Weyerhaeuser Cut To Junk; Muzak Performance Off-Key

A poor prognosis for future debt reduction has led to a downgrade for Weyerhaeuser from BBB- to BB+ from Fitch Ratings. "It is becoming increasingly difficult to see a sustainable improvement in the company's markets to allow a quick return to investment-grade financial metrics, absent an equity offering," notes Fitch analyst Dennis Ruggles. Weyerhaeuser has a $1.3 billion facility due March '07 and a $1.2 billion, 364-day line of credit.

Of the two combined facilities, at the end of June the company had $1.8 billion available, according to a source, who added that Weyerhaeuser does not have large maturities due until 2005. He said he would be surprised if the banks would demand security on the lines due to the downgrade. But the company may tap the lines more than before the downgrade, he said. Morgan Stanley and J.P. Morgan lead the credit lines, but the banks with exposure could not be ascertained. Weyerhaeuser has been selling non-core timberlands which now contribute upwards of 25% of the company's operating earnings, while the firm has also been trying to cut costs and capital expenditures. A Weyerhaeuser spokesman did not return calls.

* Standard & Poor's has lowered its corporate credit ratings on Muzak Holdings and Muzak, to B from B+, with a negative outlook. The Fort Mill, S.C.-based business music services provider had $396 million in consolidated debt and $127 million in debt-like preferred stock as of June 30. "The downgrade is based on S&P's expectation of lower earnings and cash flow that will preclude Muzak from achieving the near-term improvement in discretionary cash flow and leverage required to maintain a B+ rating," said S&P credit analyst Steve Wilkinson.

Ongoing cash flow improvement remains critical because Muzak's liquidity is limited, according to the rating agency. In addition, the company's cash interest expense is growing due to its second quarter debt refinancing and because its senior discount notes require cash interest payments starting in September 2004. Balancing these concerns are the company's leading market position, sizable recurring revenue base, solid margins, and customer diversity. A Muzak spokeswoman referred questions to Steve Villa, cfo, who did not return calls by press time.