S&P puts Charter on negative watch

Standard & Poor's changed the CreditWatch on Charter Communications Inc. to negative from developing, including its corporate credit rating at B+ and senior unsecured debt at B-.

S&P said the revision follows the company's release of preliminary third quarter revenue and operating cash flow results that have fallen short of earlier guidance.

The ratings were placed on CreditWatch with developing implications on Aug. 20, 2002, based on uncertainties associated with a federal grand jury subpoena, S&P noted. At that time, the rating agency said that if no material negative impact resulted from the investigation, the ratings could be raised.

The revision of the CreditWatch implications to negative based on the company's weak operating performance means that the ratings will not be raised in the near term.

Charter's revenue and operating cash flow for the third quarter grew by 12.6% and 8.7%, respectively, on a year-over-year basis. However, this represented a slight cash flow decline on a sequential basis, S&P said. The company also lost 85,000 basic subscribers, or about 1.25% of its total subscriber base during the quarter. As a result, credit measures have weakened since the end of the second quarter.

Charter is currently in compliance with its bank covenants. However, S&P said it believes the company's cushion for poor operating performance could diminish in 2003.

In the event of covenant compliance problems, Charter's access to external liquidity could be strained before it completes planned plant upgrades and begins generating positive discretionary cash flow.

Moody's puts IRT on review

Moody's Investors Service put IRT Property Co. on review for downgrade including its senior unsecured debt at Baa3 and subordinated debt at Ba1.

Moody's said the review follows the REIT's announcement that it plans to merge with Equity One, Inc., another REIT in the community shopping center business.

Moody's said its review will focus on the REIT's pro forma combined financial profile, and the mix of debt and equity that will ultimately be utilized to finance the transaction.

In particular, Moody's will evaluate the implications of a likely substantial decline in fixed charge coverage, compared to IRT's current levels, and the relative mix of secured debt in the capital structure.

Moody's noted that the combined portfolio will have a leading presence in the Southeastern U.S., and enjoys a long track record of operating grocery-anchored shopping centers.

Moody's also anticipates that the REIT will maintain its well-laddered debt maturity schedule.

S&P rates Cymer convertibles B-

Standard & Poor's assigned a B- rating to Cymer Inc.'s $250 million 3.5% convertible subordinated notes due 2009. The outlook is stable.

S&P said the ratings reflect Cymer's strong niche market position, its technology leadership, and good liquidity, offset by frequent product transitions in its narrow line of business and highly volatile market conditions.

While Cymer's lasers are a key enabling technology in photolithography tools used to print electronic circuits onto a semiconductor wafer's surface, the company's below-average business profile stems from its narrow product line and its position as a supplier to the highly volatile semiconductor equipment industry, S&P said.

Cymer's strategy of rendering its existing products obsolete through the development of higher value-added laser systems highlights a rapidly evolving technology environment, S&P noted. As a result, the company must manage frequent product transitions.

Still, Cymer has an estimated 90% share of the excimer laser market, although customer concentrations are high. Three companies dominate the photolithography tool business, ASM Lithography NV, Canon Inc., and Nikon Inc. Together, they represented more than 75% of Cymer's $84 million in sales in the September 2002 quarter.

The company is likely to experience negative free cash flow in 2002 for the first time in several years, from lower profitability and increased capital investment, S&P said. Debt-to-EBITDA levels were 5 times in the 12 months ended September 2002 reflecting an increased debt burden and lower EBITDA.

S&P puts IRT on watch

Standard & Poor's put IRT Property Co. on CreditWatch with negative implications.

Ratings affected include IRT's $75 million 7.25% senior unsecured notes due 2007, $100 million senior unsecured credit facility due 2005, $25 million 7.84% senior unsecured notes due 2012 and $50 million 7.77% senior unsecured notes due 2006, all at BBB-. The $85 million 7.3% convertible subordinated debentures due 2003 were changed to not rated from BB+.

Moody's confirms Transocean

Moody's Investors Service confirmed Transocean Inc.'s ratings and stable outlook, including its senior unsecured notes and debentures at Baa2, its unsecured bank debt at Baa2 and R&B Falcon Corp.'s senior unsecured notes at Baa3.

Moody's confirmation follows Transocean's announcement that it may need to recognize a substantial non-cash goodwill impairment charge in the near term. The size of the potential impairment cannot be determined at this time, but it may represent a significant majority of the $5.1 billion of goodwill on the company's balance sheet at Sept. 30, 2002.

However Moody's said that even if the company were to write down all of its goodwill, the charge would be non-cash and would not result in a breach of the company's bank financial covenants.

Moreover, Moody's said it has consistently excluded goodwill in assessing Transocean's net worth and its overall credit quality.

