Fitch ups AmeriSourceBergen outlook

Fitch Ratings raised its outlook on AmeriSourceBergen Corp. to positive from stable, reflecting stronger than anticipated financial performance and legitimate prospects for continued improvement in its credit profile.

Ratings affected include $300 million of unsecured convertible subordinated notes due 2007 at BB.

Driven by strong pharmaceutical distribution revenue growth and savings from merger synergies, AmeriSource-Bergen continues to exceed expectations with credit metrics proving better than anticipated, Fitch said. And, the company is positioned to capitalize on a robust generics market.

In addition to reducing operating costs, savings in procurement leverage and working capital management will be significant.

Fitch anticipates that at the close of fiscal 2002 coverage will be around 5.6x versus earlier expectations of 4.0x. Fitch sees fiscal 2002 leverage will be about 2.3x versus an anticipated 2.7x.

Credit concerns, from Fitch's perspective, include unseen integration costs and continued cost containment pressure from customers.

S&P cuts Conexant to CCC+

Standard & Poor's lowered the ratings of Conexant Systems Inc., including the 4.25% and 4% convertibles to CCC+, based on weak operating profitability although the company has continued aggressive cost reduction efforts and divested some product lines.

Conexant's cash burn rate has abated to $43 million in the June quarter from $61 million in the year-earlier period. Ongoing cost reductions should allow further reductions in cash burn rates for additional operating flexibility until market conditions recover, S&P said.

Cash balances at June 30 were $517 million, while debt of $681 million does not mature until 2007. The company does not have a credit revolver.

Moody's cuts Foster Wheeler

Moody's Investors Service lowered Foster Wheeler Ltd's 6.5% convertible subordinated notes due 2007 to Caa3 from Caa2, along with other ratings.

The outlook is negative, reflecting ongoing concerns about the operating outlook and financial strength.

Lower ratings for the convertibles and other debt reflect the absence of collateral and operating subsidiary guarantees along with an elevated debt level with modest cash flow generation, Moody's said.

Moody's added that, aside from the weak business environment, drawn-out negotiations with creditors may have hurt Foster Wheeler.

Moody's also noted the company has an action plan to monetize some $190 million of assets over the next year, which should improve its capital structure and financial flexibility.

Nevertheless, ratings could be negatively impacted if execution of these sales is prolonged or proceeds fall short of its goal to enhance liquidity.

S&P puts Nuevo on negative watch

Standard & Poor's placed the ratings of Nuevo Energy Co., including the convertible preferreds at B, on negative watch following its acquisition of Athanor Resources Inc. for $102 million.

The acquisition will be funded with about $62 million in cash, $20 million in new equity and the assumption of $20 million in debt.

Nuevo had around $423 million of rated debt at June 30.

The watch reflects prolonged concerns about high debt leverage and Nuevo's ability to strengthen weak credit measures for the current ratings, S&P said.

While the acquisition strengthens Nuevo's reserve base and provides decent growth opportunities, the significant reliance on debt to fund the transaction exacerbates concerns over its ultimate ability to delever.

S&P note Masco loss potential

Standard & Poor's said the ratings and outlook on Masco Corp. (BBB+/stable) will remain unchanged at this time following the announcement that the company had lost a class-action suit in the state of Washington, but noted the potential loss from the situation could be material.

Plaintiffs in the suit alleged that the company's Behr wood-coating product resulted in excessive mildew to surfaces that were coated. If the company is not able to obtain a reversal of that trial court decision in the Washington State Supreme Court, the loss may be material.

The ultimate financial impact on the company is unclear, and will depend in part on how many individuals will file claims against the Behr paint subsidiary, S&P said.

S&P added that Masco is expected to fund its active acquisition program in such a manner as to enable cash flow protection measures to strengthen to levels appropriate for the current ratings.

S&P keeps PerkinElmer outlook negative

Standard & Poor's said that although PerkinElmer Inc. (BBB-/negative) amended two unsecured credit facilities to remain in compliance with its debt covenants, which relieves some concerns about near-term financial flexibility, it has no immediate impact on the ratings or outlook.

The amendment revises the definition of consolidated EBITDA to exclude gains and losses on sales of assets, the effect of non-cash extraordinary items as well as cash restructuring charges up to $50 million. It also amendment incorporates a consolidated debt to EBITDA covenant.

It also includes certain negative pledges that restrict further indebtedness and outlines conditions for prepayments of indebtedness.

The negative outlook is based on weak credit measures for the rating and indicates that ratings could be lowered unless credit measures and operating performance meaningfully improve near term, S&P said.

S&P notes Duke warning

Standard & Poor's noted that Duke Energy Corp. (A/stable) in its monthly investor conference call lowered its 2002 earnings estimate, but said it does not affect the ratings of Duke Energy or its subsidiary Duke Capital Corp.

Duke Energy also discussed steps it is taking to offset this erosion, which stems from continued weakness in the wholesale energy market.

S&P's August review of Duke incorporated an extremely conservative view of the future earnings contribution from its merchant generation portfolio and trading activities.

Future earnings prospects will also be dampened by the indefinite delay in completion of three generating plants and attendant loss of revenues, S&P said.

In response, Duke Energy has made material cuts in it capital expenditure program, which should permit ongoing construction to be funded with internal cash generation.

In addition, planned asset sales should enable Duke Energy to reduce debt.

Preliminary estimates are that cash flow interest coverage over the next several years should approximate S&P's expectation of 4.5x.

S&P cuts Ritek

Standard & Poor's downgraded Ritek Corp., removed it from CreditWatch with negative implications and assigned a negative outlook.

Ratings lowered include Ritek's $175 million convertible bonds due 2007, cut to B+ from BB-.

S&P cuts Mutual Risk convertible to D

Standard & Poor's downgraded Mutual Risk Management Ltd. including cutting its $324 million zero coupon convertible exchangeable subordinated debentures due 2015 to D from C.

Moody's confirms Lamar

Moody's Investors Service confirmed the ratings of Lamar Advertising Co., including the $287 million of senior convertible notes due 2007 at B2. The outlook is stable.

Ratings reflect consistently strong margin performance and the high underlying asset value of the company's outdoor portfolio, Moody's said.

However, the ratings are constrained by risks posed by high financial leverage and modest cash flow coverage of interest and rent, Moody's added. The acquisitive nature of Lamar also is a factor, along with structural issues related to its corporate organization and capitalization.

The stable outlook considers modest recovery in advertising and the expectation that Lamar will continue to use a prudent mix of debt and equity to finance acquisitions, Moody's said.

If the company can successfully integrate acquisitions and improve utilization rates, positive ratings momentum may be achieved. But leverage could approach levels that warrant a more negative outlook.

As of June 30, lease adjusted leverage is high with adjusted debt to EBITDA of 6.3x and cash flow coverage modest with (EBITDAR - CapEx)/(Interest + Rent) of 1.6x.

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