S&P rates Mirant convertible at BBB-

Standard & Poor's assigned a BBB- rating to Mirant Corp.'s $370 million of new convertible senior notes. At the same time, S&P affirmed the BBB- corporate credit rating, but noted it rests on positive expectations of Mirant's ability maintain its current liquidity position and financial flexibility.

Merchant energy provider Mirant has a $1.125 billion, 364-day facility due July 17, 2002, a portion of which is being renewed. Mirant plans to roll over at least $650 million of the revolver. The net proceeds of the $370 million optional convertible offering will be used to repay short-term debt.

Mirant has total outstanding debt of about $9.0 billion, of which less than $300 million is short term. For the remainder of 2002, the company expects to retire approximately $200 million of debt. Mirant will have repaid or refinanced over $2.1 billion of debt during 2002, once the revolver is renewed.

The company's debt is not notched down for structural subordination, because Mirant's cash flow and assets are well diversified by geography and business type. Thus, Standard & Poor's views the prospects for recovery in a bankruptcy for the parent's debtholders to be equivalent to those of Mirant's subholding companies.

The rating incorporates high business risk, contingent liquidity calls if the creditworthiness of Mirant falls from below BBB-, somewhat speculative cash flow quality and relatively high consolidated leverage at 59.8%.

However, the risks are mitigated by a diversified asset portfolio, adequate liquidity, limited construction risk and adequate credit protection measures in terms of consolidated funds from operations to total interest 4.1 times on average over the next five years.

Mirant continues to successfully follow its liquidity management plan following its December downgrade.

It issued $759 million in common stock in December, gained over $1.45 billion from net asset sales in 2002, reduced capital expenditures by $2.2 billion for 2002 and reduced annual costs by $75 million in 2002 and $150 million from 2003 via restructuring.

As of June 30, Mirant had $1.4 billion in liquidity. Mirant's future revolver maturities are in 2004 and 2005.

Potential exposure to additional collateral calls in the event of a downgrade is viewed by S&P as high, with key exposures of about $260 million under its gas sales agreement with British Petroleum and additional collateral requirements in energy trading and marketing operations.

Mirant is one of the largest marketers and traders of power and natural gas in the U.S.

The stable outlook reflects the fact that Mirant will continue to successfully shore up its liquidity position with asset sales and reductions in capital expenditures and costs, and will continue to maintain an investment portfolio that demonstrates adequate financial performance that is required, given the competitive energy business.

Fitch expects to rate Mirant convertible at BBB-

Fitch Ratings expects to assign a rating of BBB- to Mirant Corp.'s $370 million of new convertible senior notes. The outlook is negative.

Last week, Fitch downgraded Mirant senior debt to BBB- and put the outlook at negative.

S&P sees no impact from Xerox 10-K

Standard & Poor's noted that Xerox Corp. (BB-/negative) filed its 2001 10-K on Fridy, which included a restatement for the years 1997 through 2000, as well as adjustments to previously announced 2001 results.

S&P does not expect the restatement to have an impact on Xerox's ratings or outlook.

For 1997 through 2001, Xerox reversed $6.4 billion of previously recorded equipment sales revenue, offset by $5.1 billion of revenue that has been recognized and reported during the same period as service, rental, document outsourcing and financing revenues.

The reversal of equipment sale revenue was larger than initially expected, primarily due to a change in the company's lease accounting in Latin America from equipment sales to rental.

In addition, pretax income over the five-year period declined by $1.4 billion from previously reported amounts, and shareholders equity was reduced by $1.3 billion as of yearend 2001.

However, Xerox's ability to meet future debt service requirements depends on a successful transition to third-party equipment financing arrangements, material improvement in operating cash flow and the predictability of cash flow runoff from the equipment-financing portfolio.

The restatement does not alter the monetary value of customers' contracts and the company has stated that there is no impact on the cash that has been received or is contractually due to be received.

The company also said that the restatement has no impact on the new credit facility announced June 21, with the exception of an update to the financial covenants reflecting the final restated numbers.

S&P cuts WorldCom senior to CC

Standard & Poor's lowered the long-term corporate credit and senior unsecured debt ratings on WorldCom Inc. to CC from CCC- following the company's announcement that it has received a notice of termination of its $1.5 billion accounts receivable securitization program.

In addition, WorldCom has been notified by lenders under its $2.65 billion and $1.6 billion senior unsecured credit facilities of a default and that they have reserved their rights and remedies under the facilities.

The company drew down the full $2.65 billion facility in May. The defaults permit the lenders, holding 51% of the loans under the $2.65 billion, to vote to accelerate and demand immediate repayment of the loans.

All ratings remain on negative watch. Worldcom had about $30 billion of total debt outstanding as of March 31.

The downgrade is based on the high degree of uncertainty surrounding WorldCom's liquidity position and its ability to ultimately pay outstanding debt.

Furthermore, additional negative news regarding the quality of the company's financial statements, along with the ongoing SEC investigation, increases the likelihood of a debt restructuring or bankruptcy filing near term.

