S&P rates Micron convert B-

Standard & Poor's assigned a B- subordinated debt rating to Micron Technology Inc.'s planned sale of $500 million convertible subordinated notes due 2010 and confirmed its B+ corporate credit rating.

Ratings reflect Micron's position as the second-largest worldwide supplier of dynamic random access memory (DRAM) semiconductor chips and conservative financial policies.

Industry technology is in transition to double data rate (DDR) memory from synchronous DRAM (SDRAM) and Micron's transition had been somewhat slower than competitors, which has affected market share and profitability, S&P said.

Still, Micron has been accelerating its technology and product transitions, while updating a former Toshiba Corp. factory to Micron's processes.

Due to volatile profitability, Micron's debt-protection measures vary widely, although capitalization has remained conservative. Pro forma debt was 16% of capital at Nov. 30, while debt to EBITDA was about 3.3x for the four quarters, S&P said. Micron does not have a revolving credit agreement.

Pro forma for the new issue, Micron had about $1.1 billion of debt and capitalized leases at Nov. 30 while cash balances were $1.4 billion.

Capital expenditures are expected to be in the $800 million to $1.2 billion range for the fiscal year ending August 2003.

Cash balances have declined recently from capital expenditures and the Toshiba acquisition, as well as depressed operating performance in the past two quarters. Weak operating profitability and negative free cash flows could continue intermediately.

The outlook is stable, reflecting a belief that Micron's competitive position will not weaken significantly, operating performance will stabilize and financial flexibility will remain sufficient for intermediate operational needs, S&P said.

S&P puts Crown Cork on positive watch

Standard & Poor's placed the ratings of Crown Cork & Seal Co. Inc. (senior unsecured at CCC) on positive watch, following its refinancing plan.

S&P expects that if the refinancing is completed as planned, it will likely raise Crown Cork's corporate credit rating to BB- from B- and senior unsecured ratings to B from CCC to reflect the enhancement to financial flexibility with an improved debt maturity schedule.

The new ratings would also recognize the improvement in investor confidence, evidenced by the company's ability to access the capital markets, which had been severely diminished because of concerns regarding management's ability to accomplish its operational restructuring and refinancing plans.

Over the past two years, Crown has completed several initiatives including the sale of several non-core assets, reduced costs and spending, raised prices and reduced its debt and interest burden.

The company has also begun to realize a declining trend in asbestos litigation, with about a 33% decrease in cases filed against it and a modest reduction in average payout per claim in 2002. The company expects this trend to continue due to benefits from favorable ruling in the Pennsylvania court system and aging claimants.

Still, the revised ratings, assuming completion of the plan, would reflect the expectation of further debt reduction, as cash flow coverages will remain somewhat weak, S&P said.

Ratings on the proposed senior secured bank credit facility and debt issues are subject to receipt of additional information.

Moody's puts Fleming on review for downgrade

Moody's Investors Service put the ratings of Fleming Cos. Inc. under review for downgrade, including its $150 million of 5.25% convertible senior subordinated notes due 2009 at B3, and lowered the company's speculative-grade liquidity rating to SGL-3 from SGL-2.

While Moody's believes that Fleming has adequate liquidity, the downward revision of the speculative grade liquidity rating was caused by the diminished cushion for operating cash flow to cover maintenance capital expenditures and working capital fluctuations as well as the need for additional bank covenant relief.

Decreased levels of operating cash flow in 2003, combined with less-than-expected proceeds from the sale of the retail division, may adversely affect anticipated leverage and liquidity improvements in 2003, Moody's said.

At the end of December, the company had about $330 million of availability on the $475 million revolving credit facility commitment. Fleming intends to repay the remaining $325 million term loan with proceeds from the sale of the retail division and excess operating cash flow.

With the apparent weakness in Fleming's retail division, Moody's does not believe that total after-tax proceeds from divestiture of the retail division will necessarily equal the term loan balance.

S&P affirms American Tower

Standard & Poor's confirmed the ratings of American Tower Corp., including the three convertibles at CCC. The outlook is negative.

The ratings and removal from negative watch was due to American Tower resolving several near-term liquidity concerns with its issue of $420 million 12.25% senior subordinated discount notes due 2008.

Prior to the deal, S&P was concerned that American Tower would not be in a position to satisfy the $200 million put on its 2.25% convertibles in October, meet about $200 million in bank debt amortization in 2004 and have adequate headroom under its annualized operating cash flow to pro forma debt service bank covenant.

However, by using proceeds from the new notes to repurchase the convertible and pay down its bank term loan by at least $200 million, American Tower is on its way toward removing threats to near-term financial flexibility, S&P said.

Once the term loan is paid down, there will be greater headroom under the bank covenant because of lower pro forma debt service. With no significant debt maturities until beyond 2005 and moderate free cash flow prospect, American Tower is not likely to have another liquidity issue in the next several years.

Over the longer term, American Tower will be challenged to reduce its heavy debt burden due to weak tower industry fundamentals.

The ratings could be lowered if operating and cash flow metrics show signs of deterioration, S&P said.

S&P cuts SBC outlook to negative

Standard & Poor's confirmed the ratings of SBC Communications Inc. and subsidiaries but revised the outlook to negative from stable due to a higher degree of uncertainty regarding business prospects in 2003.

Uncertainty is exacerbated by the significant level of retail lines lost to competitors using unbundled network element platform facilities in fourth quarter 2002 when SBC lost 810,000 switched access lines to UNE-P competitors, or 1.6% of its total retail base.

Despite these challenges, the company continues to benefit from the extremely healthy levels of free operating cash flows after dividends derived from a 57 million total switched access line base.

The strength of its operating cash flows and conservative financial policy has enabled SBC to maintain a financial profile superior to that of the other regional Bell operating companies. The company is expected to continue to reduce its overall debt levels through 2003 from excess free cash flow, S&P said.

The predictability of SBC's operating performance in 2003 is constrained by ongoing competition and economic weakness, both of which continue to pose challenges to the company's base of business.

However, the rating incorporates the significant financial flexibility that the company has to continue to reduce overall debt levels. The rating also factors in a stabilization of competitive losses in 2003.

S&P said it assumes that the impairment in the local retail base will be small enough to still enable SBC to generate substantial ongoing free operating cash flows.

S&P says Steel Dynamics unchanged

Standard & Poor's said Steel Dynamic Inc.'s ratings are unchanged including its BB- corporate credit rating with a stable outlook following the announcement of record earnings in the fourth quarter and full-year 2002.

The marked improvement in the company's profitability was largely due to reduced domestic steel production, which resulted from bankrupt steel companies temporarily idling facilities and contributed to higher selling prices and volumes, S&P noted.

However, concerns remain regarding the restart of much of the idled capacity and sluggishness of the economy, S&P said.

In addition, the company continues to spend aggressively on growth initiatives, precluding reduction of its heavy debt burden, S&P added. Most of the spending has been directed to the firm's new structural and rail mill at Whitley County, Ind. Uncertainties remain as to the successful ramp-up of the new facility, market penetration for its structural beam product and its ability to meet rail customers' strict performance characteristics.

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