S&P confirms Qwest

Standard & Poor's confirmed the B- corporate credit rating for Qwest Communications International Inc. and CCC+ senior unsecured debt of Qwest Communications and Qwest Capital Funding Inc. and the B- senior unsecured debt rating of Qwest Corp.

A rating of CCC+ was assigned to Qwest Services Corp.'s $3.4 billion bank loan, secured by Qwest Corp. and guaranteed by Qwest Communications.

The confirmation was based on amendments to the loosened debt-to-EBITDA test in the bank facility to 6x from 4x as of year-end 2002, and extention by two years to May 2005, S&P said.

The amendments, coupled with $750 million from a new bank loan at QwestDex directories subsidiary and $7.05 billion in expected proceeds from the sale of QwestDex, provides reasonable liquidity through at least 2003, S&P added.

The outlook is developing, reflecting the fact that longer-term prospects are tied to resolution of several key issues. Significant risks are related to the ongoing SEC investigation of accounting practices, the DOJ criminal investigation and numerous shareholder lawsuits, S&P said.

Yet, S&P said it ascribes significant value to Qwest's 17-million access line base and accompanying leading position in its local markets.

Despite somewhat disappointing operating performance over the past six months, if Qwest is able to stabilize performance in the latter half of 2002 through 2003, the business risk may support a higher rating.

Moody's confirms PPL

Moody's Investors Service confirmed the ratings of PPL Corp. (Baa2 senior unsecured), including the convertible preferred at Baa3, following plans to acquire Mirant Corp.'s 49% equity interest in Western Power Distribution for $235 million in cash. The outlook remains stable.

The confirmation reflect Moody's consideration to the proposed issuance of $500 million of common stock and the impact of Western Power Distribution's incremental debt and cash flow on PPL's projected financial measurements.

S&P cuts PPL outlook

Standard & Poor's revised the outlook on PPL Corp. and subsidiaries, except PPL Electric Utilities, to negative from stable to reflect a weakened credit profile from declining wholesale electricity prices and setbacks in international operations.

Also, S&P affirmed the PPL ratings, including the convertible preferred at BBB-, following the plan to acquire full ownership of Western Power Distribution. PPL will fund the acquisition by increasing a stock offering already announced to $500 million from $200 million.

While the post-acquisition business profile will improve, the size is not sufficient to improve the overall credit profile, S&P said.

Consolidated debt to capital will increase to about 70%.

PPL has suffered setbacks requiring substantial impairment write-offs in Brazil and the U.K but the increased common stock offering mitigates the effect of these charges to an extent.

Debt protection measures are weak for the rating, with expected interest coverage at 3.2x in 2002, S&P said. As of June 30, there was $193 million in cash and cash equivalents, down from $930 million in December.

The outlook reflects expectations of a decline in debt-protection measures due to the downward trend in wholesale energy prices, S&P added. PPL management will also have to balance the level of debt financing in its capitalization with growth.

Moody's lowers MetLife outlook

Moody's Investors Service changed the outlook on the A2 senior debt and A3 convertible ratings of MetLife Inc. and affiliates to negative from stable as part of an industry wide assessment of current U.S. life insurer ratings given the increasingly harsh operating environment.

Since demutualization in April 2000, MetLife has undertaken numerous activities to make more efficient use of its capital but some of these activities have reduced its statutory capital and lessened financial flexibility.

Moody's said the outlook also reflects concern related to recent capital losses in its investment portfolio, continued exposure to troubled credits and, to a lesser extent, exposure to the volatile equity markets.

If these trends continue or worsen, Moody's believes MetLife's ratings may have to be adjusted downward to reflect diminished earnings and capital formation that are likely under an adverse scenario.

Fitch rates new PSEG convert at BBB

Fitch Ratings has assigned a rating of BBB to Public Service Enterprise Group's new $400 million convertible.

The outlook is negative, reflecting consolidated leverage that is relatively high for the rating category, growing merchant risk and exposure to unsettled international energy markets, Fitch said.

Adjusted debt leverage, excluding securitization bonds and certain non-recourse debt, is about 65% of total capital as of June 30.

If the planned financing for the remainder of 2002 is completed, the adjusted debt ratio would fall to about 60%.

Beyond 2002, further improvements are forecasted, which are necessary to support the current rating.

S&P confirms Medtronic

Standard & Poor's confirmed Medtronic Inc.'s ratings, including the 1.25% convertible due 2021 at AA-, and assigned AA- senior unsecured and A-1+ short-term ratings to its new $500 million nine-month floating-rate commercial bridge notes due June 17, 2003. The outlook is stable.

Proceeds, in tandem with bank facilities and cash on hand, should provide ample liquidity in the event that a cash put on the $2 billion convertible is exercised this month.

Medtronic's cash flow is expected to remain robust, with operating margins averaging around 40% and funds from operations to debt above 60%, both exceeding rating-category benchmarks.