S&P affirms Northrop on TRW buy

Standard & Poor's affirmed its ratings, including the BBB- senior and BB preferred stock ratings, on Northrop Grumman Corp., following its pact to acquire TRW Inc. for $7.8 billion, plus about $4 billion of assumed debt.

The affirmation takes into account a stronger business profile of the combined operations and expected preservation of adequate financial flexibility.

The merger would create the nation's second-largest defense contractor, with 2003 revenues expected at $26 billion to $27 billion. Afterward, Northrop Grumman plans to separate TRW's automotive business, including a portion of the assumed debt, either through a sale or a spinoff to shareholders.

Ratings reflect a strong business profile, offset by adequate financial flexibility and the operating and financial risks inherent in an active acquisition program.

Funds from operations to debt, an important cash flow protection measure, was below 20% at yearend 2001, subpar for the rating, but debt to capital was satisfactory in the mid-40% area, adjusted for operating leases.

S&P puts Elan on negative watch

Standard & Poor's placed its corporate credit rating (BBB-) rating and all of its other ratings for Elan Corp. plc on negative watch, following news of earlier than expected generic competition to one of its top selling products, the pain medication Zanaflex.

Elan already faced near-term challenges in expanding its product sales and the increased likelihood of major debt-financed product acquisitions.

The expected generic competition to Zanaflex, which generated $160 million in 2001, is a significant impact on Elan's growth prospects, especially given that Zanaflex was one of the faster growing products in Elan's portfolio.

While Elan continues to maintain a significant net cash position of roughly $1 billion, likely future product acquisitions and/or a year-end 2003 put option on its 0% convertible issue may result in the use of significant portion of cash and investments.

Also, given recent questions surrounding Elan's accounting policies and the resultant SEC investigation, the company's access to debt and equity markets is likely limited.

Fitch rates CenturyTel at BBB+

Fitch Ratings initiated coverage of CenturyTel, Inc., assigning a BBB+ rating to its senior unsecured debt and an F2 rating to its commercial paper program. The outlook for is stable.

The ratings incorporate a low-risk business profile and relatively solid credit profile.

The company is in the process of selling its wireless operations to Alltel for about $1.65 billion ($1.3 billion aftertax) and has agreed to purchase 675,000 rural access lines in Alabama and Missouri from Verizon for $2.159 billion.

Fitch believes the shedding of the rural, competitively disadvantaged wireless assets is prudent and the addition of the Verizon access lines will augment its rural local exchange carrier portfolio.

In May, CenturyTel successfully completed a $500 million mandatory convertible offering. The company is also expected to generate $250 million to $300 million in free cash flow in 2002.

As the company has $916 million in current debt maturities, including $500 million from maturing credit facilities, Fitch estimates a financing shortfall of around $900 million.

The company has closed on a $600 million bridge facility and expects to close on a $750 million permanent facility shortly.

CenturyTel currently has $2.5 billion remaining on a blanket shelf registration on file with the SEC, and Fitch anticipates the company may seek to issue additional securities to finance the shortfall in the near term.

Fitch also believes that in the intermediate term, CenturyTel is likely to make further acquisitions of rural telecom assets.

At the end of 2001, CenturyTel's debt/EBITDA ratio was 3.0 times.

Fitch expects this to increase to about 3.3 times in 2002, as the company will not benefit from the fullyear affect of the Verizon access line purchase until 2003. On a pro forma 2002 basis, and in 2003, Fitch expects the debt/EBITDA ratio to improve to around 2.7 times.

Moody's cuts Vivendi Universal to junk

Moody's Investors Service downgraded of Vivendi Universal SA to junk and kept them on review for possible further downgrade, affecting €7.1 billion of debt. Ratings lowered include the long-term senior debt, cut to Ba1 from Baa3, the Seagram Co. Ltd.'s SFR250 million bonds due 2085 to Ba1 from Baa3 and Houghton Mifflin Co.'s senior unsecured ratings to Ba1 from Baa3.

Moody's said its action is in response to growing doubts about the company's ability to achieve the level of debt reduction factored into the previous Baa3 rating and to arrange refinancings of debt falling due over the next 12 months despite its broad and deep asset base.

Additional uncertainty is created by a challenging capital markets environment, the lack of clarity about the company's further strategic development and the possibility that the company might decide to review its overall strategic options in-depth, Moody's said.

Against this background Moody's said it expects, however, that Vivendi Universal's banks will provide continued support for the company and will assist it in the orderly implementation of its financing and asset disposal plans.

Moody's noted the company needs to refinance at least €3.5 billion of debt over the next 12 months and that its €1.8 billion bond exchangeable into Vivendi Environment (due 2006) has the potential to be put to the company in March 2003.

In this context the new rating and the review for possible further downgrade reflect Moody's expectation that current market conditions will make it more difficult for Vivendi Universal's to achieve its refinancing plans while terms and conditions of new financing will likely be more onerous than existing borrowing.

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