Moody's cuts Solutia to Ba1 from Baa3

Moody's Investors Service lowered the long-term debt ratings of Solutia Inc. to Ba1 from Baa3 and lowered the company's commercial paper rating to Not Prime from Prime-3, and assigned a Ba1 senior implied rating and a Ba1 senior unsecured issuer rating. The actions, Moody's said, were due to concerns over the company's ability to return debt to appropriate levels and the potential for subordination of senior unsecured bondholders to the company's new secured credit facility.

The downgrade reflects the company's high debt level and limited ability to improve its credit profile in the current economic environment. Moody's believes that it will take Solutia a year or two to return debt protection measurements to levels that would fully support an investment grade rating.

Solutia's rating outlook is stable, due to Moody's belief that the company will remain cash flow positive in 2002. If the company can significantly increase free cash flow and reduce debt below $900 million, Moody's would reconsider the appropriateness of an investment grade rating. In the unlikely event that debt would rise above $1.5 billion in the near-term, Moody's may consider further negative rating actions.

Fitch cuts Corning senior unsecured to BBB-

Fitch Ratings lowered Corning Inc.'s senior unsecured debt to BBB- from BBB, convertible preferred stock to BB from BBB- and commercial paper to F3 from F2. The outlook remains negative.

The downgrade reflects the current significant declines in the company's revenue base, resulting in further erosion of EBITDA for the fourth quarter of 2001 and for at least the first half of 2002 in Fitch's estimation. Leverage is expected to increase and remain high for the company as a result of lower EBITDA levels and consistent debt levels. Fitch also said it expects free cash flow to be negative for at least the first half of 2002, despite the capital expenditure reductions to about $125 million per quarter, reducing the company's financial flexibility. The negative outlook reflects the reduction in telecommunications infrastructure spending and the uncertainty regarding the timing or magnitude of a recovery of these spending levels. While the prolonged reduction in the company's end-market demand continues, Fitch said it expects Corning's markets should stabilize and exhibit slow growth in the second half of 2002. If market data indicates that this will not occur, further ratings actions could take place, Fitch said.

Moody's cuts National Rail long-term debt to B1

Moody's Investors Service on Monday downgraded the long-term debt rating of National Rail Corp. Ltd. from A3 to B1, and put the rating on review, direction uncertain. The rating action is in response to the recent announcement by the current government owners of the sale of NRC and FreightCorp to National Rail Consortium Pty Ltd., a joint venture of Toll Holdings Ltd. and Lang Corp. Ltd. NRC is still currently government-owned and it is expected that the sale will be completed in three weeks time.

Moody's said that the B1 rating reflects NRC's corporate credit on a stand-alone basis, assuming no support from the government owners after they sell their stakes, and factors in the weak financial and business performance of NRC. NRC bondholders have the ability to exercise the put option should the combined government control of the company fall below 75%. Moody's added that the review continues since the exact new ownership structure is unclear, as well as the level of support NRC can expect from the new ownership, and the prospective financial and operating strategies of the company. Moody's said the review will be concluded once it has the opportunity to meet with the new owners.

Moody's confirms Tyco, Tyco Capital ratings

Moody's Investors Service on Monday confirmed Tyco International Ltd.'s Prime-2 short-term debt rating and Tyco Capital Corp.'s long and short term ratings (Senior at A2, Prime-1 for short-term debt) Tyco Capital's rating outlook remains stable, Moody's said, but Tyco International's long-term debt ratings remain on review with direction uncertain.

S&P cuts Tyco, puts on developing watch

Standard & Poor's on Monday lowered its ratings on Tyco International Ltd. and its industrial subsidiaries, including the senior unsecured debt to BBB form A, and placed them on watch with developing implications following the company's announcement that it intends to borrow under its $5.9 billion credit facilities ($3.9 billion maturing February 2003 and $2 billion February 2006) to repurchase its $4.5 billion commercial paper at its scheduled maturities. To date, these credit facilities had been used exclusively to back-up commercial paper. Developing implications means that ratings could be raised, lowered or affirmed.

S&P believes Tyco's decision to draw down these facilities indicates its uncertainty regarding continued access to commercial paper markets as well as the possible erosion of bank support to renew the $3.9 billion credit facility on the heels of a significant decline in the company's stock price and an increase in spreads on its bonds during the past several weeks. One reason for the volatility in Tyco's stock and bond prices is market uncertainty regarding the company's accounting practices, S&P said, but added that questions regarding Tyco's accounting practices have been answered to its satisfaction.

Importantly, Tyco appears to no longer have the free access to capital markets enjoyed by A rated companies, S&P said. Proceeds from the bank credit facilities, with existing cash balances and expected free cash generation, should be sufficient to meet the company's liquidity needs for the next several months, even without receipt of proceeds from planned asset sales and the IPOs and spin-offs of three divisions. However, S&P said external financing would likely be required to meet debt maturities in 2003.

