Moody's rates PMA convertible

Moody's Investors Service assigned a Baa3 rating, outlook stable, to PMA Capital Corp.'s planned $75 million of senior convertible debentures.

Ratings reflect the expectation of an increased but still moderate level of financial leverage at the holding company, and stabilizing performance in the two core operating subsidiaries, reflecting focused underwriting and claim controls and an improved underwriting environment, Moody's said.

PMA's recent earnings results have been harmed by a high level of losses stemming from its Caliber One operations, which were discontinued earlier in 2002. This segment, which expanded rapidly during a period of weak market conditions in commercial insurance lines, has been problematic for some time and its anticipated poor performance was previously incorporated into the rating opinion, Moody's added.

Moody's believes the financial drag of Caliber One's business has neared completion. Additionally, the ongoing earnings capacity of the group's two remaining segments appears healthy, given current favorable market conditions.

Fitch cuts Mirant to junk

Fitch Ratings lowered the ratings of Mirant Corp., including the senior notes and convertible senior notes to B from BBB- and convertible trust preferred securities to B+ from BB, among others.

The outlook remains negative.

The downgrades reflect a host of problems that overshadow the business environment for all gas and power wholesale merchants in the U.S. and impair Mirant's access to the capital and credit markets, Fitch said.

Ratings also reflect continuing high consolidated leverage. Fitch estimates the ratio of adjusted debt and lease obligations relating to core businesses at roughly 10x to 11x the 2002 and estimated 2003 cash flow from operations, a level that is inconsistent with an investment-grade rating.

Mirant has revealed it may face an additional $300 million of collateral needs, plus the $750 million in collateral now held by counterparties, if it were downgraded below investment grade by Fitch and yet another rating agency.

Mirant currently has around $1.7 billion of liquidity (mostly cash on hand) and absent increased collateral demands relating to downgrades, it expected to have $1.6 billion of liquidity at year-end.

Liquidity is adequate, but Mirant is exploring alternatives to reduce trading in lower-return segments to redeploy collateral currently posted.

As Mirant is a parent holding company, parent level debt is effectively subordinated to the individual debt and obligations of operating subsidiaries. By Fitch's count, there is some $9 billion of consolidated net debt and debt equivalents, including off balance sheet items. Of that, roughly $4.2 billion is parent level debt or guaranteed by Mirant.

Mirant has three outstanding revolving credit facilities totaling $2.7 billion. One, totaling $1.125 billion, was set to expire on July 17, 2002, but Mirant drew the facility down to a one-year note. The others expire in 2004 and 2005 ($450 million and $1.125 billion, respectively).

Currently, conditions in the bank market do not bode well for refinancing the facilities, but Mirant has some time to work out a plan, possibly including lower amounts combined with the use of proceeds of targeted asset sales, Fitch said.

S&P cuts Cummins ratings

Standard & Poor's lowered its corporate credit and senior debt ratings on Cummins Inc. to BB+ from BBB-, and the convertible trust preferreds to B+ from BB, due to the expectation that continued weak demand in the North American truck and power generation markets will result in subpar financial performance.

The outlook is now negative. If market conditions remain depressed beyond current expectations, further stretching the company's financial profile, the ratings could be lowered, S&P said.

Total debt to EBITDA is around 3.9x and funds from operations to total debt is about 14%, well below S&P's prior expectation of total debt to EBITDA of 2.5x and funds from operations to total debt in 25%-30% range.

Additionally, power generation sales continue to soften due to weak industry fundamentals.

Cummins continues to focus on improving its cost structure by reducing excess overhead, consolidating facilities and improving global sourcing of components, S&P noted. These initiatives should help improve financial performance longer term but credit protection measures will be below average, with total debt to EBITDA around 3x and funds from operations to total debt about 20%.

Cummins has adequate liquidity with almost full availability of its $500 million revolving facility and some $101 million in cash at June 30. The bank facility matures in the very near term, which heightens refinancing risk.

Moody's cuts TXU Europe unit

Moody's Investors Service downgraded to Caa2 from Baa3 the €500 million secured 7% notes due 2005 issued by TXU Europe Funding Ltd., and placed the notes on review for further downgrade.

The action results from the downgrade of the underlying bonds issued by TXU Eastern Funding Co. (Caa2, under review for further downgrade), which are unconditionally and irrevocably guaranteed by TXU Europe Ltd. (also Caa2, under review for further downgrade).

