S&P cuts Lucent

Standard & Poor's downgraded Lucent Technologies Inc. and maintained a negative outlook on the company. Ratings lowered include Lucent's $750 million 7.25% notes due 2006, $300 million 6.5% senior debentures due 2028, $500 million 5.5% senior notes due 2008, $1.36 billion 6.45% debentures due 2029, $25 million 8% senior unsecured notes due 2015, $2 billion 364-day secured revolving credit facility due 2002 and $2 billion 5-year secured revolving credit facility due 2006, all cut to B from B+, and its $1 billion 8% redeemable convertible preferred stock and $1.75 billion 7.75% convertible trust preferred securities, cut to CCC from CCC+.

S&P said the action follows Lucent's announcement that sales in the September 2002 quarter would be approximately 20%-25% below the $2.95 billion reported for the June period.

S&P added that the negative outlook reflects its belief that Lucent's plans to return to net profitability by the September 2003 quarter may not be achieved, in light of accelerating marketplace stresses.

Revenues for the last few quarters have been below the company's expectations, challenging Lucent's ability to achieve a cost structure that would permit a return to profitability, the rating agency added. Communications carriers continue to defer capital expenditures and reconfigure their networks to use their substantial existing equipment inventories, in light of slack demand and the challenged financial positions of some network operators.

Moody's puts Lucent on review

Moody's Investors Service put Lucent Technologies Inc. on review for possible downgrade affecting $5 billion of securities including its senior unsecured debt at B2, trust preferred stock at Caa1 and preferred stock at Caa2.

Moody's said the review was prompted by the continued deterioration in demand for Lucent's products, as evidenced by the company's announcement of a 20-25% sequential decline in expected revenues for the quarter ending September 30.

Moody's noted the guidance also anticipates a material decline in operating performance, with the pre-tax EPS loss per share, excluding special charges, nearly doubling from the prior quarter, from 24 cents to 45 cents.

While the company expects to be in compliance with the covenants in its undrawn $1.5 billion credit facility at the end of this quarter, the weakened performance puts pressure on the company's ability to continue to comply with the bank agreement terms, Moody's said. The facility matures in February 2003 and will need to be renegotiated.

Fitch cuts Lucent

Fitch Ratings downgraded Lucent Technologies Inc.'s senior unsecured debt to B- from B+, senior secured credit facility to B from BB-, and convertible preferred stock and trust preferreds to CCC- from CCC+. The rating outlook remains negative.

Fitch said the downgrade was in response to Lucent's announcement that it expects revenues for the fourth fiscal quarter ending Sept. 30, 2002 to decline sequentially by 20%-25% from $2.95 billion. Lucent also plans to take additional restructuring actions to reduce quarterly break-even revenue to between $2.5 billion and $3 billion from a previously announced $3.5 billion in order to return to profitability by the end of fiscal 2003.

Fitch said it expects that another charge will occur for the restructuring with a certain portion being cash.

Lucent already has significant cash obligations from previously announced restructurings, potential funding for its pension plan in fiscal 2003, along with cash needed to fund operations, resulting in a significant cash burn rate for the next 12-18 months, Fitch said.

In addition, financial flexibility remains strained despite a recent amendment to its $1.5 billion bank credit facility which provides minimal additional room for operational shortfalls as quarterly minimum consolidated operating EBITDA levels have been reduced significantly, Fitch noted. Lucent expects to be in compliance with covenants for the fourth fiscal quarter but this facility, which expires in February 2003, will have to be renegotiated.

Fitch said the negative outlook reflects the uncertain capital expenditure patterns of Lucent's customer base and the risk that further reductions from both wireless and wireline operators will continue to pressure Lucent's revenues and cash flow.

S&P cuts Reliant Resources to junk

Standard & Poor's downgraded Reliant Resources Inc. to junk and kept it on CreditWatch with negative implications, affecting $8 billion of debt. Ratings lowered include Reliant Resources' and Reliant Energy Capital (Europe) Inc.'s corporate credit rating, cut to BB+ from BBB, Reliant Energy Mid-Atlantic Power Holdings LLC's $210 million 8.554% passthrough certificates series A due 2005, $421 million 9.237% passthrough certificates series B due 2017 and $220 million 9.681% passthrough certificates series C due 2026, all cut to BB+ from BBB-, and Orion Power Holdings' $375 million 12% senior notes due 2010 and $200 million 4.5% convertible senior notes due 2008, cut to BB+ from BBB-. Reliant Energy Power Generation Benelux BV's ratings were confirmed and remain on CreditWatch but S&P said it would be downgraded if a ring-fencing arrangement is not put in place.