The company's financial leverage has improved over the past year, and its liquidity remains solid, Moody's commented. Transocean's net debt as a percentage of total tangible capitalization (excluding goodwill) has declined to 38.6% at Sept. 30, 2002 from 44.1% at the end of 2001. Including off-balance sheet obligations (mainly synthetic and operating leases), Moody's estimates that the company's adjusted net debt to tangible capitalization ratio has declined from 45.8% to 41.7%, respectively.

With a cash balance of approximately $1 billion, Transocean has sufficient cash to cover all of its 2002 and 2003 debt maturities, including a convertible bond with a put option exercisable in May 2003, Moody's said.

Moody's downgrades NDCHealth, rates loan Ba3, notes B2

Moody's Investors Service downgraded NDCHealth Corp. and assigned a Ba3 rating to its proposed $200 million senior secured credit facilities and a B2 rating to its proposed $175 million senior subordinated notes. Ratings lowered include NDCHealth's convertible subordinated notes, cut to B2 from Ba3. The outlook is negative.

Moody's said the downgrades are in response to NDCHealth's increased financial leverage, as measured by debt-to-EBITDA and free cash flow to debt, following NDC's recent acquisitions of TechRx

and Scriptline, and execution risk associated with the company's launch of T-Rex One software, including the potential cost overruns and delays for the customized applications of T-Rex One.

Moody's said it expects the second step of the TechRx acquisition, which is payable in May 2003 and will range from $100 to $200 million depending on achievement of certain milestones, will be financed with debt.

The negative outlook reflects execution risk surrounding the company's launch of T-Rex One software, including the potential for cost overruns and delays for the customized applications of T-Rex One, which may increase NDC's capital expenditure and limit its free cash flow (cash flow from operations less dividends less capital expenditure) for at least the near term.

Should the refinancing be successful and the TechRx implementation proceed well, Moody's would strongly consider revising the outlook to stable.

S&P cuts Titanium Metals

Standard & Poor's downgraded Titanium Metals Corp.'s $150 million 6.625% beneficial unsecured convertible securities (BUCS) due 2026 to C from CCC-. The corporate credit rating was confirmed at B-. The outlook remains negative.

S&P said the downgrade follows Titanium Metals' announcement that it plans to defer future dividend payments on its preferred stock. The stock will be cut to D after TIMET defers the dividend payment on Dec. 31, 2002.

S&P lowers United Rentals' senior debt to BB; subordinated debt to B+

Standard & Poor's lowered the ratings on United Rentals Inc., including the senior secured debt to BB from BB+, senior unsecured notes to BB- from BB and subordinated debt to B+ from BB-. The downgrade followed the company's weaker-than-expected operating performance due to soft construction and industrial markets and excess industry capacity. All ratings were removed from CreditWatch and the outlook is stable.

"The ratings reflect the company's position as the largest provider of equipment rentals in the U.S.; its good geographic, product, and customer diversity; exposure to cyclical construction end markets; and its moderately aggressive financial policy," S&P said. Due to the weaker operating numbers, the company had to amend its fixed charge coverage ratio on its credit facility. The company plans to exit certain markets, reduce headcount and close 35-45 locations. Expectations are for $300 million in gross rental capital expenditures in 2003, down from about $485 million estimated in 2002. Offsetting equipment sales of $150 million-$175 million should put free cash flow at about $300 million in 2003. Debt leverage is expected to average 3.0 times EBITDA, and funds from operations to total debt (adjusted for operating leases) is expected to range between 20%-25% over the intermediate term.

Fitch keeps Carnival on watch

Fitch Ratings said Carnival Corp. remains on Rating Watch Negative including its senior long-term debt at A.

Fitch's announcement follows the acceptance of Carnival's $5.4 billion buyout offer for P&O Princess Cruises plc. The new proposal is an all equity transaction creating a dual-listed company (DLC) versus Carnival's previous offer, which included a significant cash component.

Despite significantly less expected leverage as a result of the recent offer, the Rating Watch Negative status considers rising leverage from existing debt at Princess, anticipated financing requirements resulting from a heavy capital spending program over the next couple of years, increasing industry capacity, and ultimate completion of the deal, Fitch said.

Although existing debt outstanding (approximately $2 billion at Princess as of Sept. 30, 2002) will remain domiciled at each entity separately, Carnival has indicated its intention to cross-guarantee any post-combination debt issuance, Fitch said. Financing commitments for new ships at both Carnival and Princess remain sizable, with combined commitments totaling approximately $2.7 billion for the twelve months ended August 2003. Additional ships are scheduled for delivery each year through 2006.

As of August 2002 Carnival had $1.3 billion in cash and short-term investments. While operating cash flow from the combined entity will be sizable, these figures suggest that additional borrowings may be required over the medium term, Fitch added.

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