Capital structure is expected to remain conservative, with lease-adjusted debt to EBITDA averaging around or less than 1x and total gross debt to capital averaging in or below the low-30% area.

At April 26, liquidity benefited from $1.25 billion of senior unsecured bank facilities, strong cash flow and $851 million of cash plus investments.

The outlook reflects expectations that financial strength will offset liquidity demands from prospective debt maturities.

Moody's cuts DDi converts

Moody's Investors Service lowered the ratings of Dynamic Details Inc. and parent DDi Corp., including the $100 million of 6.25% convertible subordinated notes due 2007 and $100 million of 5.25% convertible subordinated notes due 2008 to Caa3 from Caa1. The outlook remains negative.

The downgrade takes into account anticipated continued operating losses, even after factoring savings from restructuring initiatives, Moody's said.

A mitigating factor to the declining ratings is significant liquidity, represented by unrestricted cash, cash equivalents and marketable securities of nearly $50 million at June 30.

The outlook is based on the expectation that a recovery in communications end markets will be realized further out than was previously anticipated.

Moody's added that the ratings could be lowered again if existing cash balances are drawn down rapidly, which could indicate that compliance with to the bank agreement amendments is unattainable.

Conversely, a sharp reversal in trends and a significant revenue and EBITDA ramp would lead Moody's to consider revising the ratings upward.

Fitch confirms Northwest Natural Gas

Fitch Ratings confirmed Northwest Natural Gas Co. ratings, including the convertible debentures and preferred stock at A-. The outlook is stable.

For the 12 months ended June 30, pretax interest coverage was 3.3x with EBITDA interest coverage of 4.7x.

Weather across Northwest's service territory was 2% colder than the 20 year average and generally had a positive effect on credit ratios although consumption per heating degree days was down slightly due to ongoing customer conservation efforts.

Even during periods of warmer than normal weather, Northwest's credit profile has remained solid, Fitch said.

This reflects management's ability to control costs and ongoing internal customer growth, which tends to mitigate the impact of warm weather on throughput volumes.

Fitch removed Northwest's ratings from negative watch due to the company's mutual agreement with Enron to terminate the Portland General Electric Co. acquisition agreement.

Northwest has said it remains interested in the PGE assets and may consider bidding for the assets, which would prompt Fitch to consider changing the outlook and/or ratings.

Moody's puts TECO on review

Moody's Investors Service put TECO Energy Inc. and affiliates on review for possible downgrade, including the Baa1 rated 9.5% mandatory convertible, due to low projected wholesale power prices, excess capacity and deteriorating market conditions.

Moody's said the review will focus on the extent to which TECO's merchant generation portfolio will negatively affect consolidated cash flow and coverage ratios in 2003 and beyond and the degree of financial flexibility maintained in light of an increasingly difficult merchant energy environment.

Moody's will also assess the likelihood that TECO can obtain additional non-recourse bank financing for projects and the extent to which it may be required to raise additional recourse financing or provide ongoing guarantees for projects.

In addition, Moody's will review TECO's significant contingent obligations, some of which would be triggered by changes in its credit ratings or a failure to meet certain financial covenants.

Moody's confirms Marsh Supermarkets

Moody's Investors Service confirmed Marsh Supermarkets, Inc. and maintained its stable outlook. Ratings affected include Marsh's $150 million 8.875% senior subordinated notes due 2007 at B2 and its $20 million 7.0% convertible notes due 2003 at B3.

Moody's said Marsh's ratings are constrained by its financial leverage (especially adjusted for operating leases) relative to higher-rated supermarket peers, intense competition in the company's trade area, and exposure to the economic fortunes of a narrow geographic region. It also suffers from relatively low operating margins and return on assets.

Positives include the long-term stability of the company's strategy, its established competitive position as a leading supermarket operator around Indianapolis, and the diversity of revenue sources from other food retailing and foodservice sectors, Moody's said.

Moody's added that it expects the company will maintain stable revenue and margins in spite of the high level of competition in its trade area.

S&P puts Res-Care on watch

Standard & Poor's put Res-Care Inc. on CreditWatch with negative implications including its $109.36 million 6% convertible subordinated notes due 2004 rated B-, its $80 million senior secured revolving credit facility due 2004 at BB- and its $150 million 10.625% senior notes due 2008 at B.

S&P said it took the action because Res-Care may violate certain bank covenants at Sept. 30, 2002. Specifically, minimum rolling EBITDA interest coverage levels may not be met, largely due to a decision to defer certain anticipated acquisitions earlier in the year.

In that event, bank facility access could be curtailed, limiting an important source of financial flexibility, S&P said.

Although Res-Care may obtain a waiver or amend relevant covenants before Sept. 30, S&P said it is also concerned that the challenges of operating in an environment of significant government reimbursement pressures and material cost pressures (including staff turnover and rising labor and insurance costs) could limit the highly leveraged company's ability to strengthen already-thin credit measures.

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