S&P said the CreditWatch will remain pending the refinancing of holding company debt and credit facilities ($5.9 billion, including a $1.4 billion synthetic lease) and debt at Reliant's Orion Power subsidiary ($1.3 billion net of cash).

S&P said the downgrade reflects expectations of a material weakening in financial debt protection ratios, primarily due to the expected, increased cost of financing associated with the renewal of the bank facilities.

Furthermore, expected restrictions on upstreaming cash from Orion Power Holdings to Reliant Resources will detract from Reliant Resources' ability to service debt at the holding company level, S&P said.

Reliant Resources' financial profile is also weakened by the decline in wholesale operations, which is expected to be partially mitigated (through 2005) by the better-than-expected earnings from the company's Texas retail operations, S&P said.

CenterPoint Energy Inc.'s (formerly Reliant Energy Inc.) board of directors voted to spin off the common stock of Reliant Resources to CenterPoint shareholders at its Sept. 5 meeting. Legal separation of the two entities is expected to occur at the end of September 2002, which should facilitate the current refinancing efforts at both companies, S&P said.

Moody's puts AmeriCredit on review

Moody's Investors Service put AmeriCredit Corp. on review for possible downgrade, affecting $375 million of debt include its senior debt at Ba1.

Moody's said it is concerned that AmeriCredit's effective leverage is high and is likely to remain high absent a reduction in the firm's growth rate and/or AmeriCredit raising common equity in the capital markets.

In addition, the rating agency said AmeriCredit is experiencing deterioration in its portfolio performance.

S&P puts Cenargo on watch

Standard & Poor's put Cenargo International plc on CreditWatch with negative implications.

Ratings affected include Cenargo's $175 million 9.75% first priority ship mortgage notes due 2008 at B+.

Moody's cuts Magnatrax

Moody's Investors Service downgraded Magnatrax Corp. (American Buildings Co.) including cutting its $268 million secured senior bank credit facility to B3 from Ba3 and $54 million of senior subordinated notes due 2007 to Ca from B2. The outlook is negative and the ratings remain on review for further downgrade.

Moody's said the downgrade is in response to the failure of Vicwest, a Magnatrax subsidiary, to make the $3.8 million interest payment due Sept. 10.

Despite having the cash to make the payment, the company was prohibited pending resolution of its covenant violations, Moody's noted. An earlier amendment to the company's bank agreement, which contemplated an equity contribution by August 31 from Magnatrax's controlling shareholder, Onex Corp., expired. The areas of contention appear to be the degree of covenant relaxation to be granted to Magnatrax by the banks and for how many quarters, Moody's said.

The company has a 30 day grace period on the subordinated debt, during which time it needs to reach agreement with the banks and cure the covenant violations, Moody's said.

But Moody's commented that even if Magnatrax succeeds in doing so the ratings remain on review for further downgrade because conditions within the metal construction industry remain very challenging at the current time with no near term relief anticipated.

S&P raises Acterna notes, cuts loan

Standard & Poor's upgraded Acterna Corp.'s corporate credit rating and notes and downgraded its bank debt. Ratings affected include Acterna's corporate credit rating, raised to CCC+ from SD, $275 million 9.75% senior subordinated notes due 2008, raised to CCC- from D, and $165 million senior bank facilities, $175 million revolving credit facility due 2007, $175 million 2.75% term loan A due 2007 and $510 million 3.25% term loan B due 2008, cut to CCC+ from B-. The outlook is negative.

S&P said the action is a result of its reassessment of the credit quality of the company after the completion of its tender offer for $109 million of its subordinated notes at below par.

Ratings reflect that Acterna's operating performance is dependent on deteriorating telecommunications end markets, operating losses, and challenges associated with rationalizing its operations in difficult industry conditions, S&P said. These concerns are only partially offset by its broad product and service capability in the communications test industry.

Quarterly sales have fallen by nearly one-half from their peak in late 2000 and S&P said it believes further sales deterioration is likely as the global telecommunications industry continues to reduce capital spending. Moreover, pricing pressures are likely to present a further obstacle to management's efforts to improve operating performance.

