S&P rates Computer Associates new deal at BBB+

Standard & Poor's assigned a BBB+ rating to Computer Associates International Inc.'s $400 million convertible senior notes due December 2009 with a negative outlook.

Ratings reflect a stable revenue base, favorable business prospects, and strong cash flow generation, tempered by management's aggressive financial policy, S&P said.

Although the company has had an excellent track record for integrating software product acquisitions, the additional debt burden from acquisitions, coupled with restructuring charges, has weakened its financial position.

Although near-term debt repayment is likely, S&P expects growth through acquisitions and periodic share repurchases to remain an integral part of Computer Associates' strategy.

At current ratings levels, debt to EBITDA is expected to be managed at less than 2.5x, S&P said.

At Sept. 30, Computer Associates had $776 million of cash and some $650 million available under its $1 billion revolver.

No commercial paper was outstanding at Sept 30, but about $1.2 billion of debt matures by June 2003. There is no other debt due through 2005. New bank lines are expected to be in place prior to the expiration of current facilities.

The outlook reflects concerns about the potential impact of SEC and Justice Department inquiries involving the company that mostly relate to prior accounting practices.

Moody's rates Computer Associates new deal at Baa2

Moody's Investors Service rated Computer Associates International Inc.'s proposed seven-year $400 million convertible senior unsecured note at Baa2. The outlook is negative.

The negative outlook reflects a lack of transparency in financial results attributable to a revenue recognition accounting change implemented in October 2000, the need to refinance debt maturities in the next six months and uncertainties surrounding an SEC and Department of Justice investigation, Moody's said.

Moody's has concerns about the company's ability to generate growing bookings, including those in the legacy mainframe market, which represents a significant portion of product sales.

The company has a significant $1.3 billion of debt maturities due by June 2003, including $172 million of term loan borrowings due at the end of December, $257 million of term loan borrowings due June 2003, $350 million outstanding under the $1 billion revolving credit facility which expires June 2003 and a $513 million senior note maturity in April 2003.

While the net proceeds from the new issue of about $350 million will alleviate some of the refinancing pressure, the company will likely have to draw down cash to repay the maturities, reducing financial flexibility, Moody's added.

Likewise, although the company has considerable cash and marketable securities of $776 million at September and will be generating free cash flow in the second half of fiscal 2003, it will still require capital markets access or other financing alternatives to refinance at least a portion of these maturities.

The outlook reflects uncertainties associated with the continued SEC and U.S. Department of Justice investigation into the company's accounting policies, Moody's said. The current ratings do not incorporate the impact of an adverse regulatory ruling or announcement.

S&P cuts Sanmina-SCI

Standard & Poor's lowered Sanmina-SCI Corp.'s subordinated note ratings to B from B+, and rated its proposed $250 million senior secured credit facility due 2007 at BB and proposed $450 million of senior secured notes due 2009 at BB-. The outlook is stable.

Pro forma for the financing actions, liquidity is adequate with cash balances expected to exceed $1.1 billion, S&P said. The company is expected to continue to generate substantial cash flow from operations in the first half of fiscal 2003.

Adequate credit measures, considerable liquidity and anticipated debt reduction provide ratings support.

Ratings are limited by weak profitability and uncertainty associated with the pace of improvement in operating performance as the company copes with weak industry conditions.

S&P ups IndyMac outlook

Standard & Poor's revised its outlook on IndyMac Bancorp and its bank subsidiary to stable from negative. All ratings were affirmed.

Ratings reflect relatively low credit risk, S&P said.

Limiting the rating is a lack of product diversity.

The outlook revision reflects success in hedging servicing assets in the current environment of low interest rates and extraordinarily high volume of home mortgage refinancing.

S&P rates Hercules bank facilities

Standard & Poor's assigned a BB rating to Hercules Inc.'s proposed $350 million senior secured credit facilities and affirmed its other ratings. The outlook remains positive.

S&P views the refinancing plan as an important development from a credit perspective in that it will provide funds to repay $125 million in notes scheduled to mature early next year.

The new revolving credit facility is expected to be unused at closing, which together with Hercules' proven ability to generate free cash flow over the course of the business cycle, should provide ample liquidity for the foreseeable future.

The outlook is supported by recent debt reduction initiatives, good operating prospects and the expectation that adequate levels of committed bank financing will remain available to underpin liquidity.

A somewhat higher rating could be achieved over the next few years if management's cost-reduction programs succeed and business conditions improve.

S&P says Chesapeake Energy unchanged

Standard & Poor's said Chesapeake Energy Corp.'s ratings remain unchanged at a corporate credit rating of B+ with a positive outlook on news that the company has signed an agreement to purchase natural gas properties from ONEOK Inc. for $300 million.

Chesapeake intends to finance the acquisition by issuing $150 million of new senior notes and about $150 million of new common equity, S&P noted.

Pro forma for the acquisition, leverage and cash flow protection measures will be largely unchanged, S&P said. Chesapeake could be the beneficiary of a one-notch upgrade if it exploits likely strong natural gas pricing to materially deleverage. If the company fails to do so during the next year, the outlook likely will be revised to stable.

Fitch confirms Chesapeake Energy

Fitch Ratings confirmed Chesapeake Energy's senior unsecured notes at BB-, its senior secured bank facility at BB+ and convertible preferred stock at B. The outlook is stable.

