Moody's confirms Semco ratings

Moody's Investors Service confirmed the senior unsecured debt ratings of Semco Energy Inc. at Ba2 including the mandatory convertible, with a stable outlook.

The confirmation follows a successful bond offering and renewal of its bank facility, which eliminates short-term liquidity concerns, Moody's said.

The ratings reflect very high leverage, weak capitalization and low profitability and cash flow relative to its debt.

Risks are mitigated by the low business risk of the company's primarily regulated gas utilities.

The company is moving forward in identifying potential buyers for its Alaska Pipeline Co. unit. If consummated, along with the mandatory converting to equity in August, it will help to reduce debt and improve liquidity over the near-term.

Other than these transactions, Semco is not likely to generate much, if any, free cash flow going forward that could be used for further debt reduction, which would be necessary for an improvement in the ratings, Moody's said.

S&P keeps Semco on negative outlook

Standard & Poor's said the ratings and outlook for Semco Energy Inc. (BBB-/negative) remain unchanged by the renewal of its credit facilities, in conjunction with the new $300 million of senior unsecured notes.

Elimination of this refinancing risk markedly strengthens liquidity and allows management to focus more closely on underlying business operations, S&P said.

The outlook still remains negative, however, due to the hurdles Semco faces to turn around the performance of its nonregulated businesses and reduce leverage, which would improve funds from operations-related credit measures.

Fitch confirms Hartford ratings, off watch

Fitch Ratings confirmed all ratings of The Hartford Financial Services Group Inc., including the mandatory convertible at A, and removed them from negative watch, with a stable outlook following the convertible, bond and equity offerings that raised nearly $2 billion.

This capital raising follows Hartford's announcement that it will incur an after-tax charge in first quarter of $1.7 billion, driven by an increase in asbestos reserves.

Ratings reflect a diverse market and product profile, solid underwriting discipline and solid operating performance in difficult market conditions.

It also reflects current capitalization objectives, which include transitioning to a stronger level of capitalization over the next several quarters, Fitch said.

Moody's cuts Celestica outlook

Moody's Investors Service revised its outlook on Celestica Inc.'s ratings to negative from stable, based on the declining revenue trend and the precipitous decline in EBITA. Ratings were confirmed, however, including the 0% convertible notes at Ba2.

The ratings are based on 2.8x adjusted debt to EBITDA at March 31, which remains moderate for this stage of the downturn, Moody's said.

Free cash flow coverage of fixed charges, accruing the convertible, was 2.5x .

The balance sheet is formidable, with $1.76 billion of cash and short-term investments, and only 27% adjusted debt to capitalization.

In addition, liquidity is buttressed by $850 million available under two unsecured revolving credit facilities, neither of which has been drawn.

Ratings are mitigated, however, by a high concentration of revenues from major customers, with its 10 largest continuing to contribute 78% of revenues, Moody's said.

S&P rates new Williams convert B-

Standard & Poor's raised the senior unsecured ratings of The Williams Cos. Inc. to B+ from B and removed the from negative watch, plus assigned a B- rating to its new junior subordinated convertible debentures.

The upgrade is based on the fact that the senior debt is no longer materially subordinate to debt at the operating companies, after recent asset sales, S&P said.

Priority debt to total assets is less than the 15% threshold required for subordination for a speculative-grade company. At March 31, assets net of goodwill was about $34.4 billion, 15% of which amounts to $5.1 billion. Total priority debt is about $3.8 billion, leaving a $1.3 billion buffer.

A significant credit concern is the company's ability to stem the cash drain from the energy marketing and trading business unit.

The watch removal 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. Also, Williams should have sufficient cash to repay the $1.4 billion Williams Communications Group note that matures in March 2004.

The negative outlook reflects weak financial ratios and continued expected weakness, S&P said.

Funds from operations interest coverage ratios for 2002 were 1.4x and FFO to debt was 5.6%, indicative of a rating at the lower end of the B category. The expectation for 2003 does not show significant improvement.

However, projected ratios for 2004 are more in line with the current rating.

S&P notes Regal ups special dividend

Standard & Poor's said Regal Entertainment Group's (BB-/stable) decision to increase its extraordinary dividend by $75 million to between $675 million and $700 million will not affect its ratings or outlook.

But, S&P said any negative surprises or additional moves that increase leverage or decrease discretionary cash flow are likely to lead to a revision of the outlook to negative or a ratings reassessment.

Regal will fund the additional dividend by boosting the new convertible offering to $200 million from $125 million. With the greenshoe, the issue may be further increased to $240 million, which would be retained to boost liquidity and be used for general corporate purposes.

Regal still plans on reducing its quarterly dividend by 20% as previously expected, which will offset some of the cash flow impact from the higher interest expenses, S&P said.

Pro forma lease-adjusted debt to EBITDA increases to about 4.5x, which is only marginally higher than previously expected. The company should still generate meaningful levels of discretionary cash flow and maintain substantial borrowing capacity under its $145 million revolving credit facility.

Even so, the transaction, and the shift in financial policy, will effectively cap Regal's corporate credit rating at BB- for some time. In addition, the company's capacity to add more debt at the current rating level is substantially reduced.

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