S&P cuts U.S. Steel to BB-

Standard & Poor's lowered United States Steel Corp. senior unsecured debt to BB- from BB and preferreds to B- from B, due to heightened financial risk from higher debt and substantial legacy liabilities for pension and retiree medical benefits, as well as continued weakness in the steel industry.

At the same time, S&P assigned a BB- rating to U.S. Steel's proposed $350 million senior notes due 2010.

The outlook is negative.

Proceeds from the new notes together with borrowings under its bank facilities will be used to acquire National Steel Corp. out of bankruptcy for $1.05 billion, including $200 million of assumed liabilities. Initially, the acquisition weakens financial profile, as total debt rises to $2.6 billion from $1.8 billion.

U.S. Steel's pension fund went from an overfunded status of $1.2 billion at yearend 2001 to an underfunded status of $400 million at yearend 2002.

As a result, pension expenses are increasing and higher natural gas costs are pressuring margins, which together with lower steel prices will likely more than offset expected savings from the acquisition in 2003. However, the company should realize increased profitability levels in 2004, S&P said.

In order to preserve liquidity following the acquisition, U.S. Steel will replace its $400 million senior secured revolving credit facility with a new $600 million senior secured revolver due 2007 and is increasing its $400 million accounts receivable facility due 2006 to $500 million.

Ultimately, liquidity is expected to be about $1 billion after the close of the acquisition.

Cash requirements in 2003 will be meaningful and might precipitate some borrowing if market conditions remain challenged, however, S&P said.

Moody's puts AMD on review for downgrade

Moody's Investors Service placed the ratings of Advanced Micro Devices Inc. under review for possible downgrade, including the two senior convertible notes at B3, based on concerns that continued cash burn may lead to another round of capital-raising soon.

At March 31, AMD's debt of $1.9 billion was the highest book leverage in several years while cash and marketable securities dropped to $800 million from $1.04 billion at Dec. 31.

AMD continues to make progress in cost reductions, with a goal of break even operations at an $800 million revenue level ($715 million revenues in Q1).

Achieving this over the next few quarters, however, will be challenging and Moody's believes there is a likely scenario of ongoing operating losses and cash burn, even with reduced capital expenditures.

S&P cuts SK, still on watch

Standard & Poor's downgraded SK Corp. including cutting its corporate credit rating to BB+ from BBB- and Momenta (Cayman)'s $1.25 billion 2.5% exchangeable notes due 2007 to BB+ from BBB-. The ratings remain on CreditWatch with negative implications.

S&P said the downgrade is because of increasing pressure on the company to provide support to SK Global, the SK group's troubled trading unit.

SK Global's main creditor banks are demanding that the stronger units of the SK group provide financial support to SK Global, which has been placed under a work-out program following revelations of accounting fraud in March 2003, S&P noted. As SK Corp. is dependent on these banks for usance financing, it might be unable to fully distance itself from a bank-led reorganization of SK Global. This situation is further exacerbated by a continued reduction in bank lines to SK group companies by banks and investment trust companies.

Moody's cuts Village Roadshow

Moody's Investors Service downgraded Village Roadshow Ltd. including cutting its subordinated debt to B2 from Ba3. The outlook is stable.

Moody's said the action reflects its view that Village Roadshow's decision to provide an additional $123 million investment to convert its film production affiliate into a wholly-owned subsidiary will further limit its financial flexibility and continue the increase in the company's operating risk profile without a material reduction in financial risk.

This strategy also differs from Moody's expectation that VRL would conserve cash to further reduce debt and to mitigate its relatively high lease-adjusted leverage.

Moody's says that despite Village Roadshow's strategy to scale down its overseas exhibition business operations by exiting 14 territories, the company's off-balance sheet operating lease commitments remain at a high level of approximately A$1.6 billion at the end of December 2002.

Moody's however notes that these amount will reduce to approximately A$1 billion if the proposed sale of the U.K. exhibition business is successfully concluded.

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