Moody's cuts Getronics

Moody's Investors Service downgraded Getronics NV's subordinated convertible bonds to B3 from Ba1, reflecting limited financial flexibility due to the need to refinance about €500 million debt well before maturity in April 2004 under circumstances of weak cash generation and a low equity base.

The cut also reflects reduced demand for ICT (information communications and technology) service and outsourcing contracts with sustained industry overcapacity

The ratings remain on review for possible further downgrade, reflecting the potential for further investment cuts by key customer industries and execution challenges in its refinancing strategy, Moody's said.

Moody's views the agreed disposal of Getronics' U.S.-based government solutions business as credit-neutral, balancing the loss of a stable, cash-generative business with good order potential against the immediate benefit of a one-third reduction in group net debt.

During the past 12 months, Getronics has been able to reduce net debt by €535 million to €630 million as of June 30 through a combination of an accelerated conversion of subordinated bonds to equity for €295 million and free cash flow from extraordinary working capital reductions.

However, about €500 million long term debt comes due in April 2004 consisting of the €204 million repayment amount of the first tranche of subordinated bonds and the €295 million drawings under the syndicated loan facility.

Given current pressures on Getronics' cash generation and limited asset base for further disposals, the execution of a timely refinancing of these amounts will be key to future rating actions, Moody's said.

Getronics carries substantial goodwill on its balance sheet, resulting from the acquisition of Wang Global in 1998. Even after last year's €900 million writedown, goodwill still accounts for about twice equity.

Further impairment of goodwill may become necessary and would, together with other possible restructuring charges, reduce further the already low equity base.

S&P notes Teco stock sale

Standard & Poor's said it believes Teco Energy Inc.'s (BBB/Negative/A-3) plan to issue 15 million shares of common stock will not immediately affect credit ratings.

The equity sale is positive because it should enable the company to maintain a key component - no incremental debt financing - of its recently announced financial plan. The additional equity will also reduce the need for certain asset sales and financial transactions.

However, it does not fully alleviate the substantial execution risk Teco faces as it implements its plan and significant challenges related to activity at Teco Power Services, including construction commitments.

Still, timely completion of Teco's efforts, mainly $400 million of monetizations and asset sales, combined with successful navigation of Teco Power Services risks, could lead to ratings stability, S&P said.

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