NEW YORK -- Carter Hawley Hale, struggling to turn around a cash-strapped company with a heavy debt load and flagging sales, didn't get any encouragement Thursday from two debt credit-rating agencies.

Standard & Poor's Corp. and Moody's Investors Service said CHH's losses and thin margins may leave cash flows insufficient to cover its capital spending and interest expense.

CHH has pinned its turnaround hopes, in large part, on a $336 million, three-year capital spending program that is aimed at giving its tired stores a much-needed facelift to better compete in the California market.

But earnings before interest, taxes, depreciation and amortization produced a cash flow of only $51 million in the year ended Jan. 29 while its debt service cost them about $84 million. For the current year, cash flow is expected to increase marginally but not enough to cover interest plus the anticipated capital expenditure.

"CHH's restructuring requires a significant capital investment, which will further strain a debt-burdened financial position," S&P said in announcing a debt rating on CHH's 6.25 percent convertible senior subordinated notes due 2000.

S&P assigned a CCC rating on CHH's $143.8 million in bonds. Moody's assigned a CAA rating to the issue.

Said Moody's: "The rating reflects CHH's high leverage and minimal debt protection measures...the difficulties associated with efforts to improve flagging sales and profitability, the need for additional cash to fund substantial capital expenditures and the subordinated and unsecured position of the notes in the company's capital structure."

As of Jan. 29, CHH had a shareholder equity of about $414 million and debt of $11 billion.

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