Moody's puts Semco on review

Moody's Investors Service put Semco Energy Inc. on review for possible downgrade, including its convertibles at Baa2 and Baa3.

The review was prompted by Semco's lowering of its 2002 earnings guidance by about 25% this week, following a previous 25% reduction in 2002 earnings estimates just two months ago.

The lower earnings estimates are due to weaker than expected results both in its utility segment as well as in its construction services segment and are significantly below levels anticipated in Semco's current ratings.

S&P puts Starwood on watch

Standard & Poor's placed the ratings of Starwood Hotels & Resorts Worldwide Inc. on negative watch, including the convertibles at BBB-.

The watch stems from Starwood's lack of progress in improving credit measures in 2002 and S&P's expectation that measures will not improve by the end of 2003 without significant asset sales.

Starwood has announced that it is focused on selling at least $500 million of assets in 2003, particularly those hotels that make-up its CIGA portfolio.

S&P expects that Starwood will continue to make progress toward this end, and that proceeds will be applied toward reducing debt. Even so, in order to preserve current ratings, asset sales must occur in the near term and must significantly exceed the $500 million level.

Moody's rate Gap liquidity SGL-2

Moody's Investors Service assigned a speculative grade liquidity rating of SGL-2 to Gap, Inc. reflecting an expectation that existing cash balances will be sufficient over the next 12 to 18 months to fund capital expenditures, seasonal working capital needs and debt service.

The rating also reflects that the committed bank agreement is heavily used as backup for trade letters of credit and its assets are encumbered.

Moody's noted recent progress in the company's efforts to turnaround its 26-month run of negative comparable store sales. In particular, cash at the end of third quarter was actually higher than it was at the end of first quarter, despite the fact that the inventory for the key holiday season was being built.

S&P rates Extreme Networks

Standard & Poor's assigned a B corporate credit rating to Extreme Networks Inc. and rated the $200 million of 3.5% convertible subordinated notes due 2006 at CCC+.

The rating reflects a second-tier position in the networking switch industry and adequate financial flexibility, offset by very aggressive industry conditions, weak profitability and constrained free cash flows.

Cumulative free cash flows have been negative since inception but financial flexibility is expected to be adequate for near- to intermediate-term operational requirements. The company's $10 million revolving credit agreement expired on Nov. 30, but the company had been in compliance with the revolver and expects to renew the agreement.

The outlook is stable, reflecting marketplace challenges while growth could well be substantially delayed, S&P said.

Moody's cuts AES Gener

Moody's Investors Service lowered the rating on the senior unsecured notes of AES Gener SA to B2 from Ba2., reflecting concerns about its ability to generate sufficient cash flow from operations to meet ongoing obligations.

The company has been unsuccessful in divesting assets that might have bolstered liquidity and improved the balance sheet.

The outlook is negative, reflecting near term liquidity challenges and uncertainties surrounding the company's restructuring efforts.

S&P says Solectron unchanged

Standard & Poor's said Solectron Corp.'s ratings were unchanged at a corporate credit rating of BB with a negative outlook after the company said it repurchased $219 million in long-term debt and repaid about $85 million of short-term bank debt, while maintaining a cash position of almost $2 billion in the fiscal first quarter, ended Nov. 29, 2002.

Sales were within expectations, but profitability, although somewhat improved, remains severely depressed, and cash flow generation was weak.

S&P said credit measures are very weak for the rating with total debt to EBITDA for the 12 months ended Nov. 29, 2002 of more than 6x. This is only partially offset by expected long-term debt reduction (as much as 20% by mid 2003) with free cash flow from operations, anticipated profitability improvement, and a solid cash balance.

Fitch rates PerkinElmer notes BB-, loan BB+

Fitch Ratings assigned a BB- rating to PerkinElmer's $300 million 8.875% senior subordinated notes due 2013 and a BB+ rating to its new $100 million revolving credit facility expiring in December 2007 and a six-year term loan of up to $345 million. The existing bank debt and senior unsecured rating was confirmed at BB+ including its $115 million unsecured notes due 2005 and $404 million zero coupon convertible debentures due 2020. The rating were removed from Rating Watch Negative. The outlook is stable.

Since the placement on Negative Rating Watch on August 12, PerkinElmer has successfully executed steps to address immediate liquidity concerns by amending the credit facilities in September to avoid a possible violation in a financial covenant, re-negotiating the terms of the receivables securitization program to stop an accelerated termination, repaying operating leases due in February 2003, and refinancing the capital structure to pre-fund the zero convertible debt mitigating the probable exercise of an upcoming put option and to pay down the senior notes containing a restrictive covenant to be secured, Fitch said. These actions support Fitch's removal from Rating Watch Negative.

The company had cash and cash equivalents of approximately $97 million at the end of the third quarter, with additional liquidity from the proposed $100 million revolving credit facility, to be used for working capital needs, Fitch noted.

Leverage, determined by debt-to-EBITDA, is expected to increase over anticipated levels after completion of the refinancing transactions, but remains appropriate for the current credit rating, Fitch said. Fitch expects that improvement in credit metrics will occur in the intermediate term, as excess cash flows are applied to debt reduction.

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