Moody's cuts AES senior to Ba3

Moody's downgraded the senior unsecured debt of The AES Corp. to Ba3 from Ba1.

Senior and junior subordinated debt was lowered to B2 and preferred stock to Caa1.

The ratings remain on review for possible further downgrade.

The downgrade reflects concern about diminished future dividends from subsidiaries and investment interests, weaker power prices on the merchant portion of AES' generation business and deteriorating conditions in several international power markets.

Moody's believes cash flows from Latin American investments will remain volatile and are likely to contribute significantly lower dividends medium term. The combination of these factors results in a prospective increased reliance upon additional asset sales at a time when this market is becoming less favorable.

The review will focus on the volume and reliability of cash to be derived from various investments, the timing and likely proceeds derived from asset sales, and company actions to support its liquidity position.

AES last week appointed a new CEO and appears to have a strong commitment to a debt reduction strategy.

Multi-year capital spending plans have been dramatically reduced, the company is seeking to sell certain assets and is pursuing various initiatives to reduce its cost structure.

This includes plans to reduce its investments in Latin America and in merchant generation, in order to reduce the volatility of its future cash flows.

This goal will be difficult to achieve in the near term market environment. In Moody's opinion, the environment for power asset sales is becoming distinctly less favorable as an increasing number of sellers compete for buyers.

In addition to an oversupply of asset inventory, it is becoming more difficult for prospective purchasers to access capital. Also, some of the company's assets are located in regulatory environments which are difficult or less familiar to potential buyers.

The company has announced agreements for the sale of Cilco and AES NewEnergy.

Expected proceeds totaling $ 780 million for these asset sales are expected to be received in the fourth quarter or the first quarter of 2003, in advance of the maturity date of the company's $850 million bank revolving credit agreement.

Proceeds from these asset sales are critical for the company's liquidity position.

While there are execution risks around these asset sales, and risks around the timing, Moody's notes that agreements have been executed.

S&P on Motorola

Standard & Poor's said Motorola Inc.'s (BBB/stable) announced $3.5 billion charge does not affect its ratings or outlook, as the charge was incorporated in the ratings.

About $1.9 billion of the charge will be for restructuring, including reducing the workforce by about 7,000, or about 7%.

Another $1.1 billion reflects reduced market valuations of investments and other assets.

Motorola will also write off $530 million in long-term financing receivables.

Management has indicated that less than 20% of the charge is expected to be cash-related.

Motorola expects these actions to save $100 million for the rest of the year and $700 million on an annual basis.

Ratings continue to reflect the company's good position in the cellular handset, semiconductor, two-way radio, broadband and wireless infrastructure industries, solid balance sheet, as well as an expected return to profitability this year, S&P said.

S&P upgrades Railtrack

Standard & Poor's raised Railtrack plc to investment grade and kept it on CreditWatch with positive implications.

Ratings raised include Railtrack's £135 million 9.125% bonds due 2006, £100 million 9.625% bonds due 2016, £300 million 7.375% straight bonds due 2022, £250 million 5.875% bonds due 2028, £400 million 3.5% exchangeable bonds due 2009, £1 billion revolving credit facility and £350 million 5.875% bonds due 2009, all raised to BBB+ from BB+.

Moody's rates Sinclair Broadcast's loan Ba2

Moody's Investors Service rated Sinclair Broadcast Group's proposed $600 million senior secured credit facilities at Ba2, consisting of a $225 million revolver and a $375 million term loan B. In addition, Moody's confirmed the company's $1 billion senior subordinated notes at B2, $173 million convertible preferred stock at B3, $200 million of HYTOPS at B2, senior implied at Ba3 and senior unsecured at Ba3. The rating outlook is stable.

Ratings reflect high leverage, modest cash flow coverage of interest and dividends, risks posed by weak market position, the need to renegotiate several affiliate agreements over the near term and risks related to potential acquisitions and their financing, Moody's said.

Ratings are supported by the company's significant number of stations in diversified markets, significant portion of local advertising, the recent sale of its Indiana stations and the consequent reduction of debt, Moody's said.

The stable outlook reflects that while the advertising market hasn't completely recovered, 2002 should be a better year.

At March 31, debt leverage was 6.5 times and interest and dividend coverage by EBIDTA was at 1.3 times.

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