S&P rates new Kodak convert BBB-

Standard & Poor's assigned a BBB- rating to Eastman Kodak Co.'s proposed $500 million in convertible senior unsecured notes due 2033 and $500 million in senior unsecured notes due 2013. The outlook is stable.

The use of the proceeds and the size of the transactions, including the potential to increase the convertible offering by $75 million, are consistent with S&P's expectations. Proceeds will be used to reduce commercial paper balances by about $700 million and partially fund the acquisition of PracticeWorks Inc.

The debt issues will improve Kodak's capital structure by reducing reliance on the changeable commercial paper markets and meaningfully deferring the maturity on a substantial amount of debt, even considering that convertible is putable, S&P said.

Reducing debt is important because lease-adjusted debt to EBITDA and EBITDA to interest of 1.7x and 10.3x, respectively, at June 30 will weaken somewhat by year-end due to additional earnings weakness, pressure from recent acquisitions and only a partial year benefit from the dividend cut and restructurings.

Kodak's unfunded postretirement liabilities, which totaled about $3.2 billion on an after-tax basis at the end of 2002, are a further burden on its credit profile, raising the after-tax lease-adjusted debt to EBITDA to about 3.4x at June 30.

Liquidity remains adequate, which is crucial to Kodak's credit profile, S&P said. At June 30, Kodak had $838 million in cash and $888 million in commercial paper outstanding. The proposed transactions will substantially reduce commercial paper balances and leave cash at healthy levels. Kodak also has $2.225 billion in committed revolving credit facilities.

Fitch rates Kodak convert BBB-

Fitch Ratings assigned a BBB- rating to both Eastman Kodak Co.'s pending 10-year senior bonds and 30-year convertible senior bonds, with a negative outlook. Approximately $3 billion of debt is affected.

The ratings reflect Kodak's leading market position in the U.S. consumer film market, strong shares in international markets, a sharp dividend cut and the expectation that internally generated funds will allow flexibility to implement a new strategic direction.

Ratings also consider continued weak operating performance in core photographic businesses due to increased pricing pressure from competitors, accelerated digital substitution, limited gains from cost reduction efforts and unfavorable economic factors, Fitch said.

Further cost reduction steps and significantly reduced dividends should provide Kodak sufficient funds to move forward on its investment plans in the near term without impacting credit measures. However photographic operations continue to be negatively affected by digital substitution and the pace is accelerating.

The outlook reflects the uncertainty that exists regarding contemplated acquisitions and the direction Kodak is taking, particularly when weighed against existing competition. Furthermore, Kodak's ability to efficiently execute the plan and integrate these new businesses remains a concern.

Currently Fitch does not expect debt to be meaningfully reduced in the near to intermediate term. Thus cash flow generation from new investments and acquisitions will be critical to maintaining the credit profile.

Moody's rates Placer Dome convert Baa2

Moody's Investors Service assigned a Baa2 rating to Placer Dome Inc.'s new $300 million senior unsecured debenture due 2035 and new $200 million convertible senior debenture due 2023. The outlook is stable.

Ratings reflect a diverse geographic profile and considers the company's anticipated ability to maintain and potentially grow production levels as a result of its recent acquisitions and development projects at both existing operations and undeveloped properties.

The company's strong cash position, available liquidity and hedge position are also factors.

Moody's noted, however, that Placer Dome's debt level has increased from the reduced position at June 30 to a level higher than recent historical levels as the company has debt financed the East African Gold acquisition and taken advantage of favorable capital market opportunities to increase liquidity beyond what appears to be required to meet currently anticipated cash uses.

S&P cuts Sempra Energy to BBB+

Standard & Poor's lowered the corporate credit rating of Sempra Energy to BBB+ from A- and cut the senior unsecured debt to A- from A, reflecting a consolidated profile of utilities and unregulated ventures.

At this time, ratings do not reflect Sempra's liquified natural gas investments, where Sempra's investment is currently limited to land and permitting expenses, S&P said.

Regulation in California, which, among other things, mandates that the utilities maintain a 48% equity layer, provides sufficient insulation to separate the corporate credit ratings of the utilities from those of the parent and unregulated subsidiaries.

Leverage, at about 55% of total capitalization at the end of 2002 when adjusted for off-balance sheet obligations and cash flow coverage of interest at 4.0x, are slightly weak for the rating. S&P expects cash flow coverage of interest and debt to reach about 4.5x and 25%, respectively over the next few years.

Sempra Energy maintained comfortable liquidity throughout the turmoil in the western power markets of the last three years and at June 30 had $325 million in cash and $2.4 billion in committed lines of credit. S&P considers the liquidity position adequate.

S&P cuts Quantum outlook

Standard & Poor's revised the outlook for Quantum Corp. to negative from stable following its warning that lower-than-forecast revenues are anticipated for the quarter ended Sept. 28. The BB- corporate credit and B subordinated debt ratings were confirmed.

Ratings reflect weakened profitability offset in part by a strong market-share position and a liquid balance sheet.

Despite weakened profitability, the liquidity profile remains relatively strong and a source of ratings support. Cash balances were $310 million at June 30, compared to total debt of $324 million. Also, Quantum maintains a $100 million credit facility and at June 30 none of the revolving credit facility was drawn.

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