Darden Restaurants (DRI) Remains on CreditWatch Negative After Completion of Red Lobster Sale - S&P Jul 28, 2014 11:41AM

Standard & Poor's Ratings Services said its ratings on Darden Restaurant Inc. (NYSE: DRI) including the 'BBB-' corporate credit rating, remain on CreditWatch with developing implications, where we placed them on Dec. 19, 2013.

Darden has announced that the sale of Red Lobster to Golden Gate Capital is complete. The company also extended its cash tender offer of its senior notes to Aug. 7, 2014. As previously announced, Darden will use approximately $1.0 billion of the cash proceeds from the Red Lobster sale to retire outstanding debt.

"We still believe the most likely scenario is to affirm the ratings at 'BBB-' following the completion of the tender offer," said credit analyst Helena Song. "However, we believe the outlook will be negative if we affirm the rating, reflecting our view that operating performance at its key brand, Olive Garden, will remain relatively weak in the next several quarters and that Darden has limited room for further operating underperformance."

We expect to resolve the CreditWatch placement following the completion of the extended tender offer, which we now expect to be in early August, after evaluating the business and financial impact of the finalized transaction, the financing details, and management's financial policies and capital structure, including any resolutions (or taking account of any ongoing disagreements) with the activists.


Baidu's (BIDU) H114 Results Support Ratings - Moody's Jul 28, 2014 11:35AM

Moody's Investors Service says that Baidu Inc.'s (Nasdaq: BIDU) 1H2014 results support its A3 issuer and senior unsecured debt ratings.

The ratings outlook remains stable.

"Baidu's robust year-on-year revenue growth of 59% in 1H2014 to RMB 19.9 billion slightly exceeds Moody's expectations," says Lina Choi, a Moody's Vice President and Senior Analyst.

"This strong revenue growth reflects Baidu's success in monetizing its mobile-search products and improving overall click-through rates," adds Choi, who is also the Lead Analyst for Baidu. "Revenue per online market customers also recorded a 50% year-on-year increase to RMB 24,200 and mobile comprises 30% of total revenue in 2Q2014."

Looking ahead, Moody's expects the company's mobile contribution will exceed 35% in the next 12 -- 18 months, and that it will strengthen its competitiveness across all Internet devices, including computers and mobile platforms.

Moody's further notes that although operating margin has declined from pre-2013 levels -- due to investments and marketing activities associated with mobile products -- the absolute amount for its operating cash flow was stable, as the company's revenue base grew.

Baidu's quarterly operating margin declined to the 31%-32% level, down from the pre-2013 levels of 40%-44%. Given continued internet traffic migration from personal computers to mobile terminals, Moody's expects Baidu will further grow its mobile platform, and enrich its applications and products.

Investment in and marketing of these products will help to slow the decline in profitability in the next 12-18 months. As a result, Moody's expects Baidu will maintain operating margin at around 26-28% in FY2014.

Baidu's liquidity remains strong, driven by stable operating cash flow. Baidu had a net cash position of RMB24.7 billion at end-June 2014. Its strong liquidity position enables it to make acquisitions to strengthen its franchise without raising much debt. It has also allowed the company to maintain credit metrics appropriate for its A3 rating.

Baidu's gross debt/EBITDA stood at 1.8x and debt to capital was below 35% at end-June 2014. Both ratios are acceptable for its current A3 rating because its liquidity position was enhanced by its US$1 billion bond issuance in June 2014.

The principal methodology used in this rating was the Global Business & Consumer Service Industry Rating Methodology published in October 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.


Moody's Raises Universal Health (UHS) CFR to 'Ba1'; Sees Moderate Financial Leverage Being Maintained Jul 25, 2014 03:31PM

Moody's Investors Service upgraded the Corporate Family and Probability of Default Ratings of Universal Health Services, Inc. (NYSE: UHS) to Ba1 and Ba1-PD from Ba2 and Ba2-PD, respectively. Moody's also upgraded the ratings on the company's senior secured debt to Ba1 (LGD 3) from Ba2 (LGD 3) and senior unsecured debt to Ba2 (LGD 6) from B1 (LGD 6). The rating outlook was changed to stable from positive. UHS' Speculative Grade Liquidity Rating was also upgraded to SGL-1 reflecting Moody's expectation that the company will maintain very good liquidity over the next 12 -- 18 months.

"The upgrade of Universal Health's rating to Ba1 reflects our expectation that the company will maintain moderate financial leverage, and in fact maintain some of the most conservative credit metrics among for-profit hospital operators," stated Dean Diaz, a Moody's Senior Vice President. "Universal Health's credit metrics will continue to benefit from strong margins and growth in the fragmented behavioral health segment as well as the positive impact from the Affordable Care Act and improving conditions in certain markets that will enhance the operating results of the company's acute care hospital business," continued Diaz.

Following is a summary of Moody's actions.

Ratings upgraded:

Corporate Family Rating to Ba1 from Ba2

Probability of Default Rating to Ba1-PD from Ba2-PD

Senior secured credit facilities to Ba1 (LGD 3) from Ba2 (LGD 3)

Senior secured notes due 2016 to Ba1 (LGD 3) from Ba2 (LGD 3)

Senior unsecured notes to Ba2 (LGD 6) from B1 (LGD 6)

Speculative Grade Liquidity Rating at SGL-1 from SGL-2

RATINGS RATIONALE

UHS' Ba1 Corporate Family Rating reflects Moody's expectation of continued EBITDA growth, stable cash flow and strong interest coverage. Moody's believes the company will continue to operate with modest leverage and remain disciplined with respect to the use of incremental debt for acquisitions or shareholder initiatives. However, Moody's expects that UHS will continue to be acquisitive and invest in growth initiatives, which will limit debt repayment. While Moody's anticipates a challenging operating environment in the acute care business in the near term, characterized by pressure on reimbursement rates and weak volume trends, the segment should begin to benefit from a reduction in bad debt expense as uninsured individuals that have gained coverage under the Affordable Care Act seek services in the company's facilities. Further, the rating incorporates the benefit of diversification provided by UHS' behavioral health segment, which is reimbursed under a separate methodology from the acute care operations, thereby lowering the risk of a regulatory change that could impact the company as a whole.

