Moody's puts Shaw on review for downgrade

Moody's Investors Service placed the ratings of The Shaw Group under review for possible downgrade, including its senior unsecured debt at Ba2.

The review arises from Moody's concern as to the degree of downward pressure on Shaw's earnings and cash generation in fiscal 2003 and 2004 given the shift in the company's business mix due to ongoing weakness in the power generation segment of its EPC business.

In addition, the review reflects concern over the expected level of cash burn in 2003 as the business transitions to a different portfolio mix and working capital requirements increase.

The potential put in May 2004 on the convertible was another factor prompting the review.

Fitch rates Sierra Health at BB

Fitch Ratings assigned a BB rating to Sierra Health Services Inc.'s new $100 million of convertible senior notes. The outlook is stable.

In addition, Fitch placed the BBB insurer financial strength ratings on Sierra Health's health insurance units, Health Plan of Nevada and Sierra Health & Life Insurance Co. on positive watch.

The watch reflects Fitch's expectation that a portion of the proceeds from the debt issuance will be used to improve the risk-based capital levels of the units.

Ratings reflect strong market presence in southern Nevada with strong, profitable competitive positions in the Medicare risk and commercial segments and modest statutory capital levels.

S&P cuts Fleming, still on watch

Standard & Poor's lowered the ratings of Fleming Cos. Inc., including senior secured debt to B from B+, senior unsecured to CCC+ from B- and subordinated to CCC from CCC+.

Furthermore, the ratings remain on negative watch.

The downgrade is based on a belief that challenges in restructuring its wholesale business may weaken cash flow protection measures.

Although liquidity for the near term appears sufficient and Fleming intends to reduce debt with proceeds from the sale of its retail assets, debt service costs in relation to cash flow remain high.

There is sufficient room under the $550 million revolving credit facility for further borrowings, although future covenant relief may be required under the current facility.

The company is in negotiations to revise its bank loan agreement to focus on asset-based measures for financial covenants. As the banks are well secured, it is likely Fleming will be successful in obtaining the new facility.

S&P says Lucent unchanged

Standard & Poor's said Lucent Technologies Inc.'s ratings are unchanged including its corporate credit at B- with a negative outlook on news of an agreement in principle with the staff of the SEC that would resolve the commission's investigation of the company's revenue-recognition practices.

The agreement, which would close an investigation initiated in late 2000, is subject to final approval by the SEC. Lucent had discovered $679 million of improperly booked revenue that year and brought the matter to the commission's attention. Under the terms of the settlement, Lucent would pay no fines or penalties, would not be required to make any financial restatements, and would be enjoined from future violations of the antifraud, reporting, books and records, and internal control provisions of the federal securities laws.

S&P noted that Lucent's cost reduction actions have materially cut the magnitude of its operating losses and cash outflows in a very challenging communications marketplace.

S&P puts Sol Melia on watch

Standard & Poor's put Sol Melia SA on CreditWatch with negative implications including its €200 million 1% convertible bonds due 2004 at BBB-, Sol Melia Europe BV's €340 million 6.25% bonds due 2006 and Sol Melia Finance Ltd.'s €106.9 million 7.8% bonds at BB.

S&P said it put Sol Melia on watch because of concern that, following weak 2002 financial results, the company will find it challenging to restore its credit measures to investment-grade levels in the medium term.

Although the company's European operations recorded a limited decline in revenue per available room in 2002, Sol Melia nevertheless continued to suffer from its exposure to the North African (mainly Tunisia) and Latin American tourism markets, which were affected by weak customer demand owing to economic and geopolitical problems in those regions, S&P noted.

In the face of weakening hotel demand worldwide and its exposure to volatile emerging markets (which account for about 30% of EBITDA), the company has implemented cost cutting measures, reducing operating costs by about €30 million in 2002, and has started to divest from loss-making and underperforming affiliate hotels, mostly in Tunisia.

While these measures should help improve Sol Melia's profitability, it remains highly unlikely that the company will be able to restore its credit measures to levels more commensurate with an investment grade rating by the end of 2003, primarily due to the continuing uncertainty regarding the pace of economic recovery in Europe and the Americas, S&P said.

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