Fitch's confirmation follows Chesapeake's announcement that it has agreed to acquire $300 million of Mid-Continent gas assets through an acquisition of a wholly-owned subsidiary of Oneok.

Chesapeake will fund the transaction with $150 million of equity and upon completion of that component it will issue $150 million of debt.

The Oneok acquisition fits well with Chesapeake's existing Mid-Continent assets and with Chesapeake's business strategy of creating value by acquiring and developing low-cost, long-lived natural gas assets in the Mid-Continent region of the U.S., Fitch said. This transaction will increase its proved reserves by 8% to almost 2.5 tcfe and its production by 12% to over 565,000 mcfe per day. Since Dec. 31, 2001, CHK has increased its reserve base by approximately 40%.

The ratings reflect the conservative nature in which the transaction is being funded, Chesapeake's long-lived, focused natural gas reserve base and its modest credit profile, Fitch said. Chesapeake's proved reserves, pro forma for the latest acquisition are nearly 2.5 Tcfe, which provide a reserve life of close to 11 years. Additionally, approximately 90% of Chesapeake's proved reserves are natural gas and are primarily located in the very familiar Mid Continent region.

Fitch expects Chesapeake to achieve synergies through its recent acquisition and to expand upon the current production from those properties.

Chesapeake has generated credit metrics consistent with its rating over the last 12 months. Coverages, as measured by EBITDA-to-interest, are roughly 4.5 times for the latest 12-month period, and debt-to-EBITDA is approximately 3.0x, Fitch added.

S&P rates Friends Provident convertibles A-

Standard & Poor's assigned an A- rating to Friends Provident plc's new £245 million convertible notes due 2007. The outlook is negative.

S&P said the rating reflects the standard three-notch gap from the operating company Friends Provident Life and Pensions Ltd. The negative outlook also reflects the operating company outlook.

Moody's puts Teck Cominco on review

Moody's Investors Service put Teck Cominco Ltd. and Teck Cominco Metals Ltd. under review for possible downgrade affecting $646 million of debt including Teck Cominco's senior unsecured 7% notes at Baa3, 3.75% convertible subordinated debentures at Ba1, 3% subordinated debentures exchangeable for Inco shares at Ba1 and Teck Cominco Metals' senior unsecured 6.875% notes at Baa3.

Moody's said the review follows the announcement by Teck, Fording Inc., and Westshore Terminals Income Fund that they will create the Fording Income Trust and Fording Coal Partnership. The Partnership will combine the coal assets of Teck, principally Elkview, with the coal assets of Fording. In addition, Teck will provide C$200 million to the partnership and C$170 million to the Fording Income Trust. At the conclusion of this transaction, Teck will hold a 38% interest in the partnership and a 13.3% interest in the Fording Income Trust. The Fording Income Trust will own 62% of the Partnership.

The combination of Teck's coal assets with the coal assets of Fording results in a business entity with a significant position in the global metallurgical coal markets and provides Teck with the opportunity to diversify its exposure to base metal commodities, Moody's said.

However Moody's added that it is concerned that Teck is contributing its coal assets into a partnership which it does not control and therefore may not be able to draw on the cash generated.

An important consideration in the review therefore, will be the removal of Teck's coal assets, principally Elkview, as an operating business segment, relative to the level of distributions it will receive from the Partnership and Income Trust, Moody's said.

Elkview contributed roughly C$82 million of EBITDA for the nine months to Sept. 30, 2002.

Growth potential of the coal assets within the Partnership and synergies that can be achieved by the combining of the Teck and the Fording coal businesses will be a further consideration.

Moody's said it will also evaluate the structure of the income trust and the partnership, the distribution requirements and distribution levels from the partnership and the income trust, and any circumstances under which the distributions could become unavailable.

Moody's review will also focus on the increase in Teck's debt position resulting from this transaction, and the company's debt protection measures going forward. Reflective of weak market conditions and their impact on performance, Teck's EBITDA/interest ratio for the 12 months to Sept. 30, 2002 was 3.5x compared with 6.4x for the year ended Dec. 31, 2001.

S&P upgrades Commerce Bancorp

Standard & Poor's upgraded Commerce Bancorp, Inc. including raising Commerce Capital Trust II's $200 million 5.95% convertible trust preferred securities to BBB- from BB+. The outlook is stable.

The uprgrade reflects Commerce's good profitability resulting from above-average growth in low-cost core deposits, continued positive asset quality ratios, and solid risk-adjusted capital, S&P said.

These strengths are balanced by the company's concentration in commercial real estate lending and ongoing rapid expansion.

Commerce's business model revolves around providing superior customer service and has been widely acclaimed, S&P noted.

Commerce's performance trends remain stable, principally due to its ongoing success in growing low-cost core deposits in its primary market areas, as well as in new territories such as the New York metropolitan area, S&P noted.

The mix of fee income continues to improve, enhanced by a growing insurance brokerage and capital markets lines of business, S&P said. The overall growth in fee income has enhanced profitability measures to a level where they compare favorably with those of regional peers.

Asset quality has been better than average during the past several years with nonperforming assets-to-total loans plus OREO of 0.33%, and net charge-offs-to-total loans of 0.17% for the nine-month period ended Sept. 30, 2002, both well within the parameters reported by both similarly rated and regional bank peers. While the company's credit risk profile includes exposure to commercial real estate lending at a relatively high 42% of loans, the average loan size is relatively small, and Commerce has been able to manage its risks successfully and prevent significant deterioration, S&P said.

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