S&P cuts Nortel

Standard & Poor's downgraded Nortel Networks Ltd. two notches and maintained its negative outlook on the company. Ratings lowered include Nortel's $200 million 6% notes due 2003, $200 million 6.875% notes due 2023, $1.5 billion 6.125% notes due 2006 and $300 million 6.875% notes due 2002, all cut to B from BB-, Nortel Networks Capital Corp.'s $150 million 7.4% debentures due 2006 and $150 million 7.875% debentures due 2026, cut to B from BB-, and Nortel Networks Corp.'s $1.5 billion 4.14% convertible notes due 2008, cut to B from BB-.

S&P said the action is in response to Nortel's Aug. 27 announcement that revenues from continuing operations in the third quarter of 2002 will be lower than previously forecast.

The negative outlook reflects S&P's belief that plans for Nortel to return to net profitability by mid-2003 may not be achieved, in light of accelerating marketplace stresses.

Nortel's ratings continue to reflect very challenging market conditions, as the company's core customer base continues to defer purchases of new communications equipment, S&P said.

S&P said it believes the industry decline in telecommunications spending will continue through 2003. In this context, should Nortel's revenues and earnings continue to decline significantly from expected levels, ratings could be lowered.

S&P ups TJX convert to A-

Standard & Poor's raised TJX Cos. Inc.'s ratings, including the 0% convertible due 2021 to A- from BBB+. The outlook is stable.

The upgrade reflects consistently good operating performance and the expectation that TJX will maintain a conservative financial policy as it continues to grow, S&P said.

The company's operating margin was 14.5% in the first half of 2002 versus 14.4% in the first half of 2001.

Credit protection measures are good with EBITDA covering interest about 5.3x and funds from operations to total debt of 35%, S&P said.

S&P expects that free cash flow for 2002 will be above the $300 million in 2001.

Debt leverage of about 70% is expected to decline only modestly in the future because of the $2.2 billion present value of minimum operating lease commitments and the share repurchase program.

TJX had $676 million of funded debt at July 27.

Financial flexibility is good, via a commercial paper program supported by a $370 million revolver that expires on March 26, 2007, and a $320 million 364-day revolver that matures on March 25, 2003, with none outstanding at July 27.

Cash and cash equivalents of $293 million on the balance sheet as of July 27 and a light maturity schedule during the next few years provide additional financial flexibility, S&P said.

Moody's keeps Tyco on review

Moody's said information disclosed recently by Tyco International Ltd. does not change its ratings, which remain on review for possible downgrade.

The rating agency noted Tyco actions provide a basis for improved governance practices and to re-establish its credibility in the financial markets.

Nevertheless, the ratings remain on review pending the outcome of several factors, including Tyco's ability to implement a comprehensive refinancing plan for maturing debt that includes the two convertibles that are putable in 2003, Moody's said.

Moody's expects that Tyco's free cash flow generation for this quarter will be within the range of $800 million to $1 billion and liquidity, enhanced by $4.4 billion of proceeds from the CIT spin-off, remains strong in the near-term.

S&P revises Kohl's outlook

Standard & Poor's affirmed the ratings of Kohl's Corp., including the 0% convertible due 2020 at BBB+, and revised the outlook to positive from stable.

Also, S&P assigned an A- rating to Kohl's $133 million 364-day revolving credit facility that matures in July 2003 and the $532 million revolving credit facility that matures in July 2007.

The outlook revision reflects continued progress in growing its store base is driving strengthened measures of profitability and cash flow protection.

Ratings are based on strong measures of profitability and cash flow protection and geographic diversity, S&P said.

Although free cash flow is expected to be negative for several more years as Kohl's continues to expand aggressively, overall cash flow protection should remain within levels appropriate to the rating, S&P added.

EBITDA covers interest 6.4x , and funds flow from operations to total debt is 36%.

Leverage is expected to remain in the mid-40% area for the foreseeable future.

The company had $1.1 billion of funded debt at Aug. 3.

Financial flexibility is good, via a $532 million unsecured revolver that expires in July 2007 and a $133 million 364-day revolver that matures on July 2003 with none outstanding at Aug. 3, S&P said.

Cash and cash equivalents of $85 million on the balance sheet at Aug. 3 and a light maturity schedule during the next few years provide additional financial flexibility.

Ratings could be raised over the next few years if Kohl's continues to demonstrate good progress in terms of overall and same-store sales, while maintaining margins and returns on capital.

S&P cuts SpectraSite

Standard & Poor's lowered the corporate credit rating for SpectraSite Holdings Inc. to SD from CC, due to the missed interest payment on its $200 million of 10.75% senior note due 2010.

The rating on the senior notes was lowered to D from C, while the C rating on SpectraSite's 6.75% convertible due 2010 remains on negative watch.

SpectraSite said it is pursuing a restructuring of its debt. S&P said that on completion of such an exchange, the affected debt would be lowered to D.

The CC rating on SpectraSite Communications Inc.'s secured bank loan also remains on negative watch, reflecting continued risk of bankruptcy.

If SpectraSite is successful in its debt restructuring, S&P said it will review the rating on the bank loan as part of its reassessment of the company, which will have a significantly less leveraged capital structure.

As of June 30, the company had about $2.5 billion of debt outstanding.

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