Moody's ups Lear outlook

Moody's Investors Service raised its outlook on Lear Corp. to positive from stable and confirmed its convertible senior notes, eurobonds, senior unsecured notes and revolving credit facilities guaranteed by subsidiaries at Ba1.

Moody's said the outlook change reflects Lear's significant progress in generating strong free cash flow, reducing debt levels and improving financial flexibility.

Lear's success in winning new business and diversifying its customer, product and geographic base has been instrumental in generating sustainable free cash flow. Accordingly, Moody's expects Lear to maintain appropriate liquidity to meet necessary investments, pension obligations and maturing debt over the intermediate term despite potentially weaker North American light vehicle production volumes.

The rating agency added that continued progress in meeting and/or exceeding current expectations could result in further positive rating developments in the near term.

Lear's emergence as a leading automotive interiors supplier, augmented by key acquisitions, has been driven by its capacity to be a complete interior systems integrator. Furthermore, its favorable variable cost structure is a significant competitive advantage in managing fluctuations in demand and overall economic cycles.

Moody's believes that even with a potential slowdown in North American light vehicle production, Lear should generate solid results, as key acquisitions over have enhanced its product portfolio, geographic presence and customer focus.

Moody's does note, however, that production volumes have largely been inflated by incentives on the part of OEMs, creating the possibility of pulling sales from 2004 into 2003. Continued incentives from the OEMs, particularly in North America, have resulted in intense ongoing pricing pressure on suppliers.

This could be potentially troublesome for Lear's margins due to its reliance on the Big 3 in North America. Nonetheless, Lear's content per vehicle trend remains positive largely due to the higher margin new business coming online combined with realized cost efficiencies.

Fitch raises Williams outlook

Fitch Ratings raised its outlook on The Williams Cos. Inc. to positive from stable and confirmed its senior unsecured notes and debentures and Feline PACs at B+, senior secured debt at BB and junior subordinated convertible debentures at B-, Williams Production RMT Co.'s senior secured term loan B at BB+, Northwest Pipeline Corp.'s senior unsecured notes and debentures at BB and Transcontinental Gas Pipe Line Corp.'s senior unsecured notes and debentures at BB.

Fitch said the positive outlook reflects Williams' strengthened liquidity position and reduced debt refinancing risk, the solid financial performance of Williams' core natural gas businesses and good prospects for continued de-leveraging and gradual credit quality improvement in the coming months.

In addition, the revised Outlook reflects Fitch's expectation that Williams' Power segment (f/k/a/ Energy Marketing & Trading), notwithstanding the longer term risks associated with its contractual portfolio, will not adversely impact near-term consolidated cash flows.

Williams' ongoing corporate restructuring has narrowed the scale and scope of the company. With planned asset sales nearing completion, Williams has emerged as a smaller integrated natural gas company with core operations encompassing FERC regulated interstate pipelines (Transcontinental Gas and Northwest Pipeline), exploration and production and midstream gas and liquids services. These businesses should continue to generate a relatively predictable earnings and cash flow stream going forward with potential commodity prices volatility in the E&P segment offset by the cash flow stability of Transcontinental Gas and Northwest Pipeline and Williams' growing portfolio of fee-based midstream gas gathering assets, Fitch said.

Although Wiliams has been successful in winding down speculative trading positions, there is a high degree of uncertainty concerning the future of Power's sizable tolling contract portfolio, Fitch added.

Current consolidated credit protection measures are weak primarily due to higher interest costs, working capital requirements at Power, and the assumption of several financial obligations related to Williams' former communications subsidiary. For the 12 month period ended June 30, 2003, EBITDA/interest and FFO/interest approximated 1.4 times and 1.9x, respectively. However, Williams' recently announced tender offer for approximately $1.6 billion of notes and debentures provides a jump start to the company's debt reduction plan and should ultimately accelerate an expected recovery in key consolidated credit protection measures, Fitch said.

S&P says Delta outlook still negative

Standard & Poor's said Delta Air Lines Inc.'s corporate credit rating remains at BB- with a negative outlook after the company reported a third-quarter 2003 net loss of $164 million ($172 million before special items), narrower than the $326 million loss ($212 million before special items) in 2002's third quarter, but still disappointing given gradually recovering airline industry revenues and better results expected from several other large airlines.

Liquidity remains satisfactory, with $2.7 billion of unrestricted cash, and Delta took several steps to reduce its future cash requirements, S&P noted. Two exchange offers, while only partly subscribed, deferred $220 million (net of cash paid as part of the exchange) of debt maturities. Delta also avoided or deferred about $500 million of capital commitments by arranging to sell or defer all of its 2005 aircraft deliveries other than two B777 widebodies and regional jets.

Still, in 2004, Delta faces about $600 million of debt maturities, $350 million to $450 million of minimum pension funding, and $500 million of cash capital expenditures (i.e. spending without funding commitments in place), S&P said.

Negotiations aimed at reducing pilot compensation may resume after a hiatus, but management must persuade them to accept compensation cuts in an improving industry environment and with Delta not at near-term risk of bankruptcy. Accordingly, credit quality remains under pressure, with progress on cost cutting important to maintaining current ratings, S&P said.

S&P says Host Marriott unchanged

Standard & Poor's said Host Marriott Corp.'s ratings are unchanged including its corporate credit at B+ with a stable outlook following the purchase of the Hyatt Regency Maui Resort and Spa for $321 million.

While this is a sizable acquisition, Host is expected to partially fund the purchase with proceeds from its $250 million equity offering that was announced on Aug. 12. In addition to proceeds from this offering, Host reported having $312 million in cash as of its second quarter ended June 20, 2003, S&P said. Host also closed on the sale of two hotels in July for $71 million.

S&P said it believes that the high quality Hyatt Regency Maui Resort and Spa will be a favorable addition to Host's upscale hotel portfolio. Host will acquire the property for $398,000 per room, which management estimates is a 9.7x multiple to forecasted 2003 EBITDA. The high price per room reflects the quality of this resort that is located in an area with high barriers to entry for new supply.

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