Moody's puts Globe Telecom on upgrade review

Moody's Investors Service put Globe Telecom, Inc. on review for possible upgrade including its senior unsecured debt at Ba3.

Moody's said the review is in response to improvements in Globe's financial and regulatory risk profile.

The review will focus on prospective regulatory developments; Globe's ongoing capital management and deleveraging policies; the relative position of various classes of debt to ensure no material subordination exists; and re-investment requirements in both wireless and wireline businesses, Moody's said.

Moody's noted that Globe now enjoys a solid operating and financial risk profile. This is based on its strong position in a large Filipino cellular market, which is oligopolistic in nature despite the recent entrance of an additional operator. In mid-2002 Globe received a 25-year licence for its wireless business, diminishing regulatory risk and providing more certainty for continued operations. Further, in the last quarter of 2002 Globe became free cash flow positive, a position that is expected to continue given a growing subscriber base and relatively stable ARPU's, with moderating capex post-2003.

S&P confirms PDVSA Finance, off watch

Standard & Poor's confirmed PDVSA Finance Ltd.'s $3.3 billion and €200 million of notes at B- and removed them from CreditWatch with negative implications where they were placed Dec. 10, 2002.

S&P said the action reflects the recent improvement in the rating outlook to stable from negative for the Bolivarian Republic of Venezuela (CCC+/Stable) and Petroleos de Venezuela SA (CCC+/Stable).

The rating action is also based on a number of recent credit developments specific to the PDVSA Finance transaction, including a significant recovery in daily oil production by PDVSA, improvements in the invoicing of exported production after a lengthy interruption, a sharp increase in the amount of funds flowing through the PDVSA Finance collection account, and certification by PDVSA of its compliance with all transaction performance covenants.

S&P said it met with PDVSA management twice in recent weeks to discuss the company's progress in recovering from the labor strikes that have negatively affected its ability to produce, export, and bill its customers since late 2002. PDVSA indicated that production has recovered to approximately 2.5 million barrels per day after having fallen sharply in the December 2002 to February 2003 period.

The company is steadily working through its invoicing backlog so that it can collect payment for product that was previously shipped, but for which it was unable to bill its customers due to damage inflicted on its billing systems by striking workers. PDVSA was able to resume billing customers for current shipments beginning in March 2003. The company indicated that it has currently eliminated about half of the backlogged invoicing volume related to previous oil shipments.

As a result of the production increases and improved billing, cash flowing through the PDVSA Finance collection account has increased sharply. Prior to the strikes, approximately $700 million to $1.1 billion in monthly payments flowed through the PDVSA Finance collection account, with the value of the shipments fluctuating based on the quantity of oil delivered by PDVSA to the designated customers and the price of the oil at the time of delivery. Reflecting the impact of the strike on production and export volumes, these collection flows dropped to as low as $200 million in January 2003 before recovering slightly in February to $350 million and to a much stronger level of $960 million in March, S&P noted.

Matching the declines in production and deliveries, the debt service coverage ratio for the PDVSA Finance transaction dipped to a low of 4.50 for the month of February 2003 before recovering to 5.81 in March. The terms of the PDVSA transaction allow investors to demand an early amortization of the rated notes if the debt service coverage ratio falls below 4.0.

Moody's rates CMA CGM notes B1

Moody's Investors Service assigned a B1 rating to CMA CGM SA's planned €150 million senior unsecured bonds due 2010. The outlook is stable.

Moody's said the ratings reflect CMA CGM's strong position as the world's eighth largest container shipping company (#4 in Europe), solid market position on key shipping lanes as well as a profitable niche market strategy, diversified customer base with limited exposure to any particular industry, proven track record of organic growth since its business combination in 1999, and operating flexibility through short-term ship charters.

Notwithstanding cyclical swings, which are characteristic in the container shipping industry, Moody's said it believes CMA CGM should benefit from the industry's demonstrable growth multiple above GDP, its solid position on the high growth lanes between Asia and Europe as well as in intra-Asian markets and its recent heavy investment in ship replacement, which should improve overall efficiency through lowering the average age of its 120 strong fleet to below 6 years by the end of 2004.

