Moody's cuts WorldCom, on review

Moody's Investors Service downgraded WorldCom Inc. and its subsidiaries and kept the ratings on review for possible further downgrade, affecting $30 billion of debt. Ratings lowered include WorldCom's senior unsecured debt to B1 from Ba2 and preferred stock to Caa1 from B1, Intermedia Communications Inc.'s senior unsecured debt to B2 from B1, subordinated debt to Caa1 from B2 and redeemable preferred stock to Caa2 from B3, MCI Communications Corp.'s senior unsecured debt to B1 from Ba2 and subordinated debt to B3 from Ba3, MCI Capital I's backed preferred stock to B3 from Ba3 and MCI WorldCom Synergies Management Co. Inc.'s preferred stock to Caa2 to from B2.

Moody's said its action follows WorldCom's announcement that it will be deferring the quarterly interest payment on the 8% cumulative QUIPS issued by MCI Capital I.

While the company has adequate cash to make the payment, the deferral reflects a more aggressive management of the company's cash resources and a heightened need to address even modest cash outflows, Moody's said.

Subsequent to Moody's last rating action, the company has announced its intentions to further reduce its capital spending in 2002 and to lower its cost structure, the rating agency said.

These actions have been necessary to maintain the expectation of $1 billion in free cash flow in 2002, in the face of ongoing operating pressures.

The continuing review for downgrade will focus on the company's ability to successfully conclude present negotiations for a new $5 billion secured bank credit facility, Moody's said.

Moody's said it would view "very favorably" the successful restructuring of the bank facility, which will be the first step in addressing the company's limited financial flexibility.

In addition Moody's said it will continue to closely monitor developments in the SEC investigation of WorldCom's accounting practices.

S&P cuts MCI QUIPS

Standard & Poor's downgraded MCI Capital I's 8% cumulative quarterly income preferred securities (QUIPS) to C from CCC+ after WorldCom Inc. said it will defer interest payments on the issue.

The rating remains on CreditWatch with negative implications and will be lowered to D on June 30 when the payment is missed, S&P said.

No other WorldCom ratings were affected, S&P added.

Fitch cuts WorldCom, on watch

Fitch Ratings downgraded the senior unsecured debt ratings for WorldCom, Inc. to B from BB, its preferred securities to CCC+ from B+ and its quarterly income preferred securities (QUIPS) to C from B+. Intermedia Communications senior unsecured debt was lowered to B- from BB- and its preferred securities to CCC from B. All ratings were placed on Rating Watch Negative.

Fitch said its action WorldCom's announcement it will defer interest payments on the cumulative quarterly income preferred securities (QUIPS) issued by MCI Capital I.

Fitch said it recognizes the company's effort to conserve cash through the deferment of payments on the QUIPS, the elimination of the MCI dividend, reduction of capital expenditures and the exit of the wireless reseller business.

But Fitch said it believes that these are signs that point to the extent the current difficult industry dynamics coupled with the potential for continued customer network re-grooming and churn are pressuring the company's ability to generate free cash flow to the level of the company's guidance.

Generation of free cash flow will be critical for the company to service upcoming debt maturities, Fitch continued, noting WorldCom will have approximately $3.2 billion of maturities, including approximately $1.5 billion of remarketable or putable securities maturing in 2003, and an additional $2.6 billion in 2004.

Fitch said it anticipates that in the current circumstances the company will have limited access to capital markets constraining its financial flexibility.

Absent significant improvements in free cash flow, Fitch said there is potential for a restructuring, given the significant maturities in 2003, 2004 and beyond.

While the company indicates that it is making good progress with negotiating its bank facility, the process has taken longer than expected, elevating the potential risk that the company may not be able to obtain a facility with the size and terms that were previously indicated, Fitch said.

The negative watch reflects the uncertain outcome of the company's negotiations with its bank group, Fitch added.

S&P says Avista settlement approval positive

Standard & Poor's said approval of Avista Corp.'s settlement with various parties by the Washington State Utilities & Transportation Commission is a positive event for credit quality. S&P rates Avista's corporate credit at BB+ with a negative outlook.

S&P said it will evaluate the full effect of the developments shortly.

The agreement provides for rate increases totaling 31.2% and allocates a portion to cover ongoing costs, including new generation plants, and a portion to recover deferred power costs totaling $196 million incurred during 2000 and 2001, S&P said.

Furthermore, the agreement provides for an Energy Recovery Mechanism, effective July 1, 2002, which operates like a power-cost adjustment mechanism, S&P added. This mechanism should partly mitigate the effect of volatile power prices on Avista's earnings and cash flow.

S&P upgrades Community Health, rates loan BB-

Standard & Poor's assigned a BB- rating to CHS/Community Health Systems Inc.'s $1.25 billion senior secured bank facility and upgraded the corporate credit rating of the parent company, Community Health Systems Inc., to BB- from B+ and the subordinated debt rating to B from B-.

