and debt to capital about 65%, treating redeemable convertible preferred stock as equity (about 75% if treated as debt).

S&P noted the administrative agent for the loan, Fleet National Bank, will not initially perfect liens on real estate, landfills, and motor vehicles, which S&P considers core operating assets in the solid waste industry. The absence of that lien perfection could limit the lenders' access to those important assets in a bankruptcy if not completed in due course.

Still, the available collateral, aided by substantial subordinated debt cushion, is likely to provide lenders with a meaningful recovery of principal of fully drawn facilities in the event of default or bankruptcy, based on S&P's simulated default scenario derived from unexpected operating shortfalls.

Moody's puts Hovensa on review

Moody's Investors Service put Hovensa LLC's Baa3 rating on review for possible downgrade, affecting $600 million of senior bank loan facilities and $127 million of senior secured tax-exempt revenue bonds.

Moody's said the action was taken in response to the on-going national strike in Venezuela, which has led to the virtual cessation of crude oil deliveries to the facility by PDVSA under a force majeure declaration, and the recent downgrade of PDVSA to B3.

PDVSA has in place long term contracts to supply both 115, 000 bpd of Merey heavy crude oil and 155,000 bpd of Mesa medium weight crude. The lower cost Merey was intended to supply the new 58,000 barrels per day (bpd) delayed coking unit, thereby bringing down the average feedstock cost, Moody's noted.

The cessation of nearly all PDVSA operations due to the strike forced a declaration of force majeure under the crude contracts. While Hovensa can purchase alternative feedstocks, this is less economically optimal and would result in lower margins than processing supplies under the PDVSA contracts, Moody's said.

There could be serious financial stresses in the event of a prolonged disruption. Even after the supply situation improves, there may be potential longer term impacts on the operations, financial capacity, and autonomy of PDVSA, Moody's added. Further concern is raised over the ability of PDVSA, as a sponsor and guarantor of Hovensa debt until the coker has reached final completion, to pay its share should cash flow prove insufficient.

Moody's puts Pioneer-Standard on review

Moody's Investors Service put Pioneer-Standard Electronics Inc. on review for possible downgrade including its $150 million senior unsecured notes due August 2006 at Baa3 and $144 million convertible trust preferreds due March 2028 at Ba1.

Moody's said the review is in response to Pioneer-Standard's announcement that it has reached agreement to sell most of its component distribution assets and certain small equity investments in an overseas joint venture to Arrow Electronics in a cash transaction valued at $285 million.

Moody's said the review is prompted by the proposed asset sale and concern regarding Pioneer's smaller size and reduced customer and supplier diversification. Partially offsetting this concern is the lower volatility associated with the computer systems business relative to the component distribution operations and the reduced balance sheet risk due to the pending cash proceeds.

S&P cuts PDV America, Citgo

Standard & Poor's downgraded PDV America Inc. and Citgo Petroleum Corp. and kept them both on CreditWatch with negative implications. Ratings lowered include Citgo's $200 million 7.875% senior notes due 2006, cut to B+ from BB- and PDV America Inc.'s $500 million 7.875% notes due 2003, cut to B- from B.

S&P said the downgrade reflects the deterioration in PDV America's credit quality as a result of the crippling of the oil export capacity of its ultimate parent, Petroleos de Venezuela S.A. (PDVSA), the national oil company of Venezuela.

As its crude oil production has fallen from about 2.8 million barrels per day to less than 500,000 barrels per day, PDVSA has declared force majeure on crude supply arrangements with Citgo that contain margin stabilization provisions that fortify Citgo's credit quality. (Citgo purchased about half of its crude oil under these arrangements.)

The reduced volume of crude supplied under these contracts is diminishing the profitability and cash flow generation of Citgo's refineries by forcing it to refine alternate crude oils that have less attractive margins, S&P said. Crude runs, to date, have not been affected at Citgo Lake Charles and Corpus Christ refineries, although runs at its Lyondell-Citgo joint venture have been cut.

