Moody's upgrades Williams, rates notes B3

Moody's Investors Service upgraded Williams Cos. and its subsidiaries including raising its senior unsecured debt to B3 from Caa1, senior secured revolver to B1 from B3, trust preferreds to Caa2 from Caa3 and the pipeline subsidiary senior unsecured debt to B1 from B3. Williams Production RMT Co.'s secured term loan was raised to B1 from B2 and senior unsecured debt to B3 from Caa1. Moody's also assigned a B3 rating to Williams' proposed notes. The outlook is developing.

While a number of disclosures have been made, Moody's said certain events and markets must coincide for the management to meet its financial plan, and that only the passage of time will demonstrate the degree of its precision.

If Williams fails to meet its financial plan, including asset sales and margin calls as estimated, the ratings could be downgraded, Moody's added.

Moody's said the actions follow its assessment of Williams' financing plan, including the recent repayment of $1.2 billion in principal and interest of its E&P subsidiary Williams Production RMT's secured loan prior to maturity and the replacement of its existing secured credit facilities with a $800 million cash-collateralized credit facility.

Moody's said Williams' ratings reflect significant risks from wide and unpredictable swings in the working capital needs of its marketing and trading (EM&T) segment, whose large losses and cash outflows account for much of Williams' negative cash flow from operations; large net losses resulting in negative free cash flow; a debt level that remains stubbornly high (over $13 billion, despite $2 billion of debt reduced since the beginning of 2002) and weak capitalization (equity has decreased almost as much as the debt since the beginning of 2002); and the winding down of its asset sale program, and the expectation that there will be less cash going forward from asset sales to supplement shortfalls in operating cash flow.

Williams is turning from asset sales to capital market debt issuances to fund cash shortfalls, Moody's noted. While favorable high-yield capital markets are currently allowing Williams to raise capital and to supplement its liquidity, Williams may need to seek further asset sales or other sources of cash, if it fails to meet its financial plan and the capital markets turn less receptive.

The upgrades reflect the improvement in liquidity position from the financing plan and other imminent transactions which will: eliminate a large and imminent liquidity hurdle posed by the large RMT loan maturity and diminish the risk of insolvency for Williams; release hard assets that secure its existing liquidity facilities, so that Williams' debt will be largely unsecured (except for the $500 million reserves-backed debt at RMT, $27 million of Transco Energy's 9 7/8% notes, and non-recourse project financings, altogether totaling 4% of consolidated debt) and its assets largely unencumbered (Williams estimates that its encumberable assets total $5 to $6 billion under its indentures); afford Williams greater financial flexibility as a result of being released from highly restrictive covenants under its existing liquidity facilities (such as the required application of asset sale proceeds toward repaying structured financings - which were recently paid off - and required trapping of certain amounts of cash); and lower its very high interest expense to levels more in line with the current low market rates.

Fitch cuts Mirant

Fitch Ratings downgraded Mirant Corp., cutting its senior notes and convertible senior notes to B- from B+, convertible trust preferred securities to CCC+ from B-, Mirant Americas Generation, Inc.'s senior notes and senior bank credit facility to B- from B+ and Mirant Mid-Atlantic, LLC's passthrough certificates series A, B, and C to B from BB. The Rating Watch remains Negative.

Fitch said the actions reflect the likely subordination of most unsecured bonds under the company's exchange offer, should the offer be successfully completed.

Despite the explicit linkage between the exchange offer for Mirant's debt and a request for approval of a prepackage bankruptcy in the event the exchange offer is not successful, Fitch does not regard the exchange offer as tabled as a distressed debt exchange. The key criteria for a distressed exchange include a loss of principal or other material forgiveness required of the solicited creditors. In the current case, solicited creditors are being offered collateral not previously pledged to them, albeit with an extended maturity and nominal increase in coupon.

Fitch downgraded Mirant Americas Generation and Mirant Mid-Atlantic due to the strong business interdependency among them.

The incentives are high for the exchange offer to be accepted, Fitch noted. Mirant has acknowledged the profound impact which a Chapter 11 (or, should the prepackaged route fail, potentially a Chapter 7) filing would have on its operational cash flows.

Fitch believes it likely that the current exchange offer will be approved, and that there is a reasonable but not overwhelming likelihood that the bank refinancing upon which the exchange offer is contingent will also be approved.

But the rating agency added that successful completion of both would lead to increased subordination of remaining unsecured bondholders within the group, and could lead to the ratings of those obligations possibly being further downgraded.

S&P says Sirius unchanged

Standard & Poor's said Sirius Satellite Radio Inc.'s ratings are unchanged including its corporate credit at CCC with a stable outlook in response to its proposed offering of 75 million shares of common stock, which would raise about $176 million in gross proceeds .

The equity injection would improve liquidity, S&P said but added that the ratings continue to reflect concern about Sirius' slow progress in executing its business plan and the ultimate demand for pay radio.

S&P cuts MTS

Standard & Poor's downgraded MTS Inc. including cutting its $100 million 9.375% senior subordinated notes due 2005 to D from CCC-.

S&P said the action follows MTS' failure to make the interest payment on the subordinated notes on May 1.

S&P says Crown Castle unchanged

Standard & Poor's said Crown Castle International Corp.'s ratings are unchanged including its corporate credit at B- with a negative outlook on the announcement that the company will redeem its 10 5/8% senior discount notes due 2007 for about $252 million of cash.

Although the prospective redemption is projected to save the company more than $100 million in cash interest expense during the next four years, S&P said the action does not really address several issues that are of concern to the rating agency. The company faces weak free cash flow prospects after adjusting for increased cash interest expense, which is due to two note issues and one preferred stock issue becoming cash pay in the next 12 months. The company also faces a lack of access to cash at two subsidiaries that generate free cash flow. There is also little room for execution missteps or prolonged weakness in the wireless tower industry given the company's already limited liquidity cushion, S&P said.

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