S&P rates new Level 3 convert CC

Standard & Poor's assigned a CC rating to Level 3 Communications Inc.'s proposed new $250 million convertible senior notes due 2010 with a negative outlook.

Although cash proceeds improve liquidity, S&P is still concerned about the company's ability to withstand prolonged industry weakness and risk from its acquisition strategy.

Ratings reflect high financial risk from heavy debt levels and negative discretionary cash flow, plus depressed data transport industry conditions due to weak demand, overcapacity and heavy competition.

Further, the ratings reflect risk from an aggressive consolidation strategy, which could strain liquidity and exacerbate an already weak financial condition.

Offsetting factors include customer contracts and the asset value of the company's fiber optic network.

The company relies on liquidity from $944 million of cash and marketable securities on hand at March 31, which would be increased by the new convertible. This balance does not include $400 million of restricted cash pledged to senior secured credit facility lenders.

Level 3 also has undrawn commitments of about $150 million under its credit agreement, available subject to covenant restrictions requiring a minimum cash balance generally equal to $525 million and an 11.5x maximum debt to EBITDA ratio effective June 30, 2004.

Fitch rates new Anixter convert BB+

Fitch Ratings assigned a BB+ rating to Anixter International's new $125 million in 0% convertible senior notes due 2033 and affirmed its other ratings.

The outlook is stable.

The ratings and outlook reflect strong market position, solid liquidity position, manageable near-term debt obligations and modest capital spending requirements.

Credit concerns continue to be the competitive pricing environment and continued sluggishness in information technology spending. In addition, the shift to maintenance based from capital based spending continues and the timing of a turnaround in the distribution industry remains uncertain.

Anixter has good financial flexibility supported by about $24 million in cash, a $225 million accounts receivable securitization program and a recently amended $275 million five-year revolving credit facility maturing October 2005.

In addition, the company continued to generate positive free cash flow in the first quarter of 2003 as a result of working capital efficiencies, which enhanced liquidity.

Fitch believes current resources are more than adequate to satisfy near-term obligations as there are no significant maturities until the potential put of its 0% convertible notes due 2020 in 2005. Fitch anticipates proceeds from the new issue will be used to repurchase a majority of the outstanding convertibles, reducing the refinancing risk from the potential put in 2005.

During 2002, the company utilized free cash flow to repurchase $378 million face value of the 0% convertible notes due 2020 as well as some $10 million of its senior notes due October 2003.

Total on-balance sheet debt was $200.2 million at April 4, consisting of $126.1 million in 0% convertibles, $6 million in senior notes and $68 million from the revolving credit facility.

Credit protection measures have remained relatively consistent year over year with leverage at 1.8x and coverage at 17.4x on a last 12 months basis at April 4. For the period, adjusted leverage was 4.4x on an LTM basis compared to 4.5x for year-end 2002 and 3.8x for year-end 2001.

Moody's rates new Anixter convert Ba3

Moody's assigned a Ba3 rating to Anixter International Inc.'s new $125 million 0% convertible due 2033 and confirmed its existing ratings.

The outlook remains stable.

The ratings recognize low leverage, good coverage and a reasonable liquidity position at this time. However, the ratings also incorporate thin margins and limited asset coverage and a history of share

repurchases.

The company has reduced debt by about $200 million since the end of the first quarter 2001.

Although operating margins are well below historic levels, they remain reasonable.

Moreover, the current liquidity position, with aggregate availability under a bank revolver and A/R securitization facility of about $135 million as of first quarter 2003, is adequate.

The outlook reflects an expectation that operating performance will steadily improve over the near term, operating margins will at least remain at current levels, leverage will remain low and liquidity will stay reasonable. Going forward we also believe that share repurchases will be minimal and acquisitions, if they occur, will be small "tuck-ins". However, a decline in operating performance resulting in deterioration in current credit metrics or weakened liquidity profile would negatively impact the outlook and/or ratings.

Fitch cuts GenCorp outlook to stable

Fitch Ratings affirmed the BB rating on GenCorp Inc.'s credit facilities and the B+ rating on its subordinated convertible notes, but revised the outlook to stable from positive.

The current ratings take into consideration the proposed ARC Propulsion acquisition, which is expected to be funded from the proceeds of a debt offering and is expected to close later this summer.

The affirmation reflects improved operating performance and credit statistics, benefits from the ARC Propulsion acquisition, a fully funded pension plan as of Nov. 30, 2002, and additional cash flow and cushion that may be derived from continued development of the sizable real estate holdings.

Concerns include low free cash flow, limited liquidity, potential acquisition integration issues and environmental liabilities.

The revised outlook reflects a weaker outlook for the automotive industry, weak cash flow generation and the impact of about $135 million of additional debt relating to the proposed ARC Propulsion acquisition.

Fitch estimates pro forma leverage increased from 3.1x to 3.6x for the 12 months ending May 31 and pro forma interest coverage declined to 5x from 6.8x.

Fitch cuts J.C. Penney outlook to negative

Fitch Ratings changed the rating outlook on J. C. Penney Co. Inc. to negative from stable and affirmed the BB+ rating on its $1.5 billion secured bank facility, the BB rating on the senior unsecured notes and the B+ rating on the convertible subordinated notes.

The affirmations reflect progress over the past two years in turning around department store and Eckerd drugstore businesses as well as a strong liquidity position, offset by continued high financial leverage.

However, the outlook reflects current operating weakness in both business segments, as comparable store sales declined 3.2% at the department stores and 1.1% at Eckerd in the first four months of 2003.

EBITDAR coverage of interest plus rents increased to 2.0x in the 12 months ended April 26 from 1.7x in 2001 and leverage improved to 5.1x from 5.9x.

S&P puts Cincinnati Bell on CreditWatch positive

Standard & Poor's placed its ratings on Cincinnati Bell Inc. and subsidiaries on CreditWatch with positive implications following the company's announcement that it plans to issue approximately $300 million of senior unsecured notes. Upon completion of the new notes issuance, S&P expects to raise the corporate credit rating on Cincinnati Bell to B from B- and assign a positive outlook.

Proceeds from the notes will be used to repay debt outstanding under the company's term and revolving credit facilities.

"The CreditWatch reflects the fact that proceeds from the new notes will enable Cincinnati Bell to significantly address a looming liquidity issue in 2006," said Standard & Poor's credit analyst Michael Tsao.

The constraining factor on the ratings is substantial financial risk after the company incurred debt to finance the unsuccessful Broadwing Communications venture. This left Cincinnati Bell aggressively leveraged with debt-to-annualized EBITDA of about 4.5 times for the quarter ended in March 2003, S&P added.

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