Moody's Tests Interstate Bakeries, S&P Ups CCK

Moody's Investors Service has placed Interstate Bakeries Corp. on review for a possible downgrade following the company's announcement that earnings for its 2003 fiscal year ending May 31 are likely to be lower than previous guidance. The company's $300 million revolver, $375 million term loan "A" and $125 million tranche "B" are currently rated Ba1. The rating agency does not rate the company's $100 million "C" piece maturing in 2007. Paul Yarick, Interstate Bakeries treasurer, said the company is undertaking efforts to address the issues from both a long-term and short-term standpoint.

Operating performance is likely to be hurt by weaker snack cake sales during its usually strong holiday period, competitive pressures in bread markets, increased product returns and higher costs. Therefore, Moody's review will focus on what strategies Interstate Bakeries will employ to improve its sales and profitability, the timeframe for improvement and the effect of the aforementioned factors on the company's financial measures. "We are in compliance with all of our covenants and expect to be going forward," said Yarick, declining to disclose Interstate Bakeries' leverage and interest coverage multiples.

* Standard & Poor's has raised the ratings on Crown Cork & Seal after identifying positive trends for the company, including the extension of near-term debt maturities and improved liquidity as a result of the company's debt refinancing. Consequently, the senior secured bank loan rating was upped from B to BB. The revised rating will apply to Crown Cork's new $550 million revolver and a $500 million "B" term loan.

S&P anticipates that trends regarding Crown Cork's burdening asbestos liabilities are improving with the amount of its asbestos-related payments expected to decline in 2003. Meanwhile, the pared down company now focuses primarily on the metal container market and has lead positions in the food, beverage, and aerosol can markets, which tend to be stable relative to other industrial markets. Furthermore, Crown Cork's gross product margin improved to 18% in 2002 due to price increases across its product lines.

Although the company has been able to reduce its debt over the last year by $1.3 billion, its leverage multiple still remains high at more than five times. The rating agency does expect, however, that going forward Crown Cork will be able to lower its debt-to-EBITDA ratio to four times and increase its EBITDA interest coverage from two times to 2.5-3 times. Calls to Timothy Donahue, senior v.p. of finance, were not returned by press time.