In addition, the purchasing of alternate supplies is increasing working capital requirements at Citgo because the trade credit terms on open market purchases are worse than those on purchases under its crude supply agreements with PDVSA, S&P added. Given the nature of the political conflict within Venezuela and the capital, and lead times required for PDVSA to restore PDVSA's crude oil production, S&P said it believes that crude shipments may not normalize for some time, and Citgo's working capital requirements could increase in the interim if oil prices were to rise due to events surrounding a likely war with Iraq.

S&P added that it believes that PDV America and Citgo's credit quality have diminished because the disruptions are occurring in a year of heavy capital expenditures to meet clean fuels standards and large refinancing requirements. PDV America had planned to spend $600 million in 2003 on capital improvement projects versus normalized average cash flow of about $700 million. If capital expenditures on clean fuels were cut because of liquidity constraints, S&P would have to evaluate the impact on Citgo's operating capabilities and cash flow generation potential.

Maturing debt later in 2003 could further strain Citgo's financial condition. In August 2003, PDV America will need to repay $500 million of maturing notes, which may be refinanced at the Citgo level, S&P said.

Moody's rates Cascades notes Ba1

Moody's Investors Service assigned a Ba1 rating to Cascades Inc.'s planned senior unsecured notes and a Baa3 rating to its senior secured bank facility. Moody's also put Cascades Boxboard Group on review for upgrade including its senior unsecured debt at B2.

Moody's said the ratings on Cascades Inc. reflect its solid market share in a diverse range of paper and packaging products, stable operating performance, integrated operations, and good liquidity, offset by its exposure to volatile raw material costs, moderately high financial leverage and risks associated with potential future acquisitions.

Cascades has significant market share in boxboard, containerboard (through its 50% interest in Norampac) specialty papers and tissue, Moody's noted. The ratings consider the volatility of certain raw material prices; pricing for its many of its key linerboard and boxboard products is linked to OCC (old corrugated containers) pricing.

As a result, its operating profit exhibits stability, as raw material cost changes are generally passed along to its customers. However, sudden price spikes are harder to pass through; this situation occurred in 2002, and could reoccur as OCC export demand from China has risen in recent years, Moody's said.

The company's plan to refinance most of its existing subsidiary debt with an offering of $450 million in new senior unsecured notes and a C$500 million bank credit facility should result in an improved and more transparent capital structure, Moody's said.

S&P cuts Constellation Brands outlook

Standard & Poor's lowered its outlook on Constellation Brands Inc. to negative from stable and confirmed its ratings including its senior unsecured debt at BB and subordinated debt at B+.

S&P said the change follows the company's announcement that it is discussing a possible acquisition or merger with Australian wine producer BRL Hardy.

S&P said it believes, based on publicly available information, that a combination with BRL Hardy would strengthen Constellation Brands' business profile, making the company one of the largest global wine producers. In addition, the company's credit measures have improved in recent periods, providing some financial flexibility for debt-financed acquisitions.

Constellation Brands said that no agreement on a structure or transaction value has been reached. However, based on its history of financing acquisitions largely with debt, S&P said it believes that another debt financing is likely for a significant portion of the new transaction, if completed. It is likely that an acquisition of this size will initially weaken credit measures in the near term and create both integration and financing risk for the company.

The ratings on Constellation Brands reflect its strong cash generation from a diverse portfolio of beverage alcohol products, offset in part by the competitive nature of the company's markets and a leveraged financial profile reflecting its acquisitive growth strategy, S&P said. Constellation Brands is the second-largest U.S. supplier of wines, the second-largest U.S. importer of beer, and the third-largest U.S. supplier of distilled spirits. The company is also the No. 2 producer of cider in the U.K. and a leading U.K. beverage alcohol wholesaler.

Acquisition risk has been, and will likely continue to be, a key issue in Constellation Brands' business profile, S&P added. The company made almost $1.5 billion of mostly debt-financed acquisitions and joint ventures between November 1998 and February 2002, including Matthew Clark plc, selected Canadian whisky brands from Diageo Inc., Franciscan Estates, Simi Winery, Ravenswood Winery Inc., the assets of Turner Road Vintners and Corus Brands Inc., and a 50% investment in Pacific Wine Partners LLC (with partner BRL Hardy).

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