Due to operating losses of more than $40 million over the past three quarters, cash flow measures are very weak and unlikely to improve considerably in the near term. Still, management reduced debt by more than 20%, or nearly $240 million, and annual interest payments by more than $17 million by tendering for a portion of its outstanding debt and paying down its term loan, S&P said.

Liquidity is modest with cash balances of $49 million and availability under its $153 million revolving credit facility of $80 million, S&P said. However, financial covenants, particularly the minimum EBITDA covenant, associated with its $153 million revolving credit facility, become more challenging in the December 2002 and March 2003 quarters. Therefore borrowing capacity could be constrained if the company is unable to adhere to the covenant requirements

S&P rates new Terex loan Ba3

Moody's Investors Service assigned a Ba3 rating to Terex Corp.'s proposed $210 million senior secured term loan C due 2009 and confirmed its existing ratings. The outlook remains negative. Ratings confirmed include Terex's $300 million senior secured revolving credit facilities due 2007 and $375 million senior secured term loan B due 2009 at Ba3 and $300 million 10.375% senior subordinated notes due 2011, $200 million 9.25% senior subordinated notes due 2011, $100 million 8.875% senior subordinated notes due 2008 and $150 million 8.875% senior subordinated notes due 2008 at B2.

Moody's said the ratings reflect Terex's significant debt leverage, the highly cyclical nature of its construction and mining equipment business, its sensitivity to corporate capital spending cycles, acquisitive growth strategy, and considerable integration challenges associated with its recent spate of acquisitions.

Positives include Terex's strong market position in a number of its key end-markets, increasing scale and diversification of product offerings and geographic presence, its track record in turning around acquired under-performing businesses, and its lower-than-average cost structure, Moody's said.

The negative outlook reflects Moody's expectation of a continued challenging environment in many of Terex's end-markets, and possible further deterioration in its financial performance and credit profile over the near-to-medium term.

Proceeds from the new term loan C together with $65 million in Terex common stock will be used to fund the recently announced acquisition of Genie Holdings, Inc. for $270 million.

Moody's said the Genie acquisition appears to make strategic sense for Terex, as the company is one of the two leading global manufacturers of aerial work platforms - an equipment category that enjoys good long-term growth prospects despite recent weakness.

However, the Genie acquisition will increase Terex's already heavy debt load to approximately $1.47 billion post-transaction, Moody's said. It also follows a spate of sizable acquisitions that Terex has made over the past 18 months, which raises concerns over the company's ability and management resources to manage the substantial integration challenges.

Moody's cuts NRG South Central, NRG Northeast

Moody's Investors Service downgraded NRG South Central Generating LLC and NRG Northeast Generating LLC, cutting their total $1.35 billion of senior secured debt to Caa1 from B3. The outlook is negative.

Moody's said the downgrade and negative outlook reflect continued failure to fund the debt service reserve for either issuer, combined with severe financial stress at parent NRG Energy, Inc. and insufficient cash flow generation by NRG South Central and NRG Northeast.

Continued failure to fund the debt service reserve will cause a default under the terms of the indentures of NRG South Central and NRG Northeast, and is likely to also result in a payment default, Moody's said.

Moody's add that it believes that there is a high probability that both projects will fail to satisfy debt service reserve requirements under their respective indentures, and will default on upcoming payment of principal and interest.

S&P puts Vanguard Health on watch

Standard & Poor's put Vanguard Health Systems Inc. on CreditWatch with negative implications. Ratings affected include Vanguard's $150 million senior secured bank loan due 2006 at B+ and $300 million 9.75% subordinated notes due 2011 at B-.

S&P said the action reflects the possible adverse credit impact on Vanguard's cash flow and credit protection measures should it complete the proposed acquisition of the Baptist Health System in San Antonio, Texas.

Although Vanguard's rating had incorporated the company's desire to expand, possible debt financing required to complete this large transaction may well reduce credit protection measures to levels inconsistent with the current rating, S&P said.

S&P added that Vanguard's ratings reflect a portfolio of hospitals that is not well diversified and its risky strategy of buying turnaround properties in an effort to diversify its operations.

Recent acquisition activity, including this possible acquisition of Baptist Health System, indicates that the pace of acquisitions is accelerating, S&P said.

Vanguard attempts to bolster profitability of its newer operations by increasing the number of services offered, recruiting additional physicians, eliminating weak services, improving operating efficiency, and rationalizing capital costs. The success of these efforts is not yet proven as the company's margins and return on capital remain quite low compared to other similarly rated hospital companies, S&P said.

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