Moody's cuts Avaya

Moody's Investors Service downgraded the long term ratings of Avaya Inc., including the 0% convertible senior notes due 2021 to B3 from Ba3.

The outlook is stable on all ratings other than the convertible.

The outlook for the convertible, which is putable in October 2004 for an accreted value of $512 million, is negative because, in Moody's opinion, it is possible the issue will be restructured.

The downgrade reflects continued weakness in telecom equipment spending, uncertainty about a rebound, expected continued weak returns and a significant debt level.

Positive factors are substantial progress in reducing cost base, benefits to the balance sheet from the issuance of stock and conversion of preferred stock to common equity earlier this year, a sizable cash balance and slight success in improving cash flow, Moody's said.

The stable outlook reflects that Avaya has sufficient cash on hand to weather the next 12 months.

Moody's is concerned that continued lack of visibility could result in further declines, which would have a negative impact on operating performance and could lead to further restructuring efforts.

S&P cuts TXU Europe

Standard & Poor's lowered TXU Europe Group plc's ratings to D from CC after the company filed for administration, the U.K. equivalent of bankruptcy.

Ratings on other group entities were cut to D from CC, as well.

Although bond payments on this debt have not been missed yet, the filing constitutes an event of default, S&P said.

S&P cuts Qwest

Standard & Poor's lowered the corporate credit rating on Qwest Communications International Inc. to CC from B- and senior debt ratings for Qwest Capital Funding Inc. to C from CCC+, affecting about half of the total $26 billion of debt outstanding at Sept. 30.

Also, S&P put the ratings on negative watch.

S&P affirmed the B- senior unsecured debt of Qwest Corp., noting the outlook continues to be developing.

These actions follow Qwest's announcement that it has begun a negotiations with Qwest Capital Funding bondholders to exchange some $13 billion of debt for debt at Qwest Communications International and Qwest Services Corp., at an overall discount of as much as 20% from face value.

S&P expects to assign a CCC+ rating to the new notes issued by Qwest Services.

The transaction would result in an overall reduction of debt for the combined company of about $2.2 billion to $2.6 billion.

This is considered a distressed exchange by S&P and as such is tantamount to a default.

Therefore, upon completion, the senior unsecured debt at Qwest Capital Funding would be lowered to D and the corporate credit rating for guarantor Qwest Communications International to SD - selective default.

Despite the anticipated reduction in debt and lengthening of some maturities, the amounts involved are not material relative to the company's total financial burden and overall maturities through 2005.

A high degree of risk continues to surround Qwest due to pending federal investigations and near-term liquidity remains a source of concern, particularly if the $4.3 billion second phase of the directories sales is delayed beyond 2003.

Moody's keeps Qwest on review

Moody's Investors Service said all the ratings of Qwest Communications International Inc. and subsidiaries will remain on review for downgrade pending the company's exchange offer to bondholders.

At the completion of the exchange offer, Qwest's consolidated debt will be reduced, which in isolation is a credit positive, although the extent will not be known until afterward.

Moody's noted that Qwest is seeking negative concessions, asking bondholders to accept a discount to par, extend maturities and create more structurally senior debt at Qwest Services that would rank ahead of bonds that end up at Qwest Communicatioms.

If all qualified bondholders accept the exchange offer, Qwest's total debt reduction would be around $2.5 billion.

Even after the exchange offer is completed, Moody's noted concerns remain, including a lack of clarity as to Qwest's restated financials and completion of the second phase of the Dex sale.

Fitch keeps Qwest on negative outlook

Fitch Ratings said its assessment of Qwest Communications International, Inc. is unchanged and the outlook remains negative after the company launched a private offer to exchange approximately $12.9 billion of senior unsecured debt securities outstanding at Qwest Capital Funding, Inc. for new debt securities issued by Qwest Services Corporation and Qwest Communications. Fitch rates Qwest Communications and Qwest Capital Funding's senior unsecured debt at CCC+ and Qwest Corp.'s senior unsecured debt at B.

Fitch said it expects the exchange offer will reduce the company's debt level and extend near term maturities.

However, Fitch expects that the company's interest expense will likely be higher as a result of the exchange, partially offsetting the positive impact of extending the near-term maturities.

From Fitch's perspective the company's ability to manage its maturity schedule and liquidity is a key rating consideration given the company's lack of capital market access to refinance maturities and limited pool of assets available for sale in a timely manner.

Fitch acknowledges that the Dex sale coupled with the amended credit facility provides the company with a level of near-term liquidity stability.

