Moody's puts Corning on review for downgrade

Moody's Investors Service placed the long-term and short-term debt ratings of Corning Inc. under review for possible downgrade, including the Baa1 rated 0% convertible note due 2015 and 3.75% convertible note due 2008 and the Baa2 rated Oak Industries Inc. 4.875% convertible subordinated debt that is guaranteed by Corning.

The possible downgrade reflects growing concern that the recovery in telecom operations will be delayed until well into 2003, as end users scale back capital expenditures dramatically.

While recognizing Corning's leadership position in the markets it serves and a current strong liquidity position, the rating agency noted that the rapid fall off of business in the telecom sector will curtail internal cash generation more severely than originally anticipated, while its debt protection measures have weakened considerably and will remain weak over the near- to intermediate-term.

Moody's said its review will focus on Corning's ability to execute its business plan of restoring profitability in the current environment.

In addition, the review will assess whether Corning's restructuring initiatives, which involved charges of almost $1 billion, will result in improved profitability and cash flow in the near-term and, if not, what further action steps will the company need to implement in order to rightsize its cost structure during a period of declining revenues.

Lastly, the company's ongoing exposure to contingent liabilities associated with the bankruptcy of Pittsburgh Corning will be explored.

S&P rates new Fleming note at BB

Standard & Poor's rated Fleming Cos. Inc.'s proposed $260 million senior subordinated notes due in 2012 at BB and affirmed the 5.25% convertible senior subordinated notes due 2009 at B+, along with other ratings.

Fleming is one of the two largest food wholesalers in the U.S., S&P noted, and has demonstrated positive operating trends and solid financial progress over the past two years. This improvement provides some cushion to enable Fleming to get through a period of adjustment related to the bankruptcy filing of Kmart Corp., its largest customer.

Lower than expected volume resulting from the Kmart bankruptcy filing is being partially offset by gains in distribution from new and existing customers. The company's growth plans include acquisitions of both retail stores and distribution businesses.

EBITDA covered interest expense 2.8 times in 2001, up from 2.6 times in 2000. Moderate growth in cash flow in 2002 and 2003 should allow coverage to improve. The company's $600 million revolving credit facility provides good flexibility for ongoing operations.

The outlook is negative, with continued modest improvement in cash flow protection is incorporated into the rating on Fleming. Further negative developments from the Kmart alliance, including additional store closings or an inability to compete successfully in the discount industry, could negatively affect Fleming's business and financial position.

Moody's rates new Fleming notes at B2

Moody's rated Fleming Cos. Inc.'s new $260 million 10-year senior subordinated notes at B2, and confirmed the 5.25% convertible senior subordinated notes due 2009 at B2 along with other ratings. The outlook is stable.

The ratings reflect the company's leveraged financial condition and that directly, or indirectly through customers such as Kmart, the company competes with respected retailers such as Wal-Mart (senior unsecured Aa2) and Target (senior unsecured rating of A2).

The uncertainty related to resolution of the Kmart bankruptcy, Fleming's single most important customer, restrains the ratings. The intense competition within the fragmented distribution industry and the necessity to replace clients lost in the consolidating supermarket industry also impacts Moody's views of the risks facing Fleming.

The stable outlook reflects Moody's view that Fleming's ratings will be constrained until the status of Kmart becomes clearer and that significant debt protection measure improvements resulting from higher revenue and greater efficiencies cannot reliably be expected over the intermediate term.

Factors that could lead Moody's to consider a negative rating action include materially adverse effects from the Kmart situation or inability to replace the normal attrition of wholesale customers.

For Moody's to consider a positive rating action, the company would need to diversify its wholesale revenue base, to successfully continue the retail strategy of expanding the number of price-impact supermarkets, and to make meaningful improvements in debt protection measures.

S&P cuts NTL debt to D

Standard & Poor's lowered its corporate credit and senior secured ratings to D on U.K.-based cable TV, consumer telephony and Internet access provider NTL Inc. and related entities, following the failure of NTL Communications Corp. to pay the interest due April 1 on its 9.5%, 11.5% and 11.875% senior notes.

The corresponding senior debt ratings on these notes were also lowered.

Although the terms of the notes include a 30-day grace period, S&P said it believes that NTL will not meet the coupon payment by May 1, which would equate to a default.

Recovery prospects for bondholders are deemed very weak, given the security provided to bank lenders and the low valuations attributed to cable assets. NTL's liquidity position and financial flexibility are also extremely weak and may be insufficient for the group to complete its planned recapitalization process by late 2002.

Fitch affirms Cendant senior at BBB+

Fitch Ratings affirmed the BBB+ rating for Cendant Corp. senior unsecured debt, the BBB rating for its subordinated debt, which includes the 0% convertible notes due 2021 and 3.875% convertible note due 2011, and the F2 rating for its commercial paper following Cendant's announced acquisition of Trendwest Resorts Inc.

Fitch also affirmed PHH Corp. senior debt rating of BBB+ and commercial paper of F2. The current outlook is stable.

Cendant's ratings consider the diversity and stability of its core businesses, the company's leading position in most of its business lines, the resolution of the shareholder class action settlement and the expectation that complimentary acquisitions will be successfully integrated.

The ratings also reflect the company's commitment to managing its businesses and acquisition strategy so that leverage, debt service and other important credit ratios remain within ranges that are satisfactory for existing credit ratings.

In addition, Fitch expects profitability to improve as acquisitions are integrated and Avis and other travel-related businesses recover from the recession and events of Sept. 11.

The acquisition of Trendwest will be accretive to earnings and will result in lower leverage.

Cendant anticipates about $15 million in annual cost savings from synergies realized as a result of the acquisition. The transaction adds inventory available for distribution, provides product sales diversity and strengthens Cendant's position within the timeshare industry.

Cendant's near-term obligations include the final payment for the CUC litigation settlement expected in July 2002.

Also faces May 4 the put option on it $1 billion of 0% convertibles. If exercised, Cendant can pay the put with stock and cash drawn under the company's $1.75 billion revolver. The company presently has sufficient committed bank facilities to cover both the settlement liability and the potential put.

S&P cuts Talk America

Standard & Poor's downgraded Talk America Holdings Inc.

Ratings affected include Talk America's $250 million 4.5% convertible subordinated notes due 2002 and $200 million 5% convertible subordinated notes due 2004, both cut to D from C.

S&P cuts Versatel

Standard & Poor's downgraded Versatel Telecom International NV and changed the CreditWatch to negative from developing. Ratings affected include Versatel's senior notes and senior convertible notes, cut to CC from B-.

S&P said the action follows a revision of Versatel's exchange offer to its bondholders.

Under the terms of the proposal, which covers all the company's outstanding high-yield and convertible debt, bondholders are being offered a mix of cash and shares in exchange for their notes, S&P said.

The offer has now been changed to increase the cash and equity available to bondholders, should they vote in favor of the proposed restructure, but also comes with the explicit possibility of the company seeking protection from the company's creditors through a court filing, S&P added.

S&P said it considers that the explicit prospect of bondholders' rights being severely impaired in a court-enforced settlement is tantamount to a default.

S&P downgrades ITC^DeltaCom

Standard & Poor's downgraded ITC^DeltaCom, Inc. and kept it on CreditWatch with negative implications.

Ratings affected include ITC^DeltaCom's $200 million 11% senior notes due 2007, $160 million 8.875% senior notes due 2008, $100 million 4.5% convertible subordinated notes due 2006 and its $125 million 9.75% senior notes due 2008, all cut to C from CC, and Interstate FiberNet Inc.'s $160 million revolving credit facility B, cut to CC from CCC-.

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