S&P cuts WorldCom ratings

Standard & Poor's lowered the ratings on four synthetic securities related to WorldCom Inc. to CC from CCC-, following the downgrade of WorldCom's long-term corporate credit and senior unsecured debt on Monday.

S&P lowered the rating on MCI Capital I's 8% cumulative quarterly income preferred securities (QUIPS) to D from C following non-payment of the interest payment on June 30.

MCI Capital I is a funding conduit for MCI Communications Corp., a subsidiary of WorldCom Inc.

On Friday, WorldCom announced it would defer interest payments on the QUIPS.

Also, all ratings remain on negative watch.

WorldCom had about $30 billion total debt outstanding as of March 31.

Moody's rates Sunrise convertible B1

Moody's assigned a B1 rating to Sunrise Assisted Living Inc.'s $125 million of 5.25% convertible subordinated notes due 2009. The outlook is stable.

The ratings reflect a leading position, modestly improving operating trends, a turnaround in the assisted living sector, good balance sheet collateral and favorable demographic trends.

Additionally, Moody's views positively the recent shift in the business model towards management, as opposed to ownership, of assisted living facilities.

Negative factors include high leverage, concerns over the sustainability of capital recycling through the sale/manage-back program and a complex financial structure.

Other concerns include a tight labor environment and the challenges of operating in a highly competitive industry.

The stable outlook anticipates that moderate growth in Sunrise's management services business will reduce dependence on income from the sale/manage-back program. This should lead to greater stability in operating trends going forward.

Moody's also expects Sunrise to further reduce debt with property sale proceeds.

If the company demonstrates that it can sustain property sales at current levels and grow its management services business and improve credit metrics beyond expectations, a positive outlook/rating adjustment may be warranted.

Conversely, if the company fails to sustain positive momentum, either as a result of difficulties with property sales or another downturn in the sector, a negative rating adjustment may be warranted.

Over the last few years, the company has seen its credit profile strengthen as a result of property sales and growth in EBITDA. Nonetheless, the company's leverage remains high.

At March 31, adjusted debt/EBITDAR stood at 4.7 times. Coverage was moderate at 2.8 times for the same period.

Moody's anticipates further improvements in leverage in the near term as the company continues its sale/manage-back program.

Further supporting the ratings, Moody's notes that the company's balance sheet assets do provide good collateral coverage.

While the convertible notes do not enjoy the security of the senior debt, the assets do provide sufficient coverage for all of the company's senior debt and subordinated notes.

For the quarter ending March 31, Moody's analysis indicates a loan-to-value ratio in the high 50% range.

Fitch cuts Anadarko to BBB+

Fitch Ratings downgraded Anadarko Petroleum Corp.'s senior unsecured debt to BBB+ from A- and its preferreds to BBB from BBB+, as a result of credit metrics falling below expectations for an A- rating. The outlook is stable.

Credit metrics deterioration is due, in part, to higher debt levels partially resulting from acquisition-related debt in 2001 and a lack of production growth in 2002 despite relatively robust capital spending over the last five quarters.

Debt levels have increased about 37%, or $1.5 billion, since the end of 2000 resulting in higher interest expense and higher debt/EBITDA.

As a consequence, existing debt levels and expected production for 2003 would likely result in interest coverage, as measured by EBITDA/Cash Interest, of slightly less that 6 times and debt/EBITDA of over 2.5 times in a price environment of $20/bbl and $2.75/Mcf.

The current ratings are based on a strong reserve base globally (2.3 billion boe), sizable acreage position, particularly in North America, that offers long-term growth and a moderately levered credit profile.

Historically, Anadarko has been very successful at adding proven reserves through the drillbit at economic costs.

However, recent finding and development costs have been higher than Anadarko's pre-2001 five year FD&A average of less than $5.00/boe.

Going forward, Fitch believes that Anadarko will fund its capital program with internally generated cash flow, which should allow for mid-single digit production growth.

Additionally, Fitch believes that any acquisitions that may occur will be financed in a balanced manner so as not to materially diminish protection to bondholders.

S&P keeps Tyco on negative watch

Standard & Poor's is keeping the BBB- corporate credit ratings on Tyco International Ltd. and subsidiaries on negative watch following the completion of the IPO of the CIT Group Inc.

Tyco has total debt of about $26 billion.

The IPO is an important step in strengthening Tyco's liquidity.

Management intends to use IPO proceeds totaling $4.6 billion, together with a significant portion of cash balances, between $2.5 billion and $3.0 billion currently, to reduce debt.