Negatives include CMA CGM's high adjusted debt leverage and expected 2003 negative free cash flow, CMA CGM's reliance on sustained cash flow growth from key Europe-Asia and transpacific routes, shipping industry fundamentals, characterized by low barriers to entry, significant competition and cyclicality, industry-related economic and political risks, continued pressure on operating margins and susceptibility to fluctuations in core costs, exposure to fluctuations in fuel prices and margin pressure in the absence or delay of cost pass-through, high exposure to fluctuations in short term ship charter rates, which are a core cost component of the business, limited alternative liquidity back-up beyond committed ship purchase financing arrangements, and effective subordination of the proposed bonds behind sizeable amounts of secured debt and recourse to limited unencumbered assets.

Total pro-forma balance sheet debt at Dec. 31, 2002 was €913.4 million and net debt/EBITDA was 3.9x, Moody's said. The company is expected to generate negative free cash flow in 2003 as it continues with its fleet renewal program. De-leveraging is contingent on operating cash flow growth principally driven by expected strong growth in key shipping lanes (in particular French Asia and Transpacific), firm freight rates and effective management of costs, particularly fuel and charter costs.

Fitch confirms Telkomsel

Fitch Ratings confirmed Telekomunikasi Selular (Telkomsel)'s ratings including its foreign currency rating of B, local currency rating of BB- and Telekomunikasi Selular Finance Ltd.'s $150 million notes due 2007 at B. The outlook is stable.

Fitch said the ratings reflect Telkomsel's leading position in the high-growth Indonesian cellular market with the largest network, a customer base of over six million (of which 85% are prepaid users) and market share nearing 53%.

Telkomsel has maintained the highest levels of industry profitability and a very sound financial profile, with coverage ratios that are conservative for its current ratings, Fitch said.

At the end of fiscal 2002 net debt to EBITDA ratio was 0.1x, EBITDA to net interest cover 50.3x, and total debt to total capitalization 16%. Net operating cash flow was also more than 2.5x total borrowings.

These measures are weaker than at the end of fiscal 2001, following some deterioration in the EBITDA margin due to increased spectrum fees and maintenance costs associated with network expansion and the doubling of capacity to facilitate future subscriber growth, Fitch noted. The weaker credit metrics are also attributed to higher capex and dividends, which resulted in negative free cash flow and growth in borrowings in fiscal 2002.

With high capex spending likely to be sustained over the next couple of years and little likelihood of dividends being reduced from the current 40% payout ratio, Fitch anticipates Telkomsel's borrowings increasing and coverage ratios weakening further, but remaining appropriate for the current ratings.

S&P rates First Investment bonds B+

Standard & Poor's assigned a B+ rating to First Investment Finance BV's planned €50 million bonds due 2008.

Moody's rates First Investment notes B1

Moody's Investors Service assigned a B1 rating to First Investment Finance BV's planned senior unsecured notes to be guaranteed by First Investment Bank AD of Bulgaria.

Moody's said the rating is slightly constrained by the sovereign ceiling for such debt in Bulgaria and reflects the intrinsic financial strength of First Investment Bank AD.

S&P cuts Gala Group

Standard & Poor's downgraded Gala Group Holdings plc's corporate credit rating to B+ from BB-. The outlook is stable.

S&P said the action follows Gala Group's acquisition by Cinven Ltd. and Candover Ltd. for £1.24 billion ($1.35 billion) and Gala's subsequent recapitalization.

Following the acquisition, Gala has a new, more aggressive financial profile with increased financial leverage, S&P commented.

The ratings on Gala reflect the group's joint leading position in the stable and cash-generative U.K. bingo industry, the good strategic fit and stable performance of its casino business and healthy growth prospects. These positive factors are offset by the company's leveraged capital structure and the declining admissions trend in the bingo industry, S&P said.

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