S&P ups Clear Channel outlook

Standard & Poor's revised the outlook on Clear Channel Communications Inc. to stable from negative due to lower debt levels and financial profile improvement. The senior BBB- and subordinated BB+ ratings were affirmed.

Overall performance is expected to remain in line with the ratings and the target leverage ratio of 4.25x. For the 12 months ended March 31, total debt to EBITDA was about 4x, compared with more than 5x in 2001. Leverage should fall modestly by yearend, as free cash flow is used to pay down debt.

Clear Channel has built a comfortable cushion into its key credit ratios, although financial covenants tighten in mid-2003. The total leverage covenant in the bank agreement is 5.5x through June 30 and will decline to 5.0x from July 1 through maturity, S&P said.

Debt reduction remains a priority, and management is expected to adhere to de-leveraging financial policies and refrain from share repurchases and sizeable acquisitions in the near term.

Free cash flow after all capital spending is expected to be more than $1 billion this year. At March 31, there was some $2.2 billion in borrowing availability under credit facilities that mature in 2005.

Moody's rates Protective Life shelf

Moody's rated Protective Life Corp.'s new $500 million shelf registration, including a (P)A3 rating for senior debt. The shelf allows Protective to issue senior unsecured debt, subordinated debt, preferred stock and common stock. The outlook is stable.

In assigning the shelf ratings, Moody's noted Protective has a broad product offering and multiple distribution channels that combine to provide it with diverse sources of revenue and earnings.

Moody's said strengths are somewhat offset by moderately high financial leverage and the company's well above-average exposure to commercial mortgage loans.

Moody's cuts Kerr-McGee

Moody's downgraded the senior unsecured ratings of Kerr-McGee Corp. to Baa3 from Baa2, along with other ratings, primarily reflecting high leverage, increased costs and lower reserves.

The outlook is stable, reflecting a projected cashflow surplus in 2003, driven largely by asset sales, which is expected to result in debt reduction and a subsequent improvement in adjusted debt/proved developed reserves.

Operating costs are also expected to improve in 2003, and Kerr-McGee projects its current drilling program will produce significantly improve results compared to 2002.

At Dec. 31, adjusted debt relative to proved developed reserves was about $7.00 per barrel of oil equivalent before any allocation to the chemicals business, which is amongst the highest in the investment grade E&P peer group.

Moody's expected KMG to modestly decrease leverage relative to proved developed reserves over the course of 2002 following its 2001 acquisition of HS Resources and the start-up of two deepwater Gulf of Mexico projects.

Kerr-McGee did use most of the $754 million in pretax assets sale proceeds in 2002 to reduce debt, but the sale of reserves resulted in an increase in leverage relative to its proved developed reserve base.

Moody's cuts Spherion

Moody's Investors Service downgraded Spherion Corp. including cutting its $97 million convertible subordinated notes due 2005 to B2 from Ba3. The outlook remains negative.

Moody's said the action reflects the continued weakness in Spherion's personnel staffing and recruitment business as well as general weakness in the staffing industry. As a result, revenue growth and operating margins have come under pressure. Furthermore, the nature of the business reduces management's ability to offset macroeconomic pressures.

The ratings also reflect the belief that Spherion will continue to experience weak customer demand and the timing of improvement remains uncertain, Moody's said. Operating profit margins have declined in part due to a business mix shift, higher ancillary employee costs, and pricing pressures.

Moody's believes that the company's margins will continue to be adversely impacted by competition, economic conditions, and low customer demand.

The ratings also consider management's proactive balance sheet management as evidenced by the reduction in debt levels over the last year. Spherion has aggressively paid down debt and at the end of March 31, 2003 had a cash position of $133 million versus total debt of $110 million, Moody's said. The company's balance sheet strength, and in particular its cash position, helps offset some of the risks associated with weak demand. Additionally, the company has no significant debt maturities until 2005 when the subordinated notes mature.

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