However continued deterioration of the company's core operations pressure the company's credit profile and capacity to generate free cash flow and compromise the company's ability to meet debt service requirements, Fitch said.

Currently the company has approximately $1.2 billion of bonds scheduled to mature in 2003, $2.1 billion of bonds scheduled in 2004 and $950 million in 2005, Fitch noted.

While bondholders will receive less than par value in the exchange offer, Fitch considers the difference a market risk loss. Fitch does not consider the company's proposed exchange offer a distressed debt exchange under its criteria. The exchange offer is private and viewed as a voluntary exchange that contains financial incentives and includes no minimum amount of bonds to be tendered to affect the exchange or that the inability to complete this exchange will result in a near-term bankruptcy.

S&P cuts Loews outlook

Standard & Poor's changed the outlook for Loews Corp. to negative from stable, following its plans to inject $750 million of capital to its insurance subsidiary, CNA Financial Corp. in the form of preferred stock, after making a $1 billion contribution in 2001.

S&P affirmed Lowes' A+ senior ratings and A subordinated ratings.

Loews had about $2.3 billion of total debt at Sept. 30, excluding CNA and Diamond Offshore Drilling Inc., which are included on an equity basis.

Although CNA's performance has begun to improve in the first nine months of 2002, S&P remains uncertain about the potential level of additional financial support that could be given by Loews.

Capacity for ongoing financial support of Loews' key insurance subsidiary is limited within current ratings, S&P said.

Loews' liquidity is good, with more than $4 billion of cash and investments in marketable securities that generate support for about $2.3 billion of total debt at Loews, excluding CNA and Diamond Offshore debt.

Moody's cuts Hanover outlook

Moody's Investors Service confirmed Hanover Compressor's ratings but moved the outlook to negative from stable.

The outlook reflects a reduced expectation for reduction of high leverage in 2003 and further uncertainty with the now formalized SEC inquiry into past accounting practices, Moody's said.

Moody's confirmed the $192 million of 4.50% non-guaranteed senior convertible notes at B1 and $86 million of non-guaranteed convertible preferreds at B2.

The outlook could stabilize if significant first half 2003 progress in reducing leverage is achieved and the SEC outcome is relatively benign, Moody's said.

The ratings may suffer if Hanover Compressor cannot show first-half 2003 ability to materially reduce leverage and/or if the SEC imposes material penalties.

S&P notes TXU issue

Standard & Poor's said the $750 million exchangeable subordinated note issue by TXU Corp.'s subsidiary, TXU Energy Co. LLC is in keeping with TXU's plan to reduce debt and improve debt service coverage.

The overall impact is an improvement in TXU Energy's current liquidity and proceeds will mainly be used to repay debt, S&P said.

S&P confirms Shaw

Standard & Poor's confirmed the BBB- senior debt ratings on the Shaw Group Inc. on its new proposed senior secured bank credit facility of up to $400 million that will mature in 2005, which S&P rates at BBB-. The outlook is negative.

The ratings reflect an expectations that earnings and liquidity will weaken in the intermediate term as power plant construction projects are completed and advanced payments are worked off.

Assuming Shaw does not pursue a meaningful acquisition, the firm appears to have the financial capacity to manage with the likely put on the 0% convertible in May 2004.

However, should an opportunistic transaction take place, it could increase stress on the financial and liquidity profile, depending in part on the financing method used, S&P said.

Liquidity was satisfactory at May 31 with about $535 million of cash, a $350 million secured bank loan due 2003 currently being refinanced and limited scheduled debt maturities.

The company has ample room under its bank financial covenants, although the facility does contain a material adverse change clause.

Should additional projects in the backlog be delayed or cancelled, or liquidity becomes constrained, ratings could be lowered, S&P said.

S&P lowers Getronics outlook

Standard & Poor's lowered its outlook on Getronics NV to negative from stable and confirmed its ratings including its corporate credit at BB+.

S&P said the action follows Getronics' profit warning.

As a result of continuing depressed market conditions, operating margins at year-end 2002 will not meet initial projections, with EBITA expected to be 12% below Getronics' previous estimate, at about €110 million, S&P said.

Continuing below-peer-average profitability in depressed market conditions with increasing price pressure on core services will put pressure on Getronics' credit profile, the rating agency added. EBITDA net interest ratio is forecast to be at the low end of S&P's expectations of 4 times to 5x for the full year 2002.

S&P added that the EBITDA margin at about 5% in June 2002 continues to be lower than its expectations, which are above 6% for the current rating. Getronics' peer group generates average EBITDA margins of above 8%.

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