During the next 18 months, the company will have maturities totaling about $6.8 billion, plus the potential put of 0% convertibles totaling about $5.9 billion.

Tyco has the option to satisfy $2.3 billion of the puts in stock in February 2003. However, the company may choose not to do so because at the current low common share price, this would cause significant dilution.

Removal of the watch will depend on management's addressing the gap between IPO proceeds, cash balances and operating cash flow of about $3 billion in the current fiscal year and obligations coming due in the next 18 months.

This could be done through a combination of restoring bank line availability, selling additional assets and accessing the public capital markets.

Moody's keeps Tyco on review

Moody's Investors Service said it is keeping Tyco International Ltd. on review for possible downgrade. Ratings affected include Tyco's International Ltd.'s convertible debentures at Ba3, Tyco International Group SA's senior notes and debentures and revolving credit facility at Ba2, Tyco International (US) Inc.'s senior unsecured notes and debentures at Ba1, ADT Operations, Inc.'s senior subordinated notes and subordinated Liquid Yield Option Notes at Ba2, Raychem Corp.'s $388 million senior, unsecured notes at Ba3 and Mallinckrodt Inc.'s senior unsecured notes and debentures at Ba3.

Moody's said completion of the IPO of CIT, which provides net proceeds of $4.6 billion to begin needed debt reduction, is a positive development.

However, Moody's said it believes Tyco will continue to face a significant debt burden with sizable maturities over the next 18 months.

The rating agency noted that in addition to the CIT IPO proceeds, Tyco anticipates cash liquidity of $2.5-$3.0 billion as of June 30 (after fully drawing its available bank lines earlier this year), as well as free cash flow which should enable it to meet funding needs during the current calendar year.

The company expects free cash flow in the range of $4.2-$4.5 billion in its 2003 fiscal year, and a refinancing need of $1.5 billion in November, 2003, Moody's added.

Moody's puts EDS on review for downgrade

Moody's placed the A1 senior unsecured long term rating of Electronic Data Systems Corp. under review for possible downgrade.

The review was prompted by concerns about two contracts with WorldCom and continued general softness in IT services.

The review will assess the magnitude of potential contract disruptions from EDS clients that rely on network services provided by WorldCom and potential internal service disruptions for EDS, which depends on WorldCom for a significant portion of its voice, data and other network services.

Moody's will also review the implications of a possible restructuring of WorldCom's 11-year, $6.4 billion IT services outsourcing contract with EDS in the event of a WorldCom bankruptcy filing. As part of this review, Moody's will assess all aspects of EDS's creditworthiness.

S&P: No impact from DoubleClick sale

Standard & Poor's said that DoubleClick Inc.'s (B/negative) definitive agreement to sell its North American media business to L90 Inc. for $9.5 million in stock and cash does not affect DoubleClick's ratings.

The company began refocusing on the ad-serving technology and data marketing sides of its business after divesting its cash-draining European media business in the first quarter of 2002.

The downsized North American media unit generated slightly negative EBITDA in the first quarter of 2002 and contributed about 20% of total revenue and less than 8% of gross income.

Primary support for the rating is derived from the company's liquidity position of roughly $726 million, including about $122 million in cash at March 31.

DoubleClick still generates negative discretionary cash flow, although deficits are narrowing.

Weak Internet advertising spending continues to constrain revenue growth for the technology business and pressure overall profitability.

The company's cash cushion provides only modest protection against a prolonged deterioration in operating trends.

S&P cuts Elan to junk

Standard & Poor's lowered the corporate credit and senior debt ratings on Elan Corp. plc to BB- from BBB-. The ratings remain on negative watch.

The actions reflect increased risk regarding the potential pressure on Elan to repurchase royalty rights on its product portfolio and drug pipeline in the face of its shrinking access to capital.

Elan's 2001 financial report filing, which provides detail on risk-sharing arrangements, suggests the potential for substantial royalty-payment increases or the repurchase of these rights, pertaining to drugs related to much of Elan's future cash flow.

Such a repurchase could well create a funding need in excess of $1 billion over the next couple of years.

Although cash and investments continue to exceed Elan's debt, the value of its investment portfolio is jeopardized by recent stock market reverses.

Additionally, a potential December put on the $1 billion convertible looms more formidable, given Elan's equity-share price collapse, which reduces the likelihood that the obligation will be converted into Elan shares.

S&P expects to soon meet with Elan's management to examine specific plans to bolster its financial position and business strategy.

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