S&P cuts Aquila

Standard & Poor's downgraded Aquila Inc. and removed it from CreditWatch with negative implications. The outlook is negative. Ratings lowered include Aquila's commercial paper, cut to A-3 from A-2, senior secured debt to BBB- from BBB, senior unsecured debt to BBB- from BBB, subordinated debt to BB+ from BBB- and preferred stock to BB from BB+.

S&P said that although Aquila's credit profile has been stressed by actions within the company and by general business conditions in its sector, management has taken and is expected to continue to take steps that will preserve credit quality in the BBB- area.

Achieving financial performance that is consistent with the new rating level will require a continuing effort by Aquila to accomplish needed asset sales, further reduce business risk, and improve its utility operations, S&P said.

In the deteriorating energy and capital markets that have developed in 2002, Aquila has progressively and proactively responded with a series of steps designed to stabilize its creditworthiness, S&P added. Most importantly, the company has committed itself to effectively exit the energy marketing and trading business that in 2001 constituted Aquila's largest business segment.

The drop in cash flow and earnings from the move has hurt near-term financial measures, but it will ultimately be beneficial for credit quality as the company's shrinking exposure to market and credit risk is coupled with the efforts to resize and strengthen the balance sheet through asset sales, S&P said.

The negative outlook is based on the risk that the company may fall short of the amount of asset sales necessary to restore the balance sheet to appropriate levels of debt and equity,. S&P added.

Moody's puts Swiss Re on review

Moody's Investors Service put Swiss Reinsurance Co. on review for possible downgrade including its senior debt at Aaa, subordinated debt at Aa1 and junior subordinated debt at Aa2.

Moody's said the review follows the release of Swiss Re's first half 2002 interim results.

Swiss Re reported net income of CHF118 million for the period compared to CHF1.345 million for the first half of 2001.

Moody's noted that while results were positive for the company's core P/C and life reinsurance units, the net income was adversely affected by lower investment income and realized gains, and by a high claims frequency in the Financial Services Business Group, Moody's said.

Moody's added that Swiss Re's reported shareholders' equity declined to CHF18.3 billion from CHF22.6 billion as of year-end 2001 due to unrealized investment losses of CHF 2.4 billion and negative currency effects of CHF1.3 billion. This in turn has driven Swiss Re's level of financial leverage well above that of other Aaa-rated companies.

While the outlook for Swiss Re's premium income remains positive for the years 2003 and into 2004, the outlook for investment income remains subdued, the rating agency added. Accordingly, while Swiss Re's internal capital generation is expected to be strong, it may not be sufficient to restore the company's equity base to historical levels.

Fitch confirms Thermo Electron

Fitch Ratings confirmed Thermo Electron's senior unsecured debt at BBB+ and subordinated convertible debt at BBB affecting $656 million of debt. The outlook is stable.

Fitch said the ratings reflect the loss in top-line revenues due to declines in demand from many of Thermo's key end markets, most notably, those located in the Optical Technologies and the Measurement and Control sectors.

Fitch added that it also recognizes the company's efforts to mitigate the loss in revenues through productivity improvements such as real estate rationalization, census reduction, and supply chain cost containment, which has allowed the company to maintain a credit profile consistent with the current ratings.

In the first half of 2002, Thermo redeemed all of its outstanding 4¼% convertible subordinated debentures due 2003 (approximately $398 million) and all of its outstanding 4 5/8% convertible subordinated debentures (approximately $58 million) due 2003.

Borrowings from a securities-lending agreement and cash were used for the reduction in the debt level. The securities-lending agreement pledges Thermo available-for-sale investments as collateral in exchange for cash borrowings ($337.4 million as of June 29, 2002). Fitch said it expects short-term debt levels to decrease as the collateralized securities mature.

Total debt at the end of the second quarter was $1.108 billion and coupled with a cash balance, including marketable securities, of approximately $976 million, placed the company in a net debt position at approximately $132 million, Fitch said.

Leverage as indicated by net debt-to-EBITDA (including restructuring charges) was 1.0 times for the last 12 months ending 6/29/02. Thermo continues to release $100 million tranches of cash used for the repurchase of stock and repayment of outstanding debt with two tranches approved by the Board of Directors in 2002. Fitch anticipates that the majority of the tranches will be used for share repurchases in the near term given the low share price.

Fitch cuts CMS

Fitch Ratings downgraded CMS Energy and its subsidiaries, Consumers Energy Co. and CMS Panhandle Eastern Pipe Line Co. All the ratings were kept on Ratings Watch Negative except Panhandle Eastern which is on Rating Watch Evolving. Ratings lowered include CMS Energy's senior unsecured debt, cut to B+ from BB- and preferred stock and trust preferred securities to CCC+ from B-, Consumers Energy's senior secured debt to BB+ from BBB, senior unsecured debt to BB from BB+ and preferred stock and trust preferred securities to B from BB, Consumers Power Financing Trust I trust preferred securities to B from BB- and Panhandle Eastern senior unsecured debt to BB from BB+.