The loan consists of a $450 million revolver due in 2008 and an $800 million term loan due in 2010. Security is a perfected first priority interest in the capital stock of CHS/Community Health Systems Inc. and its wholly owned subsidiaries. Proceeds from the loan will be used to refinance existing debt.

The upgrade reflects Community Health's capital structure, including the elimination of near-term debt maturities and the expectation that the company will manage its acquisition activity to keep cash flow and capital structure consistent with the higher rating, S&P said.

The speculative-grade ratings on Community Health reflect the company's solid market position in its diversified non-urban portfolio and its improved financial profile, offset by its moderately aggressive acquisition activity and ongoing uncertainty regarding future reimbursement, S&P added.

S&P cuts Versatel

Standard & Poor's downgraded Versatel Telecom International NV.

Ratings lowered include Versatel's €300 million 4% senior convertible notes due 2004, €120 million 11.875% senior notes due 2009, $180 million 11.875% senior notes due 2009, $150 million 13.25% senior notes due 2008, $225 million 13.25% senior notes due 2008, €360 million 4% senior convertible notes due 2005 and €300 million 11.25% notes due 2010, all cut to D from CC.

S&P says L-3 likely to be raised

Standard & Poor's said L-3 Communications Corp.'s ratings are likely to be raised on completion of the company's proposed offering of $900 million in stock and $750 million in senior subordinated debt.

The corporate credit rating would be raised to BB+ from BB and the subordinated debt to BB- from B+. The outlook would be stable.

L-3 is currently on CreditWatch with positive implications.

The proceeds from the sale are expected to refinance and pay down debt related to the company's recent $1.1 billion purchase of Raytheon Corp.'s Aircraft Integration Services division and restore the company's capital structure, S&P noted.

Ratings on L-3 Communications reflect a slightly below average business risk profile and somewhat elevated debt levels, but credit quality benefits from an increasingly diverse program base and efficient operations, S&P said.

Acquisitions are very important for revenue growth, and the balance sheet has periodically become highly leveraged because of debt-financed transactions, S&P added. However, management has a good record of restoring financial flexibility by issuing equity.

Debt to total capital was elevated to the mid-60% area at March 31, 2002, but will likely decline to under 50% by the end of 2002, S&P said.

After the proposed equity sale, L-3 Communications will have the flexibility to pursue debt-financed acquisitions almost as large as AIS and will have over $400 million in cash and approximately $600 million in available borrowings under its credit facility.

Fitch lowers Fairfax outlook, cuts TIG

Fitch Ratings revised its outlook on Fairfax Financial Holdings Ltd. to negative from stable and confirmed its debt at BB+. Fitch also downgraded TIG Insurance Group's insurer financial strength rating to BBB from BBB+ and assigned a BB rating to the senior debt of its parent TIG Holdings, Inc. Odyssey Re group remains with a stable outlook.

Fitch said the actions are in response to TIG's moderate capitalization combined with a decline in market profile of TIG during 2002 following the downgrade by various rating agencies in late 2001, management changes and business restructuring.

Fitch also said there is increased uncertainty as to the levels of holding company cash resources that will be maintained at Fairfax in light of its moderate financial flexibility, sizable internal and external debt maturities in 2003 and the inability of the Crum & Forster Insurance Group and TIG to pay parental dividends in 2002 and likely 2003.

Although Fairfax has a number of realistic alternatives to address maturing debt such as refinancing, tapping its committed bank facility, monetizing existing assets and/or taking sizable subsidiary dividends from non-U.S. subsidiaries, Fitch said it is concerned that upcoming debt maturities could potentially further strain holding company cash resources despite the expectation of improving operating results.

Importantly, due to regulatory restrictions tied to negative unassigned funds at the statutory level, Fitch said it would expect upstream dividend paying ability at U.S. subsidiaries CFI and TIG to lag expected earnings improvements by 2-3 years.

The proposed initial public offering of a minority stake in Crum & Forster Holdings, Inc., a core asset of Fairfax, is a potential near-term positive for Fairfax but potentially negative longer term as future expected parental dividends could be significantly reduced, Fitch said.

S&P affirms Fleming

Standard & Poor's affirmed Fleming Companies Inc.'s corporate credit rating at BB, senior unsecured debt at BB-, subordinated debt at B+ and senior secured bank loan at BB+. Core-Mark International Inc.'s subordinated debt was raised to B+ from B and its BB- corporate credit rating was withdrawn. S&P took these rating actions after Fleming completed its acquisition of Core-Mark.

"The ratings on Fleming are based on its position as one of the two largest food wholesalers in the U.S., positive operating and financial progress over the past two years, and the potential for an improved business position following its acquisition of Core-Mark," S&P said. "These factors are mitigated by continuing uncertainty over business prospects for Kmart Corp., one of Fleming's key customers."

