Agencies Differ On Moore, Moody's Eyes Lyondell

Moody's Investors Service has placed the Ba2-rated bank debt of Moore North America, a wholly owned subsidiary of Moore Corp., on review for possible downgrade following the announcement that the company has signed a definitive merger agreement to acquire Wallace Computer Services. In contrast, Standard & Poor's has placed the company, which it currently rates BB+, on CreditWatch with positive implications. S&P said that the combined entity, Moore Wallace, would have a stronger business risk profile.

Moody's will investigate the financial structure for the acquisition and its subsequent reliance on debt. Moody's will also evaluate the integration risks and pro forma business results in conjunction with the transaction. S&P estimates pro forma EBITDA to be about $420 million. In addition, free cash flow is estimated to be about $250 million to $300 million in the first year of operation, suggesting that the company could pay down its debt in the medium term. The $1.3 billion acquisition comprises roughly $470 million in Moore equity, assumption of $210 million of Wallace debt and $606 million in cash from incremental debt offerings and cash on hand, according to S&P. Mark Hiltwein, Moore's cfo, could not be reached by press time.

* Moody's also changed the outlook on the long-term debt ratings of Lyondell Chemical, including its Ba3-rated bank debt, from stable to negative. The rating agency cites its concern over the company's weak financial performance as well as the ability of its majority-owned Lyondell-Citgo Refining business to generate sufficient cash to provide a dividend stream to Lyondell.

Lyondell may have to seek an amendment to its credit agreement if the financial performance is worse than expected and Lyondell-Citgo is unable to generate a dividend stream. The rating agency noted that cash generated by Lyondell-Citgo has allowed Lyondell to remain at the cash-flow break even point despite a downturn in the company's propylene oxide and other petrochemical operations.

Although operating rates at Lyondell-Citgo have returned to levels above 80%, Moody's is still concerned that further civil unrest in Venezuela will hamper crude oil shipments to the refinery. Lyondell-Citgo receives 85-90% of its crude oil from Venezuela so if shipments decrease, the refinery will have to purchase more crude oil in the spot markets. The availability and price of crude oil could drastically affect the refinery's ability to generate cash in the near term. Calls to Lyondell officials were not returned.