S&P cuts FelCor's notes

Standard & Poor's downgraded FelCor Lodging LP's $125 million 7.625% senior notes due 2007, $175 million 7.375% senior notes due 2004, $400 million 9.5% senior unsecured notes due 2008 and $600 million 8.5% senior notes due 2011 to B from B+ and confirmed its other ratings including its secured debt at B+ and preferred stock at CCC+. The outlook remains negative.

S&P said the action follows FelCor's announcement that it has entered into a secured debt facility for up to $200 million. In addition, FelCor reduced its unsecured line of credit commitment to $50 million from $150 million and is in the process of obtaining an amendment to its bank covenants to obtain greater flexibility.

Pro-forma for the $200 million secured facility, FelCor will have over $1 billion of secured debt in its capital structure.

The company's level of priority debt is significant enough to warrant a notching distinction between the secured and unsecured debt ratings to reflect the less favorable recovery prospects of the unsecured debt holders in a liquidation scenario, S&P said. Pro forma for the transaction, more than 50% of FelCor's EBITDA is generated by hotels that have been pledged as collateral.

The company has provided 2003 RevPAR guidance of negative 3%-4% and EBITDA of $252 million-$260 million, S&P noted.

While the company's liquidity position will improve following its $200 million secured financing transaction, S&P said it anticipates that the company's credit measures will continue to be very weak for the current ratings throughout the next 12-18 months. While total debt (including 50% of debt from its unconsolidated subsidiaries) to EBITDA was in the low-7x at the end of the first quarter, it is likely to be more than 8x by the end of 2003. EBITDA to interest coverage was 1.7x.

Moody's raises AES outlook

Moody's Investors Service raised its outlook on AES Corp. to stable from negative and confirmed its ratings including its senior unsecured debt at B3 and secured bank credit facilities at B2.

Moody's said the outlook revision reflects improvement in AES' liquidity profile and financial flexibility, and significant progress in executing planned asset divestitures.

The company has completed approximately $975 million of asset sales, refinanced its near-term debt maturities, implemented cost control measures, and issued over $300 million of common equity, Moody's noted.

The substantial reduction in capital spending has brought a better balance to cash outflows relative to internal cash generation. These factors have resulted in a sharp improvement in the company's liquidity profile.

Senior secured bank debt has been reduced by approximately $800 million since the beginning of the year and the company now does not have substantial maturing debt obligations until 2005.

Moody's rates D.R. Horton notes Ba1

Moody's Investors Service assigned a Ba1 rating to D.R. Horton, Inc.'s new $100 million 5.875% senior notes due July 1, 2013 and confirmed its existing ratings including the senior notes at Ba1, senior subordinated notes at Ba2 and speculative-grade liquidity rating at SGL-2. The outlook remains stable.

Moody's said the ratings acknowledge the progress Horton has made to date in meeting its conservative capital structure projections, with the debt/capitalization ratio of 52.3% at fiscal year-end 2002 representing the lowest level in many years, as well as its successful integration to date of Schuler Homes.

The ratings also incorporate the company's enviable operating performance (102 consecutive quarters of year-over-year earnings growth), success at integrating prior acquisitions, strong equity base, geographic diversity and tight cost controls.

At the same time, the ratings continue to reflect Horton's higher-than-average business risk profile given its appetite for acquisitions, greater debt leverage than that of its peers, capacity under its credit agreement that could lead to substantial additional debt and the cyclical nature of the homebuilding industry, Moody's said.

However, if the company successfully executes on its new strategy of buying less land, eschewing an active acquisition policy, and using excess cash flow for debt repayment and share purchases, Moody's will review the existing outlook and ratings.

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