Moody's rates new Fubon convertible at Baa3

Moody's Investors Service assigned a prospective rating of Baa3 to the proposed convertible bond issue by Fubon Financial Holding Co. Ltd. of Taiwan.

The rating reflects Fubon's well established franchise as an integrated financial services group, and its adequate financial strength, Moody's said. The rating is, however, constrained by Fubon's reliance on its operating subsidiaries for cashflow.

Also, the rating takes into consideration the senior and unsecured nature of the issue, and the structural subordination of the holding company's claims to those of its subsidiaries. The prospective rating is contingent upon there being no material changes to final terms.

The rating outlook is stable.

Fubon Financial Holding was officially formed as a financial holding company of the Fubon group in Taiwan and was listed on Taiwan Stock Exchange in December. Its major subsidiaries include Fubon Insurance Co. Ltd., Fubon Commercial Bank Co. Ltd., Fubon Securities Co. Ltd. and Fubon Life Assurance Co. Ltd.

The group reported consolidated total assets of NT$463 billion, or US$13.25 billion, at Dec. 31.

Fitch affirms Sempra convertible at A-

Fitch Ratings affirmed the ratings of Sempra Energy and its subsidiaries, including the convertible QUIPS at A-. The outlook is stable.

The affirmation reflects conservative capital structure, solid cash flow from operations and large and prosperous customer franchises of its subsidiaries SoCal Gas and San Diego Gas & Electric.

While the California regulatory and political environment remains unsettled, Sempra faces considerably lower financial and business risk than other utilities due to lower initial stranded costs and earlier exit from the rate cap.

Also considered was Sempra's increasing focus on unregulated businesses, such as generation, energy marketing and trading. For 2001, the California utilities together contributed 74% of net income, while energy trading, non-regulated generation and other business contributed the remainder.

Fitch does not expect the introduction of further gas industry restructuring to have a significant impact on SoCal Gas' future performance as service requirements for the core customer base are not expected to change.

Moody's cuts Nortel convertible to Ba3

Moody's lowered Nortel Networks Ltd. and subsidiary senior long-term ratings to Ba3 from Baa3, including the Nortel Networks Corp. 4.25% convertible notes due 2008.

The downgrade reflects continued decline in spending by telecom carriers, which is expected to be deeper and more protracted than previously anticipated. The rating action also considered significant progress Nortel has made in reducing its cost structure, which will become more evident in the current year, and a geographically diversified customer base.

Moody's said the timing of the rating change is not focused on anticipated results for the first quarter but rather the expectation that Nortel's operating performance will remain under pressure for an extended period and that it will prove difficult to return to profitability this year.

The rating agency expects Nortel will consume cash throughout 2002 as it funds restructuring costs as well as a significantly reduced capital investment. As a result of the limited visibility for revenue growth and improvement in operating performance, the outlook is negative.

Moody's upgrades Caremark

Moody's Investors Service upgraded the ratings of Caremark Rx Inc., including the senior implied rating to Ba2 from Ba3. The outlook is positive.

The upgrade reflects strong operating performance, sustained growth in cash flow and continued deleveraging at the company.

Also reflected is Moody's expectation that favorable industry fundamentals will drive industry growth in the near to intermediate term, including positive trends in drug spending, significant generic introductions and strong growth in the development of biotech drugs.

Mitigating factors include the high level of competition in the industry, continued margin pressure expected in the core data processing business and concerns over Federal and state governments' efforts to contain drug prices.

With respect to company specific issues, Moody's remains cautious regarding the concentration of revenues and profits with certain accounts, Caremark's acquisition strategy and its competitive positioning relative to peers.

The positive outlook incorporates an expectation of continued positive performance. Revenue, EBITDA and cash flow should continue to improve, though likely at a lower rate than in recent history.

Moody's also anticipates Caremark's convertible preferred, which it does not rate, will be converted to equity in late 2002. Thereafter, Caremark should slow down the repayment of debt and will use excess cash flow to fund acquisitions.

Future improvements to the credit profile, as a result, will be realized through growth in operating income and cash flow. If Caremark continues to execute as well as it has, reduces debt through the conversion of the convertible and demonstrates a conservative shareholder value strategy going forward, a ratings upgrade may be warranted.

As of Dec. 31, the company had debt to EBITDA leverage of 2.7 times, excluding the convertible preferred, down from 3.5 times a year earlier. For the year, cash flow from operations grew to $285 million from $221 million, resulting in CFO/total debt coverage of 36%.

For 2002, Moody's expects cash flow from operations before any changes in working capital and tax benefits to still be in the range of 30% of total debt.

Moody's rates new D.R. Horton notes at Ba1

Moody's Investors Service assigned a Ba1 rating to D. R. Horton Inc.'s new $250 million issue of 8.50% senior notes due 2012, and confirmed the zero coupon convertible senior notes due 2021 at Ba1. The outlook was changed from stable to negative in March, reflecting the company's aggressive use of debt leverage despite previous indications that capital structure discipline would be maintained.

The ratings reflect enviable operating performance, success at integrating acquisitions, strong equity base, geographic diversity, tight cost controls and size.

However, the ratings also continue to reflect higher than average business risk given its appetite for acquisitions, greater debt leverage than its peers, capacity under its credit agreement that could lead to substantial additional debt, integration risks associated with the recent merger with Schuler Homes and the cyclical nature of homebuilding.

For the negative outlook to be lifted, the company would have to integrate Schuler Homes seamlessly and make substantial progress in meeting its capital structure projections.

For the debt ratings to be lowered, D.R. Horton would have to have difficulties in its integration of Schuler Homes and/or further stress its balance sheet.

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