Moody's cuts Lucent debt, rates convertible at Caa1

Moody's lowered the long-term debt ratings of Lucent Technologies Inc. senior unsecured debt to B2 from Ba3 and preferred stock to Caa2 from B3, and assigned a Caa1 rating to its new convertible trust preferred.

The downgrade reflects continuing cutbacks in capital spending plans by Lucent's core customers and the expectation that the downturn in demand will be more protracted and deeper than previously anticipated. As a result, the company's return to profitable operations, even at the EBITDA level, will be delayed and cash outflows will continue for an extended period.

Moody's acknowledged that the recent trust preferred issue and pending asset sales will provide significant liquidity to fund its cash burn rate. However, breakeven cash flow from operations is not likely to be attained in the near future.

The rating outlook is negative.

Following the revision of carrier spending plans, Lucent has adjusted its revenue growth targets for the current quarter to flat to up 10% vs. up 10-15% previously. As a result, they will not be able to achieve positive EBITDA as defined in the bank agreement in the current quarter as was previously expected. The company has deferred its expectation for a return to profitability until 2003.

This will further delay the ability to complete the spin off of Agere.

Moody's noted the presence of substantial credit from the overfunded pension plan of about $300 million per quarter distorts the underlying operating performance.

The company's credit facilities remain secured by substantially all domestic assets. The bank commitment has been reduced from a total of $4 billion to its floor of $1.5 billion as a result of cash inflows. At present there on no drawings on the bank facilities, although it provides a degree of subordination to the unsecured public debt.

While the company is currently in compliance with the financial covenants, the weaker operating performance will likely put pressure on the prospective compliance.

Moody's said Lucent's convertible preferreds have substantial debt characteristics and as such, the adjusted net debt position as of Dec. 31 is in excess of $2.1 billion with total pro forma debt of about $6.9 billion. Debt is modestly adjusted upward beyond this level due to the use of receivable financing facilities and sale/leaseback transactions.

However, the presence of pro forma cash balances in excess of $4.7 billion provides Lucent with sufficient near term liquidity, even as it continues to consume cash.

Moody's confirms DaVita, Renal Treatment convertibles at B2

Moody's confirmed the ratings of DaVita Inc. and subsidiary Renal Treatment Centers Inc., including DaVita's $345 million of 7% convertible subordinated notes due 2009 at B2 and Renal Treatment $125 million 5.625% of convertible subordinated notes due 2006 at B2.

Also, DaVita's proposed $1.15 billion in senior secured credit facilities were assigned Ba3 ratings.

The outlook for the ratings is positive.

Positive factors supporting the ratings include the anticipated stability in cash flow generation, a favorable reimbursement environment, the company's leading position in an industry with good growth prospects and a strong management team.

The ratings also reflect the weakened leverage and coverage metrics that will result from the proposed recapitalization, continuing concentration issue related to revenues from EPO administration, an ongoing investigation by the U.S. Attorney's Office and rising costs for labor and supplies.

Notwithstanding a weakened credit profile, DaVita's operating trends continue to be favorable following the turnaround that began in late 1999 with new management. For 2001, EBITDA margins increased to 22.5% from 19.6% in 2000. Moody's anticipates cash flow from operations to total debt will average in the mid-teens range going forward.

New credit facilities will be rated one level below the existing facilities, due to the increase in commitment.

Moody's affirms Verizon convertibles at A1

Moody's affirmed the A1 long-term and Prime-1 short-term debt ratings of Verizon Communications Inc., including the A1-rated 0% convertible notes due 2021, and the ratings of its subsidiaries.

Verizon has improved its liquidity profile over the last twelve months by reducing short-term debt and extending average commercial paper maturities to more than 100 days. Moody's noted that at year-end 2001, Verizon had $12.8 billion of CP outstanding and about $8.5 billion of cash and short-term committed unused bank lines, exposing Verizon to some refunding risk.

Moody's stated that it anticipates further reductions in CP over the next 12 months as the company uses free cash flow, proceeds from long-term debt offerings and the net proceeds from the previously announced $2.8 billion of wireline asset sales to pay down both short and maturing long-term debt.

The ratings outlook remains negative, given the potential for Vodafone to put back to Verizon Communications up to $20 billion of its 45% interest in Verizon Wireless. This put option, which is exercisable in two $10 billion phases, the first beginning in July of 2003 and the second in July of 2005, can be satisfied with cash or common stock of Verizon. Should Vodafone exercise its $20 billion put, debt levels at either Verizon or Verizon Wireless could remain elevated for quite some time and financing the cash portion could put pressure on liquidity.

Fitch affirms Verizon at A+

Fitch Ratings affirmed the A+ implied senior unsecured rating of Verizon Communications and the A+ senior unsecured rating of Verizon Global Funding. The commercial paper rating of Verizon Network Funding, which issues short-term debt for the AA rated operating telephone companies, was affirmed at F1+.

The commercial paper rating of Verizon Global Funding was lowered to F1 from F1+ to align the rating to Fitch's policy limiting commercial paper ratings for A+ long-term issuers to F1.

The rating outlook for all ratings is stable.

Fitch said the ratings and outlook incorporate expectations that Verizon will maintain a credit profile consistent with an A+ rating at the parent level as it approaches potential events with respect to its investment agreement with Vodafone pertaining to Verizon Wireless and with the recapture of Genuity.

In addition to the Vodafone sitution, Fitch said the recapture of Genuity could occur under certain circumstances and at Verizon's option, and Verizon has recently commented that Genuity's operating losses would have to be reduced in order for Verizon to recapture Genuity, assuming the appropriate conditions were met.

At year-end 2001, Verizon had advanced $1.15 billion as part of an agreement to provide up to $2.0 billion in financing to Genuity, which represents about half of Genuity's outstanding debt.

S&P cuts Verizon outlook

Standard & Poor's lowered its outlook on Verizon Communications Inc. to negative from stable. The company's corporate credit rating is A+.

Moody's confirms Reliant, ups Orion merger

Moody's confirmed the Baa3 issuer rating and Prime-3 commercial paper rating of Reliant Resources Inc. and assigned Baa3 ratings to its $1.6 billion corporate revolver, $1.4 billion construction loan and the $2.9 billion bridge loan drawn to finance the acquisition of Orion Power Holdings in February.

The $1.5 billion of existing bank debt and bonds issued by Orion will be refinanced by Reliant or retired, Moody's noted. For this reason, Moody's upgraded to Ba1 from BA3 the senior unsecured of Orion Power Holdings securities.

Orion ratings remain on review for potential upgrade until the refinancing has been completed.

All Reliant outlooks are stable.

S&P downgrades Solectron

Standard & Poor's downgraded Solectron Corp. and maintained its negative outlook on the company.

Ratings lowered include Solectron's $150 million 7.375% senior notes due 2006, $100 million revolving credit agreement due 2002, $1.15 billion LYONs due 2019, $4.025 billion LYONs notes due 2020, $2.9 billion LYONs notes due 2020, $500 million senior secured credit facility and $500 million 9.625% senior notes due 2009, all lowered to BB from BB+, and its $1 billion adjustable conversion-rate equity security units (ACES), lowered to B+ from BB-.

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