The acquisitions of Core-Mark and Head-Distributing for $430 million were funded with $200 million of senior notes, 9.2 million shares of common stock and bank borrowings. Fleming recently refinanced its bank loan with a $425 million six-year term loan and a $550 million five-year revolver.

Moody's lowers Brazilian bank outlook

Moody's Investors Service lowered its outlook to negative stable on Brazilian banks' B2 foreign currency bank deposit ratings and took similar action on the banks' foreign currency bonds and notes.

The action follows the negative outlook that Moody's has placed on Brazil's B1 foreign currency country ceiling for bond and notes as well as on the B2 foreign currency country ceiling for bank deposits.

Among the banks affected are Banco Bradesco SA with B2 long-term foreign currency deposits and Ba2 long-term foreign currency debt ratings; Banco Itau SA Grand Cayman Branch with Ba2 long-term foreign currency debt; Unibanco (União de Bancos Brasileiros SA) with B2 long-term foreign currency deposits and Ba2 long-term foreign currency debt; Unibanco Leasing SA with Ba2 long- term foreign currency debt; Unibanco SA Grand Cayman Branch with Ba2 long-term foreign currency debt; Banco Safra SA with B2 long-term foreign currency deposits and Ba2 long-term foreign currency debt; Safra Leasing SA with Ba2 long-term foreign currency debt; Banco Safra Grand Cayman Branch with Ba2 long-term foreign currency debt; BankBoston Banco Multiplo SA with B2 long-term foreign currency deposits and Ba2 long-term foreign currency debt; Banco Citibank SA with B2 long-term foreign currency deposits and Ba2 long-term foreign currency debt; Lloyds Bank TSB (Brasil) with B2 long-term foreign currency deposits and Ba2 long-term foreign currency debt; Banco Barclays SA with B2 long-term foreign currency deposits and Ba2 long-term foreign currency debt; Banco Sudameris SA with B2 long-term foreign currency deposits and Ba2 long-term foreign currency debt; Banco do Nordeste SA with B2 long-term foreign currency deposits and Ba2 long-term foreign currency debt; Banco Votorantim SA with B2 long-term foreign currency deposits and Ba3 long-term foreign currency debt; Banco de Investimentos CSFB SA with B2 long-term foreign currency deposits and Ba2 long-term foreign currency debt; Banco Bilbao Vizcaya SA Brazil SA with B2 long-term foreign currency deposits and Ba2 long-term foreign currency debt; Banco do Brasil SA with B2 long-term foreign currency deposits and Ba2 long-term foreign currency debt; and BNDES (Banco de Desenvolvimento Econômico e Social SA) with B2 long-term foreign currency deposits and B1 long-term foreign currency debt.

Fitch cuts Solutia, remains on watch

Fitch Ratings downgraded Solutia Inc. including cutting its bank facility to BB from BB+ and its senior unsecured debt to B+ from BB. Fitch also assigned a B+ rating to Solutia's proposed $250 million senior secured notes. The ratings remain on Rating Watch Negative.

Fitch said it cut Solutia because of heightened refinancing risk associated with the $150 million maturity due October 2002 and the $800 million credit facility that is up for renewal in August 2002. Refinancing plans have been delayed a number of times and remain incomplete while the maturity dates for the bank facility and $150 million bond approach.

The risk related to the polychlorinated biphenyls contamination litigation in Anniston, Alabama may hinder Solutia's refinancing efforts, Fitch said.

The two-notch difference between the bank facility rating and rating for the senior notes reflects the bank facility's superior collateral position relative to that of the senior notes, Fitch added. The bank facility is expected to be collateralized by first liens on certain receivables, inventories, and domestic and foreign property. The bank facility collateral package is also expected to include a second lien on certain other domestic property.

The existing bondholders are expected to share first and second liens with the bank facility on certain domestic property. The new bondholders would have a second lien on certain domestic receivables and inventories.

The collateral pledged to the new notes differs and is slightly stronger than the collateral pledged to the existing notes; however, the difference is not sufficient to warrant a higher rating than the existing notes, Fitch said.

The Rating Watch Negative reflects continuing concerns surrounding the company's ability to refinance approximately one half of its $1.23 billion debt, Fitch added. If it appears that the refinancing will not be completed in a timely fashion, Fitch may downgrade Solutia's ratings further.

S&P cuts Taubman

Standard & Poor's downgraded Taubman Centers, Inc. including lowering its $200 million 8.3% cumulative redeemable preferred stock series A to B+ from BB. The outlook is stable.

S&P said it lowered Taubman because of the combined impact of the recently completed, but not yet stabilized, development projects, and a weaker retail leasing environment on the company's financial profile, including debt service coverage measures and general financial flexibility.

However the company still benefits from an experienced management team and seasoned existing portfolio of highly productive regional and super-regional malls, S&P said.

S&P rates Coastal trust preferreds B-

Standard & Poor's assigned a B- rating to Coastal Capital Trust I's $50 million 9% cumulative trust preferred securities.

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