Moody's confirms PanAmSat, Hughes, News Corp.

Moody's Investors Service confirmed the ratings of News Corp. Ltd. and its subsidiaries including its senior unsecured debt at Baa3 and Hughes Electronics Corp.'s subsidiaries DirecTV Holdings LLC (Ba3 senior implied) and PanAmSat Corp. (Ba2 senior implied). The outlook for all issuers remains stable.

Moody's said the action follows the announcement that News Corp., General Motors Corp. and Hughes have reached a definitive agreement in which News Corp. will acquire GM's 19.9% interest in Hughes and a further 14.1% of Hughes from public shareholders and GM's pension and other benefit plans for $6.58 billion of cash and stock.

Moody's said its confirmation is based on its belief that the acquisition of the effective controlling interest in Hughes will be financed with considerable equity components, including equity recently raised and yet to be raised and to be issued to GM and other shareholders, and as well with cash on hand, which we presumed would eventually be used for acquisition purposes of this nature in our credit assessment.

As a result, Moody's does not believe that there will be any negative impact on News Corp.'s fundamental credit metrics.

The confirmation of DirecTV and PanAmSat debt is based on Moody's expectation that the acquisition will not have a material impact on the credit metrics of Hughes and its subsidiaries, and that DIRECTV may actually benefit over the longer-term from cost synergies attributable to programming, equipment purchasing, and technological advances from News Corps.' broad experiences in the international direct-broadcast-satellite industry via its significant interests in the U.K., Asia, Italy and Latin America. That view incorporates the planned $275 million dividend to GM at closing.

S&P cuts Sea Containers, still on watch

Standard & Poor's downgraded Sea Containers Ltd. and kept it on CreditWatch with negative implications. Ratings lowered include Sea Containers' s $100 million 12.5% subordinated debentures due 2004, $100 million 7.875% senior notes due 2008, $100 million 9.5% senior notes due 2003, $115 million 10.75% senior notes due 2006, $25 million 12.5% senior subordinated debentures series B due 2004 and $65 million 10.5% senior notes due 2003, cut to B from B+.

S&P said the downgrade is because of Sea Containers' reduced financial flexibility due to significant near-term refinancing risk.

Ratings remain on CreditWatch pending the outcome of its planned refinancing of $158 million of debt maturities that mature on July 1, 2003.

The company has intends to sell approximately $160 million of assets and to exchange senior notes due in 2003 and 2004 for new securities with higher coupons and/or longer maturities. Proceeds from the asset sales will be used to redeem senior notes that are not exchanged. The company is also in the process of arranging a $160 million bridge facility that would be used to redeem the senior notes if the planned asset sales do not close by the July 1, 2003 maturity.

Although the assets to be sold are noncore, the company will be left with reduced cash flow and fewer assets available for sale if it encounters further financial difficulties in the future.

If Sea Containers is not able to refinance its July 1, 2003 debt maturities, ratings will be lowered significantly, S&P said. If the company is successful in refinancing these maturities, ratings would likely be affirmed.

S&P raises Service Corp. outlook to stable

Standard & Poor's raised its outlook on Service Corp. International to stable from negative and confirmed its ratings including its senior unsecured debt at BB- and subordinated debt at B.

S&P said Service Corp.'s ratings reflect the company's vulnerability to periods of business weakness despite the relatively favorable long-term predictability of the funeral home and cemetery business.

Service Corp. has substantially reduced its size during the past two years, S&P noted. Most international operations have been sold or joint ventured, and both non-core businesses and select assets in North America have also been sold.

Proceeds from the sales were largely used to reduce debt by more than $2 billion since 1999.

The company's French operation is its only remaining significant non-domestic asset, and the company may sell or joint venture it in 2003.

Moreover, initiatives to improve operating efficiency and sales quality have had measurable success as the company's recurring free cash flow has steadily improved despite currently weak industry trends, S&P said.

Nevertheless, several uncertainties remain, notwithstanding the company's significant in improvement of operating and debt-related risks. Continued weak death rates have adversely influenced business trends, S&P said. These trends (which are highlighted by flat to slightly lower number of funeral calls), which have prevailed longer than anticipated, may continue for an extended period. A softening trend in the demand for preneed services may hurt operating results in the future.

Despite the company's reduced debt, credit protection measures are only marginal. Return on capital improved in 2002, but only to a still-weak 7%, up from 6% in 2001.

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