Moody's puts Loews on review for possible downgrade

Moody's Investors Service placed the ratings of Loews Corp. under review for possible downgrade, following the agency's downgrade of the ratings of CNA Financial Corp. Loews is a financial company managing a portfolio of financial instruments and owning in whole or in part various businesses such as the Lorillard tobacco company, the offshore drilling company Diamond Offshore and CNA Financial. On review are Loews' A1 senior unsecured and A2 senior subordinated ratings.

Stock ownership in CNA Financial represents approximately a third of all Loews assets on a consolidating basis, Moody's noted, and the value of CNA Financial stock has deteriorated in recent months as the company faced losses related to underpriced business written in recent years, increasing asbestos liability claims and the Sept. 11 terrorist attacks. CNA Financial's operational problems have led to an equity infusion of $1 billion in 2001by Loews and the announcement of new charges in the fourth quarter of this year. In its review, Moody's said it will focus on the expected future value of all assets backing Loews' debt, on the likelihood of future requirements for Loews to boost CNA Financial's equity through equity injection, as well as on the financial policy of Loews' management.

Fitch ups USX long-term debt to BBB+ from BBB, assigns BBB- rating to Marathon

Fitch has upgraded the senior unsecured rating on USX Corp.'s long-term debt to BBB+ from BBB pending the division of its USX-Steel and USX-Marathon Group into separate businesses targeted for Dec. 31. USX's commercial paper rating of F2 was affirmed, and all ratings assigned a stable tating outlook. With the separation, Fitch also assigned a senior unsecured debt rating to Marathon Oil Co. of BBB+ and a short-term rating of F2. Fitch currently rates USX's convertible preferred securities BBB-. As part of the separation, the monthly income preferred shares (MIPS) and convertible quarterly income preferred securities (QUIPS) are being called and the company's preferred stock is being redeemed. Fitch will withdraw the ratings on these securities at the time of the closing.

S&P cuts UnitedGlobalCom ratings

Standard & Poor's has lowered its ratings on UnitedGlobalcom Inc.'s 10.75% senior secured discount notes to C from CC and lowered its corporate credit rating on the company to CC from CCC. The ratings remain on watch with negative implications, S&P said, and the CC rating on the company's $355 million 10.875% senior secured discount notes was withdrawn.

The downgrade follows the sub-par tender offer for the 10.75% senior secured notes from a subsidiary of Liberty Media Corp. On completion of the exchange, the rating on the 10.75% notes will be lowered to D and the corporate credit rating will be lowered to SD (selective default), S&P said.

Fitch affirms International Rectifier convertible at B+

Fitch has affirmed International Rectifier Corp.'s BB senior secured revolving credit facility and B+ rating on its 4.25% convertible subordinated notes, reflecting the company's leading market position and proprietary technology, geographic and customer diversification and a modestly levered and highly liquid balance sheet.

Of concern are the cyclical and highly competitive industry environment, exposure to Asian economies and the effect of potential acquisitions on the company's operating and financial profiles, Fitch said. The bank loan rating considers both the likelihood of payment default and the ultimate recovery of the secured facility, Fitch said, and a collateral package consisting of a pledge of capital stock of all foreign subsidiaries or, alternatively, a pledge of all intercompany notes. The secured bank debt also benefits from a well-conceived covenant package that limits excess leverage, protects against ongoing operating losses, and requires a minimum liquidity profile, Fitch said.

Moody's cuts Covanta to junk, still on review

Moody's Investors Service downgraded Covanta Energy Corp. to junk, affecting $250 million of debt. Among the actions, Covanta's senior unsecured debt was cut to Ba1 from Baa2 and its subordinated debt to Ba2 from Baa3. Moody's added that the ratings remain on review for downgrade pending the company's actions to improve its liquidity either through the sale of assets or by accessing the capital markets.

Moody's said it took the action because of Covanta's inability to sell its remaining entertainment and aviation services assets, continued delays in the collection of outstanding California utility receivables, and its inability to meet cash flow covenants under its bank revolving credit agreement. These covenants have been waived though January 2002.

The rating also incorporate the divestiture of most of Covanta's entertainment and aviation services businesses and reflects its regional concentration risk in California, as its independent power projects in the state represent 26% of its pre-tax cash flow, Moody's said. The rating agency is also concerned about Covanta's significant exposure to the Philippines, about 10% of 2001 pre-tax cash flow.

Future development efforts will be focused in the U.S., where, Moody's said, "sizable players with deeper pockets than Covanta compete in an increasingly merchant environment. Raising long-term capital to finance its moderate growth plan in the U.S. IPP sector will continue to be challenging."