TXU Europe Funding benefited from two currency swaps provided by Morgan Stanley Capital Services Inc. with a guarantee by Morgan Stanley and UBS Warburg.

However, Moody's noted the structure provides for a transfer of the swaps to TXU Europe Ltd. if the underlying bonds issued by TXU Eastern Funding Co. were to be downgraded below Baa3.

Fitch revises TXU outlook

Fitch Ratings confirmed the ratings of TXU Corp. (senior at BBB), but revised the outlook to negative from stable.

Ratings for TXU Australia Holdings and TXU Electricity Ltd. also were are affirmed and the outlook revised to negative.

These rating actions follow the announcement that TXU Corp. is now offering for sale all or portions of TXU Europe Ltd. and that equity injections from TXU to TXU Europe, previously expected to total up to $700 million, will now be kept to minimal levels.

Moody's confirms GM

Moody's Investors Service confirmed the A3 long-term rating of General Motors Corp., and maintained a negative outlook, reflecting an expectation that GM will demonstrate strong operating performance through 2002 and will continue to make progress in strengthening its overall competitive position in North America through 2003.

This position should be supported by further cost reductions, a competitive new product schedule, a stabilized market share position and the solid capitalization and asset quality of GMAC, Moody's said.

Despite these strengths, GM's outlook remains negative and credit quality and its position within the A3 rating level have come under additional pressure due to a number of factors.

These include the significant increase in unfunded pension liability, the preliminary rejection of the Hughes/Echostar merger by the FCC, growing uncertainty surrounding the intermediate-term health of U.S. automotive shipments and the likelihood that incentives/pricing pressure will remain burdensome, Moody's added.

An additional risk is posed by the potential call on GM's capital and cash resources in connection with Fiat's option, beginning in January 2004, to put its automotive operations to GM.

Moody's affirms Dominion

Moody's Investors Service affirmed the ratings of Dominion Resources Inc. (senior at Baa1), and units, in response to the $1 billion common stock equity sale this week.

The outlook remains negative, however, driven by concerns over financial risk from debt financed growth, particularly at Dominion Energy and Consolidated Natural Gas. The outlook remains stable for securities issued by Virginia Electric and Power (senior secured, A2) based upon regulatory support afforded the utility in Virginia through 2007.

Dominion plans to use the equity proceeds to repay debt, and Moody's acknowledged the positive impact to the overall financial leverage.

Fitch rates Starwood Hotels' loan BB+

Fitch Ratings rated Starwood Hotels & Resorts Worldwide, Inc.'s $1.3 billion credit facility at BB+. The loan consists of a $1 billion revolver and a $300 million senior term loan. The outlook remains negative.

The rating reflects the company's strong brand name, high-quality established assets, global diversity of cash flows and continued access to capital markets, Fitch said. However, offsetting these factors is the lodging industry's dramatic decline in revenues per available room, room rates and occupancy. Starwood has responded to the economic condition by cutting costs and capital expenditures. Leverage is relatively high and debt reduction from excess cash flow will remain moderate over the near-term.

Furthermore, debt maturities are a major factor in the rating. Concerns over 2002 maturities have been reduced through the April $1.5 billion bond issue and the completed refinancing of the credit facility. However, after the refinancing, there is still $847 million in maturities in 2003 including $250 million of public debt at Sheraton Holdings and an 18-month €450 million loan at Starwood Hotels Italia, each due in the fourth quarter of 2003, Fitch said.

Forecasts for 2002 include the expectation that RevPAR will be down approximately 6% for the year after falling 13% in the first half. At June 30, leverage as measured by Debt/EBITDA increased to approximately 5.2 times from below 5 times at Dec. 31, 2001 and debt levels remained stable standing at $5.497 billion.

S&P says DDi unchanged

Standard & Poor's said its ratings on DDi Corp. remain unchanged with a corporate credit rating of B with a negative outlook.

S&P made its comments after DDi said it would take a third-quarter pre-tax restructuring charge of $8 million-$10 million, comprised of $1 million-$2 million in cash charges and the remainder in non-cash charges.

S&P said that DDi's credit measures are weak but the company's adequate liquidity provides near-term rating support.

The ratings incorporate the expectation of improving financial performance, due in part to these restructuring actions, S&P said.

S&P rates PMA convertibles BBB-

Standard & Poor's assigned a BBB- rating to PMA Capital Corp.'s planned $75 million convertible senior debentures due 2022.

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