S&P takes Williams off watch, raises senior unsecured debt, rates convertibles BB-

Standard & Poor's confirmed The Williams Cos.' corporate credit rating at B+, upgraded its senior unsecured debt to B+ from B, confirmed its preferred stock at CCC+, removed it from CreditWatch negative and assigned a B- rating to its new $300 million junior subordinated convertible debentures. The outlook is negative.

S&P said the upgrade to Williams' senior unsecured debt is because it is no longer materially subordinate to debt at the operating companies after the recent asset sales. Priority debt to total assets is less than the 15% threshold required for subordination for a speculative-grade company

As of March 31, 2003, assets net of goodwill was about $34.4 billion, 15% of which amounts to $5.1 billion. Total priority debt, which includes secured debt and debt at consolidated subsidiaries, is about $3.8 billion, leaving a $1.3 billion buffer for subordination. In addition, the pro forma buffer at June 30, 2003, increases to about 1.9 billion. Williams has stated that it does not intend to allow priority debt to exceed 15% of assets in the future.

The removal from CreditWatch reflects the high likelihood that Williams will have sufficient cash available to repay the $1.17 billion maturity due in July 2003 and that liquidity issues are no longer the primary credit concern, S&P said.

Williams was successful in its sale of Texas Gas Transmission Corp. to Loews Corp for $1.05 billion on May 16, 2003, and plans to pay off the existing $1.17 billion loan at Williams RMT with a $500 million secured term loan financing, plus additional available cash. Also, given the likelihood of closing on the Williams Energy Partners sale and the other announced deals closing in second-quarter 2003, Williams should have sufficient cash to repay the $1.4 billion Williams Communications Group note that matures in March 2004, S&P added.

A significant credit concern is the company's ability to stem the cash drain from the energy marketing and trading business unit, S&P said. For example, EM&T was responsible for a $790 million cash drain in 2002 and for a $292 million cash drain in the first quarter of 2002. However, because EM&T performs all commodity risk management for Williams, less than 60% of the cash usage is actually for the EM&T trading operations. More than 40% is for Canadian and domestic midstream fuel and gas shrink requirements and for margin on hedged E&P gas contracts in the $4 area. However, Williams must demonstrate that this business unit will not be a significant user of cash in 2003.

The negative outlook reflects the weak financial ratios for 2002 and continued expected weakness in 2003, S&P said. For example, funds from operations interest coverage ratios for 2002 were 1.4x, and FFO to debt was 5.6%, which is indicative of a rating at the lower end of the B category. The expectation for 2003 does not show significant improvement. However, the projected ratios for 2004 are more in line with the current rating.

Moody's cuts WCI Steel, Renco Steel

Moody's Investors Service downgraded WCI Steel, Inc. and Renco Steel Holdings, Inc. including cutting WCI Steel's $300 million 10% senior secured notes due 2004 to Ca from Caa2 and $100 million secured bank credit facility to B3 from B2. Renco Steel's $120 million 10.875% senior secured notes due 2005 remain at C. The outlook remains negative.

Moody's said the action follows WCI's decision to undergo a financial restructuring.

WCI violated a financial covenant related to its revolving credit facility as of April 30, 2003, and announced that it will not make the June 1 interest payment on its senior secured notes.

Over the last three years, adverse market conditions have resulted in WCI experiencing recurring losses and diminished liquidity, Moody's noted. Steel shipments and prices improved in the second half of 2002, but the restart of previously idled capacity, lower prices, and higher energy and raw material costs have recently created a bleak outlook for WCI's profitability.

Considerable long-term challenges facing the company are competition from lower cost niche flat-rolled steel producers, in particular International Steel Group's Riverdale facility, increased pension funding and retiree healthcare costs, and the ramifications associated with a much-delayed and potentially costly blast furnace reline.

WCI has indicated that the major elements of its cost and debt restructuring involve a reduction in the principal amount outstanding of its $300 million senior secured notes, a revised labor agreement with its labor union, and a significant cash infusion, Moody's said. The company is in discussions with its lenders and has retained a financial advisor in connection with the restructuring of its notes.

S&P cuts Northwestern preferreds

Standard & Poor's downgraded Northwestern Corp.'s trust preferred stock including cutting NWPS Capital Financing I's $32.5 million 8.125% trust preferred capital securities, Northwestern Capital Financing II's $200 million trust preferred securities and Northwestern Capital Financing III's $100 million 8.1% trust preferred securities due 2032 to C from CCC. It withdrew the CCC ratings on Northwestern Energy Montana's $50 million preferred stock and 2.15% cumulative preferred stock. The ratings remain on CreditWatch with negative implicatons.

S&P said the action follows Northwestern's announcement that its board of directors has elected to defer interest payments on the subordinated debentures of all series of its trust preferred securities.

This decision will prevent the company from making dividend payments on its outstanding trust preferreds. When the dividend payments are missed, the rating on the trust preferreds will be automatically lowered to D.

Even though the company is legally able to defer interest payments on its trust preferred securities, S&P's rating methodology considers the deferral of preferred dividends to be a default.

The B corporate credit rating on NorthWestern remains on CreditWatch with negative implications, S&P added.

The rating on Northwestern reflects an extremely burdensome debt level, nonperformance of its telecommunications and HVAC subsidiaries, constrained liquidity, and management turmoil, all of which are threatening the long-term viability of the company, notwithstanding the company's ownership of regulated electric and gas businesses, S&P said.

Fitch cuts Northwestern

Fitch Ratings downgraded NorthWestern Corp.'s trust preferred securities to C from B-, its senior unsecured debt to B- from B+ and its senior secured debt to BB- from BB. The outlook remains negative.

Fitch said it lowered the trust preferreds following NorthWestern's announcement that it has exercised its option to defer payment of interest. The securities will remain at C as long as the deferral remains in place.

Northwestern's other ratings were lowered because of the continued erosion in the company's overall cash and liquidity position, Fitch said. Of particular concern is NorthWestern's recent disclosure of cash flow projections for 2003 that are materially weaker than prior estimates. Excluding the non-utility operations of Blue Dot and Expanets, cash from operations after changes in working capital are now projected by management to be negative during 2003 versus an estimate of $30 million disclosed in NorthWestern's year-end 2002 10-K filing.

NorthWestern has stated the revisions have resulted primarily from increased working capital requirements including reduced vendor credit terms. Although today's decision to suspend trust preferred dividends should generate about $30 million of annual cash savings, Fitch said it believes that NorthWestern will become increasingly dependent on the near-term execution of non-core asset sales to reduce consolidated debt and improve liquidity.

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