S&P puts Covanta on watch, negative

Standard & Poor's has placed its BBB long-term corporate credit and unsecured debt ratings, as well as its BBB- subordinate debt rating on Covanta Energy Corp. on watch with negative implications following Covanta's announcement that it is reviewing options to strengthen short-term liquidity and to increase shareholder value.

Covanta Energy has not yet implemented a recapitalization plan, which S&P had expected to occur in mid-2001. The recapitalization plan provided for the issuance of $250 million to $300 million of common stock, which was to be used to pay down corporate debt and provide the company with additional cash for general corporate purposes. The postponement of the common stock issuance and the delay in selling some noncore assets have caused the company to violate cash covenants in its master credit facility. As such, Covanta has had to seek waivers from its banks. While the company's banks have waived the covenant violations through January, Covanta needs to formulate and execute a credible recapitalization plan in the near term to handle this liquidity problem and to repay a convertible debenture coming due in early 2002.

If the company does not soon implement an adequate plan, a downgrade to non-investment-grade levels may ensue, S&P said. S&P said it still views the company's underlying energy business as a strong cash flow generator, but current liquidity levels and leverage cannot sustain the BBB rating. Should Covanta issue common stock, sell non-core assets and pay down debt, S&P said it might remove the watch listing and affirm the rating.

Fitch cuts Ultramar to BBB- from BBB, affirms Valero converts at BB+

Fitch has lowered the senior unsecured debt rating of Ultramar Diamond Shamrock Corp. to BBB- from BBB in anticipation of the company's acquisition by Valero Energy Corp., targeted to close on Dec. 31. Fitch also downgraded Ultramar's trust originated preferred securities to BB+ from BBB- and the company's commercial paper rating to F3 from F2. Fitch has also affirmed the ratings of Valero Energy senior unsecured debt at BBB- and convertible premium equity participating security units (PEPS) at BB+. The rating outlook for both companies is stable, Fitch said.

In spite of the sale of Golden Eagle, the combination of Valero and UDS will be the second largest refiner in North America, Fitch noted, with a total throughput capacity of 1,827,000 barrels per day of crude and other feedstocks. The acquisition expands Valero's solid, geographically diverse refining base and gives the company immediate benefits of vertical integration into the retail sector, with a network of 4,600 sites. With the acquisition, however, Valero will be taking on a considerable amount of debt, Fitch added. Total debt is estimated to jump to $4.7 billion at closing versus $1.3 billion at Sept. 30.

S&P cuts ACT Manufacturing to D on bankruptcy

Standard & Poor's has lowered its ratings on ACT Manufacturing Inc. to D and removed them from watch following the company's bankruptcy filing.

Moody's rates new Tech Data convert at Ba2, ups other ratings

Moody's Investors Service assigned a Ba2 rating to Tech Data Corp.'s recently issued $290 million of 2% convertible subordinated notes due 2021 and raised the ratings on the company's $300 million of 5% convertible subordinated notes due 2003 to Ba2 from Ba3. Moody's also boosted its rating on Tech Data'd prospective convertible debt issuance under its existing $500 million shelf registration to Ba2, as well as made other rating upgrades. The ratings outlook is positive.

The ratings recognize Tech Data's deft execution of its narrow-margined information technology distribution business during a period of retrenchment in IT spending that was further exacerbated by the Sept. 11 tragedy and its immediate aftermath, Moody's said. The upgrade of the ratings to Ba2 at the subordinated debt level reflects Moody's extension to the Ba2 senior implied grade of differentiating by one notch contractually subordinated debt instruments from the senior implied rating, based on an empirical analysis of percentage of principal recovery for defaulted debt. The delay in revising Tech Data's subordinated ratings was tied to the prospect for issuance of senior debt that would not command the guarantees currently pledged to the company's bank revolving credit facility. In the event that the company elects to issue senior unsecured notes under its shelf registration, and the aforementioned guarantees continue to remain in place, the need to distinguish between the guaranteed and non-guaranteed classes of senior debt, and further between the senior unsecured and subordinated issues, would cause Tech Data's subordinated ratings to revert to their previous two-notch positioning from the company's Ba1 senior implied rating, Moody's said.

S&P rates new Calpine convertible BB+

Standard & Poor's assigned a BB+ rating to Calpine Corp.'s new offering of 4% convertible notes due 2006.

S&P downgrades IT Group, still on watch

Standard & Poor's downgraded IT Group Inc. and kept its ratings on CreditWatch with negative implications. Ratings affected include the company's senior secured bank debt, cut to CCC- from B and its subordinated debt, cut to C from CCC+.

S&P said it lowered its ratings because of "heightened liquidity concerns" following the company's announcement that "it appears unlikely that satisfactory arrangements can be negotiated with its senior secured lenders for a longer term financial restructuring."

IT Group is exploring alternatives, including the sale of assets and a Chapter 11 filing.

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