The new ratings reflect S&P's assumption that the company will eventually regain access to capital markets, the rating agency said. The ratings could be lowered if liquidity is further constrained for any reason, S&P said, or could be raised if the company is successful in selling assets or using IPO proceeds to reduce debt and regains access to traditional funding sources.

FItch cuts Tyco senior unsecured to A- from A

Fitch Ratings on Monday downgraded its ratings on the senior unsecured debt of Tyco International Ltd. as well as on the unconditionally guaranteed debt of its wholly owned direct subsidiary, Tyco International Group S. A. to'A- from A. The company's commercial paper rating has also been downgraded to F2 from F1. All ratings are placed on watch, negative, from evolving.

The downgrade reflects the impact of recent events on the company's ability to access the capital markets, evidenced by the company's decision to draw on its bank facilities, Fitch said, and incorporates heightened execution risk associated with the company's restructuring plan. The crisis in confidence has negatively affected the company's ability to access the commercial paper market, Fitch said, although cash balances and cash flow from operations should provide sufficient liquidity to allow the company to implement its restructuring plan, which includes substantial debt reduction. As of Dec. 31, 2001, the company had cash of approximately $1.8 billion, which in addition to the bank drawdowns, should bring current cash balances to more than $3 billion. The company intends to raise a minimum of $11 billion in new equity as part of its restructuring program, and projects free cash flow of approximately $4 billion for 2002.

The bank facilities will mature in February 2003 ($3.9 billion) and February 2006 ($2.0 billion). Tyco also faces puts on its convertible securities of $2.3 billion in February 2003 and $3.6 billion in November 2003. In the absence of renewed access to the capital markets, Tyco will be required to successfully implement its restructuring program in order to meet refinancing obligations. Rapid acceleration of the company's debt reduction goals could occur if one or more of the entities to be spun-off are instead sold.

Execution risk associated with the breakup has increased, as potential new debt and equity providers are assumed to be more wary in committing new capital to the resulting entities, Fitch said. Heightened scrutiny of operations targeted for divestiture may extend the timeline or result in lower-than-expected proceeds. Completion of these two steps will further improve liquidity, result in meaningful debt reduction and increase the company's flexibility in order to complete the remainder of the program.

Moody's cuts Avaya, keeps on review for possible downgrade to junk

Moody's Investors Service lowered Avaya Inc.'s senior debt to Baa3 from Baa2 and its commercial paper to Prime-3 from Prime-2. All ratings remain on review for possible further downgrade. The rating actions reflect the impact of losses reported in the first fiscal quarter and the expectation that operating results will remain under significant pressure for at least the next several quarters. In the continuing review, Moody's will continue to assess the operating outlook for the company's end markets, its ability to reset the cost base to match a lower target revenue level and impact on the company's capital structure. As part of its cost reduction effort, Avaya will need to amend the $1.25 billion in credit facilities to permit the incremental restructuring needed to further reduce costs. Moody's expects to conclude the review in the near future, with a significant chance of a speculative grade outcome.

Fitch rates new AMD convertible B-, cuts outlook

Fitch Ratings assigned a B- rating to Advanced Micro Devices, Inc.'s $500 million 4¾% convertible senior debentures due 2022 and confirmed its existing B senior secured, B- senior unsecured, and CCC convertible subordinated ratings. The outlook was dropped to stable from positive.

Fitch said AMD benefits from a significant position in the PC microprocessor and flash memory markets, solid execution in recent years and a relatively strong balance sheet.

But Fitch said it also faces a difficult competitive environment, especially regarding Intel's pricing strategy which continues to pressure AMD's margins.

S&P rates new Gabelli convertible BBB

Standard & Poor's assigned a BBB rating to Gabelli Asset Management Inc.'s new $90 million 6.95% Feline Prides due 2007.

S&P upgrades CKE

Standard & Poor's upgraded CKE Restaurants Inc. The outlook is stable. Ratings affected include CKE's $150 million 4.25% convertible subordinated notes due 2004 and its $200 million 9.125% senior subordinated notes due 2009, raised to CCC+ from CCC and its $500 million revolving credit facility 2004, raised to B from B-.

S&P said it raised CKE's ratings to reflect the company's restored financial flexibility after closing on its amended $100 million senior secured revolving credit facility. The facility replaces the $120 million revolving facility which matured on Feb. 1, 2002.

S&P added that CKE's ratings reflect the company's participation in the highly competitive quick-service sector of the restaurant industry, its highly leveraged capital structure and weak credit protection measures. They also take into account the poor operating performance at its Hardee's restaurants, despite major efforts to revitalize the brand. These risks are mitigated, somewhat, by the strength of the company's established Carl's Jr. concept.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.