Moody's cuts St. Paul

Moody's Investors Service lowered the ratings of The St. Paul Cos. Inc. (senior unsecured debt to A3 from A2) and following the downgrade said the outlook was revised to stable.

The downgrades were based on concerns about the pace of de-leveraging and the potential for future earnings drag from St. Paul's runoff and surety business lines.

Although Moody's expects financial leverage ratios will improve through organic capital growth, the downgrade anticipates it will remain at the high end of the peer group through 2004.

S&P rates new Toys 'R' Us notes

Standard & Poor's assigned a BBB- rating to Toys 'R' Us Inc.'s proposed $300 million senior unsecured notes maturing in 2013.

Lower profitability has been accompanied by a moderate increase in financial risk, though the May 2002 issuance of $264 million of equity and $402.5 million of convertible preferreds modestly delevered the balance sheet, S&P said.

Total debt to total capital declined to 48% in 2002 from 52% in 2001. Funds from operations to total debt rose to 15% in 2002 from 14% in 2001, but remains well below the 20% to 25% for most of the 1990s. EBITDA coverage of interest improved to 3.3x in 2002 from 2.9x in 2001 but is below the 4.0x to 4.5x level generated from 1990 to 1995.

Credit protection measures remain weak for the rating category, S&P added.

Liquidity is provided by a $300 million 364-day unsecured credit facility that matures in August 2003 and a $685 million unsecured credit facility that matures in September 2006.

S&P believes the company currently has an adequate cushion in relation to these financial tests based on current operating trends.

The outlook is stable, on a belief that operating performance and credit measures will gradually improve, that debt maturing in 2004 will be refinanced and that no share repurchase activity will occur until operating performance improves.

Moody's confirms First Data

Moody's Investors Service confirmed First Data Corp.'s A1 senior unsecured rating following the company's agreement to acquire Concord EFS in a $7 billion all-stock transaction. The outlook is stable.

The confirmation reflects at least modest improvement in debt to cash flow metrics on a pro-forma basis from the acquisition, the strategic fit of Concord's business, strong free cash flow and financial conservatism, Moody's said.

The outlook reflects an expectation that the trend for banks to outsource payment processing continues, that Western Union continues to grow at least in line with the money wiring industry and that First Data continues to invest in new technology to remain competitive.

Fitch affirms First Data

Fitch Ratings confirmed First Data Corp.'s short-term ratings following the announcement of its pending acquisition of Concord EFS.

Fitch expects First Data's size and market position will help it remain among the top payment processing firms, but added it will need to retain larger and higher volume customers in order to maintain current economies of scale.

S&P cuts HealthSouth to D

Standard & Poor's lowered the ratings of HealthSouth Corp. to D (senior debt from CCC- and subordinated debt from CC) as the company failed to make the principal and interest payments on about $345 million of subordinated convertible bonds due April 1.

HealthSouth's bank group determined late last week that it is in default under terms of its credit facility amid accusations of massive accounting fraud. Therefore, the company was given a notice of payment blockage, which precludes any payment of principal and interest on the convertibles.

Moody's cuts Sinclair liquidity rating

Moody's Investors Service lowered Sinclair Broadcast Group's speculative-grade liquidity rating to SGL-2 from SGL-1 but confirmed its debt ratings, including the convertible preferreds at B3.

The liquidity rating was lowered following expectations of minimal free cash flow in 2003 given the increase in capital expenditures and the likely negative impact of the war in Iraq.

However, Moody's noted the rating reflects a good liquidity position and is based on expectations of flexibility under bank covenants and sizable availability under the revolving credit.

Moody's confirms CMS ratings

Moody's Investors Service confirmed the ratings of CMS Energy Corp. and its principal subsidiary, Consumers Energy, including senior unsecured debt at B3 and convertible preferreds at Caa1.

The outlook is stable.

This action reflects the significant progress in asset sales, moderate reduction in debt, reduced liquidity pressure from recent financings, the suspension of the common stock dividend and clarification of auditing issues surrounding prior years' annual financial statements, Moody's said.

The outlook reflects Moody's expectation that CMS' financial plan will ease pressures associated with its debt burden over the intermediate term and that, when fully implemented, will result in an organization dominated by a regulated utility with significant gas and electric assets.

Moody's rates Allied Waste mandatory at B3

Moody's Investors Service confirmed the existing ratings for debt of Allied Waste Industries Inc., and assigned a B3 rating to its proposed $300 million of mandatory convertibles. The company's speculative grade liquidity rating was upgraded to SGL-2 from SGL-3 due to the $4 billion refinancing package that includes the converts.

The negative outlook was confirmed.

Moody's views the primary benefit of the refinancing plan as the extension of debt maturities as leverage remains high. However, some leverage decrease is expected as a result of the convertible and equity issuance, plus proceeds from potential asset divestitures.

The convertible should improve total debt to book capitalization ratio to 75% pro forma at Dec. 31 for the new capital structure, versus the 78.4% actual ratio in 2002.

Ratings continue to reflect strong management and a track record of profitable growth, Moody's said.

The ratings also incorporate high leverage, with total debt to pro forma Dec. 31 EBITDA of 4.8 times and deeply negative tangible equity.

Ratings also reflect modest interest protection measurements with pro forma 12 months ending Dec. 31 EBIT-to-interest and fixed charge coverage of 1.6x, as well as a moderate EBIT return on average total assets of about 9%.

The outlook expresses Moody's continued concern with leverage vis a vis its potential to reduce debt via free cash flow.

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