S&P puts RJ Reynolds on watch

Standard & Poor's put RJ Reynolds Tobacco Holdings Inc. on CreditWatch with negative implications including its senior unsecured notes with no operating company guarantee at BB+ and other senior unsecured notes at BBB-.

S&P said the watch placement is in response to RJR's revised earnings guidance for fiscal year 2003, announced with the company's first quarter 2003 earnings.

The company's first quarter results, while soft, were within prior expectations.

However, full-year operating results are now expected to be weaker than initially anticipated.

As a result, S&P said it expects RJR's credit measures for 2003 to be weaker than expected, and to fall below the ranges S&P expected RJR to maintain. (One measure, EBITDA coverage of interest, was expected to be maintained between 7.5x to 8.5x.)

RJR continues to face intense competition in the U.S. cigarette market and future pricing uncertainty arising from increased state excise taxes and the corresponding growth of deep discount manufacturers, S&P noted.

S&P added that it believes that these factors will result in continued declines in RJR's domestic cigarette volume and cash flow. The rating agency said it also remains concerned about the magnitude of potential future tobacco-related litigation awards at RJR, as well as any related bonding requirements and the outcome of current appeals processes.

S&P cuts Eletropaulo

Standard & Poor's downgraded Eletropaulo Metropolitana Eletricidade de São Paulo SA to D from SD (selective default).

S&P said the action reflects Eletropaulo's announcement that it has defaulted on a $25 million amortization due April 15 on a $305 million syndicated deal, resulting in a more generalized default situation.

Although Eletropaulo presents capacity to generate an EBITDA roughly of BrR1.3 billion in 2003, this is not enough for the company to meet projected interest expenses of approximately BrR1 billion and amortizations of about BrR1.5 billion in the same period, S&P said.

A still tight cash flow for 2003 and a tougher debt renegotiation scenario indicate a broader default scenario, S&P commented.

S&P raises Kyivstar outlook

Standard & Poor's raised its outlook on CJSC Kyivstar GSM to positive from stable and confirmed its ratings including its loan participation notes at B-.

S&P said the outlook revision primarily reflects Kyivstar's improved financial profile and continued strong business performance.

Specifically, S&P said Kyivstar liquidity and debt maturity profile improved following its $100 million notes issue in November 2002 and $60 million tap issue in March 2003.

This has enabled Kyivstar to extend its debt maturity profile, repay existing short-term secured vendor-financing debt, and expand its network to ensure sufficient capacity to meet growing demand for mobile services and maintain its market position, S&P added.

Furthermore, the outlook revision reflects the company's ability to improve its profitability in a challenging service area and regulatory environment, S&P said. Importantly, Kyivstar generated positive free operating cashflow of $44 million in 2002. The level at which Kyivstar will remain self financing in the medium term, however, will depend on market developments and the level of investment made by the company in its network.

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