Fitch said the watch on CMS and Consumers is due to continuing concerns about CMS' weak liquidity position, high parent debt levels and limited financial flexibility. They will remain on watch pending a meeting with CMS management within the next several weeks to review the company's updated business plan.

The evolving watch on Panhandle Eastern reflects CMS' announcement that it is exploring the sale of the unit and related assets, including CMS Field Services, Trunkline Pipeline and the LNG facility.

Fitch said it downgraded CMS and Consumers because of concerns about projected cash constraints at each of the companies for the remainder of the year.

Consumers' operating cash flow is forecasted to be negatively impacted over the next several months due to high capital expenditure requirements for environmental compliance, gas purchases made during the summer months and a $103 million dividend to CMS in October, Fitch said. Consumers is expected to spend between $230-270 million between 2002 and 2004 on environmental compliance costs, and the utility is currently unable to recover these costs through rates due to the rate freeze in place through Dec. 31, 2003.

Consumers and CMS continue to be constrained by the inability to access the capital markets due to CMS' need to restate its 2000 and 2001 financial statements to eliminate the effects of 'wash trades' with other energy companies, Fitch continued.

Consumers will need to access the capital markets in order to meet its dividend payment to CMS, as well as a $128 million of debt payments in November, Fitch said. CMS relies on cash distributions from the utility to service its debt. Alternative financing plans, including a bridge loan or accessing the bank syndication markets, are currently being reviewed should Consumers be unable to tap into the public debt markets.

S&P rates GenCorp's loan BB+

Standard & Poor's rated GenCorp Inc.'s $338 million secured credit facility at BB+. The loan consists of an existing $137 million revolver due 2005, an existing $76 million term loan A due 2005 and a new $125 million term loan B, which will be used to fund the purchase of General Dynamics' space propulsion business and to pay down revolver borrowings.

Security for the loan is substantially all the assets of GenCorp and all of the assets and stock of its material domestic subsidiaries, as well as 67% of the stock of material foreign subsidiaries.

Furthermore, S&P confirmed the company's BB corporate credit rating, reflecting improvements in business position due to the acquisition and increased debt.

The rating outlook is stable since, "management, although acquisitive, is expected to preserve GenCorp's financial flexibility and a financial risk profile consistent with current ratings," S&P said.

Fitch confirms GenCorp, rates new loan BB

Fitch Ratings confirmed GenCorp's existing ratings including its bank facilities at BB and subordinated convertible notes at B+ and assigned a BB rating to its proposed $125 million term loan B. The outlook is positive.

Fitch said the ratings and outlook reflect GenCorp's improved financial performance in 2002 resulting from restructuring initiatives; the favorable military spending environment; a fully funded pension plan; and the potential cash flow to be realized from the monetization of GenCorp's real estate holdings.

Concerns include GenCorp's intention to grow through acquisitions, potential integration issues, and environmental liabilities, Fitch added.

The ratings and outlook also consider the benefits to be derived from its acquisition of General Dynamics space propulsion business and the impact to credit protection measures from the increased level of debt related to the acquisition, Fitch said.

The acquisition will position GenCorp as a significant player in all three space propulsion markets (solids, liquids, and spacecraft), Fitch said. The acquisition provides GenCorp with complimentary businesses and little program overlap, mitigating some of Fitch's integration concerns.

The addition also diversifies GenCorp's revenue base, reducing the company's reliance on the automotive sector, which currently represents 72% of revenues.

Moody's raises Amazon senior implied

Moody's Investors Service upgraded Amazon.com, Inc.'s senior implied rating to B2 fro mB3 and confirmed its senior unsecured notes at B3 and subordinated notes at Caa2. The outlook is stable.

Moody's said it raised Amazon's senior implied rating because of its improved expectations for Amazon's cash flow generation based on performance through the first two quarters of this year, and confidence in management's intentions to continue to operate in a way that enhances the enterprise value and cash flow available to bondholders.

Moody's said it had previously expected that Amazon.com could be cash flow neutral to slightly negative for this year but now believes that the company is likely to generate positive net cash flow after accounting for working capital and capital expenditures.

Confirmation of the bond ratings reflects their structural subordination to the obligations of Amazon's operating subsidiaries, through which essentially all revenues and expenditures are run, Moody's said. The rated issues represent close to two-thirds of Amazon's consolidated liabilities, but almost none of its assets are located at the level of issuer. As Amazon's overall business activity has grown, the level of obligations at subsidiaries have increased and become a proportionately larger part of the capital structure.

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