The stable rating outlook reflects Moody's expectation that continued growth in the behavioral segment and benefits to the acute care segment from the ACA will contribute to positive operating results and strong credit metrics. Moody's also expects that the company will maintain modest leverage levels even while pursuing acquisitions and investments in growth initiatives. The outlook also reflects Moody's expectation that UHS will remain disciplined towards increasing leverage for shareholder initiatives.

An upgrade of the rating to investment grade is not likely in the near term given Moody's expectation that the company's reinvestment in growth through capital projects and acquisitions will limit a meaningful improvement credit metrics from current levels. Moody's could consider an upgrade if UHS can continue to grow EBITDA, either through acquisitions that are funded out of available cash flow or meaningful improvement in the acute care business, and repay debt such that leverage is expected to be sustained below 2.5 times. Additionally, UHS would need to make a public commitment to an investment grade rating, including maintaining a conservative financial policy and a disciplined approach to capital deployment.

A decline in operating performance resulting in an expectation that adjusted debt to EBITDA will remain above 3.0 times could result in a downgrade of the ratings. Additionally, a significant debt financed acquisition or shareholder initiative could result in a downgrade.

The principal methodology used in this rating was the Global Healthcare Service Providers published in December 2011. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.


Moody's Places Cliffs Natural (CLF) Rating on Review for Downgrade Jul 25, 2014 02:58PM

Moody's Investors Service placed Cliffs Natural Resources (NYSE: CLF) Baa3 senior unsecured ratings under review for downgrade.

..Issuer: Cliffs Natural Resources Inc.

On Review for Possible Downgrade:

....Multiple Seniority Shelf Feb 11, 2016, Placed on Review for Possible Downgrade, currently (P)Baa3

....Senior Unsecured Regular Bond/Debentures, Placed on Review for Possible Downgrade, currently Baa3

Outlook Actions:

....Outlook, Changed To Rating Under Review From Negative

RATINGS RATIONALE

The review results from the expected further deterioration in earnings and debt protection metrics on the drop in iron ore prices, which we believe will be sustained at lower price points than previously anticipated through at least 2015. Since January 2014 spot iron ore prices (62%Fe) have fallen roughly 30% to around $94/tonne on July 24, 2014 on increased iron ore production and a steel market evidencing only sluggish production growth, particularly the important Chinese steel industry. While the downward price movement has slowed and prices have recently been trading between roughly $95/tonne and $105/tonne, we expect prices to remain within this range with risk to the downside. Although Cliffs performance is not directly correlated to price movement in the seaborne market given the contract nature of its US operations, movement in this market will have an impact on a lag basis. Cliffs' Canadian and Asia Pacific operations are more sensitive to the movement in the seaborne price. At iron ore prices averaging below $110/tonne over the next one to two years, we expect Cliffs' leverage, as measured by the debt/EBITDA ratio to exceed 4x.

The review also considers the uncertainty relating to the business direction and management of the company arising from the proxy battle with Casablanca Capital. The conclusion of the review could result in a downgrade of 1 or possibly 2 notches.

Moody's review will focus on expected volume levels and recovery from the lower levels caused by the adverse winter weather, levers the company has to further reduce costs, the net benefit or reduction in losses caused by the potential idling of the Pinnacle coal mine given the adverse metallurgical coal market conditions, and the level of earnings that can be generated in a sustained lower iron ore price environment. The review will also focus on Cliffs' customer base given the recent announcement by Essar Steel Algoma of a refinancing and recapitalization under a Plan of Arrangement under the Canada Business Corporations Act and AK Steel's pending acquisition of certain assets of Severstal North America, a subsidiary of Severstal OAO, including the steel assets located in Dearborn Michigan. In addition, the status of the phase II expansion of Bloom Lake and options for such development will be a consideration in the review as will the company's ability to maintain its production profile given the depleting nature of its reserve base. The outcome of the shareholder vote on board of director composition at the July 29, 2014 annual meeting and any potential changes in business strategy will also be evaluated.


Gray Television's (GTN) Acquisition of WTVG-TV and WJRT-TV has No Impact on Ratings - Moody's Jul 25, 2014 02:55PM

Moody's says on July 24, 2014, Gray Television, Inc. (NYSE: GTN) announced its agreement with SJL Holdings, LLC ("SJL") to acquire WJRT-TV, an ABC affiliate serving the Flint-Saginaw-Bay City, MI market and WTVG-TV, an ABC/CW affiliate serving the Toledo, OH market for approximately $128 million in cash. There is no immediate impact to Gray's debt ratings or the positive outlook as we expect overall financial metrics and operating performance to remain within the B3 Corporate Family Rating. The transaction does not increase debt-to-EBITDA ratios above 6.2x pre-transaction levels (pro forma for recently closed Hoak transaction, including Moody's standard adjustments); however, net leverage increases nominally. The acquisition is subject to regulatory approval and is expected to close by Q4 of 2014.


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