S&P cuts SpectraSite convertible to C

Standard & Poor's lowered the rating on SpectraSite Holdings Inc.'s 6.75% senior convertible notes to C from CCC+, along with other ratings, following the company's tender offer to repurchase portions of five of its senior unsecured note issues at an average discount to current accreted value of about 65%.

The corporate credit rating and the five senior unsecured note issues affected under the tender offer were placed on watch with negative implications, and the senior secured bank loan and the rating on the convertibles were placed on watch with developing implications.

The maximum principal amount SpectraSite is seeking under its tender offer, assuming investors sell at the low end of the price range offered by the company, is about $960 million at the current accreted value, representing 66% of total accreted value of these issues.

S&P views the debt transaction as a distressed exchange because of the magnitude of the targeted debt tender combined with the company's highly leveraged capital structure and uncertain business prospects in its tower and network services businesses.

Therefore, the corporate credit rating will be lowered to SD and the affected senior unsecured debt issues will be lowered to D on completion of the transaction, S&P said

Subsequent to the completion of the exchange, S&P will reassign a corporate credit rating based on its evaluation of SpectraSite's business plan for the next few years and the company's prospective capital structure.

Moody's rates Waste Connections convertible floater at B2

Moody's assigned a rating of B2 to Waste Connections Inc.'s $175 million issue of floating rate convertible subordinated notes due 2022. Also, Moody's confirmed the 5.5% convertible subordinated notes due 2006 at B2, and other ratings.

The outlook was raised to positive from stable.

The ratings reflect significant leverage as measured by debt to sales of over 1.1 times and fiscal 2001 proforma debt to EBITDA for the new notes of 3.3 times as well as acquisition and integration risk.

Almost 44% of the company's assets are intangibles associated with its acquisition strategy. Consequently the company had a negative tangible net worth of $93.8 million at Dec. 31, Moody's said, and a moderate EBIT return on average total assets of 10.5%.

The positive outlook reflects the ability to sustain operating margins in a tough economic environment while continuing an acquisition strategy, anticipated improvements in operating margins due to improved internalization of waste in nonexclusive markets and resistance to negative price pressure from recycling.

A reduction in the debt to sales ratio, continued strengthening of operating margins and cash generation could have a positive impact on the rating, Moody's said.

On the other hand, any diminution in operating margins or interest protection measurements, or increasing leverage could put negative pressure on the ratings.

Fitch cuts Merrill Lynch long-term debt to AA-

Fitch Ratings downgraded the long-term ratings of Merrill Lynch & Co. Inc. to AA- from AA. The ratings remain on negative outlook.

The downgrade results from industry and company specific challenges faced by Merrill Lynch, Fitch said, noting that both cyclical and secular trends are pressuring the securities industry.

Secular trends include competitive pressures of universal banks, increased commoditization of trading products and distribution from technology innovations and the lack of geographic diversification from European operations as market activity is more correlated to the U.S. than anticipated.

In addition, the industry may be hampered by prolonged negotiations and settlements related to regulatory investigations surrounding the IPO boom.

Merrill Lynch has faced lagging profitability in all three of its business segments evidenced through pretax profit margins.

While improvement is noted in the first quarter 2002 following 2001 restructuring charges, Fitch believes the cyclical and secular issues cited above as well as regulatory issues will create a more challenging environment in which to execute its strategy and meet its financial goals.

Moody's cuts Empresas ICA

Moody's Investors Service downgraded Empresas ICA Sociedad Controladora, SA de CV, including lowering its $170 million 5% convertible subordinated debentures due 2004 to Caa2 from Caa1. The outlook remains negative.

Moody's said it lowered Empresas ICA and kept the negative outlook because of longer-than-expected pressures on profitability from the protracted slowdown in industrial and commercial construction in Mexico and the enduring liquidity pressures as the company relies on asset sales to pay down maturing short-term debt.

Empresas ICA's revenue base has declined by more than 60% since 1994, as increased foreign competition and a reduced number of construction projects have taken their toll, Moody's noted.

Revenues declined from 23.3 billion pesos in that year to 9.15 billion pesos in 2001. Revenue expectations for full year 2002 are for another 13% decline, to eight billion pesos, which that rating agency said is considerably below its previous expectations.

Although the company was profitable during the years 1994 through 1996, it has managed to generate positive net income in only one year since 1997, Moody's added. EBITDA margins have consistently declined since 1994. Once exceeding 23% in 1994, they declined to 5.9% for the first three months of 2002, and the outlook for full year 2002 is for little, if any, improvement, which Moody's said is also below its expectations.

Moody's cuts Encompass

Moody's Investors Service downgraded Encompass Services Corp. and kept it on review for possible further downgrade. Ratings affected include Encompass' $130 million senior secured term loan A due 2006, $170 million senior secured term loan B due 2006 and $300 million senior secured revolving credit facility due 2005, lowered to B1 from Ba3, its $335 million 10.5% senior subordinated notes due 2009, lowered to B3 from B2, and its $295.0 million 7.25% mandatorily redeemable convertible preferred stock, lowered to Caa1 from B3.

Moody's said the action was prompted by pressures on Encompass' profitability from a prolonged slow down in non-residential construction, continuing challenges in integrating its numerous acquired entities, the likelihood that it will violate its bank debt covenants by mid-year 2002 unless it obtains further modifications of its bank credit facility and the large asset impairment charge taken in the quarter just ended.

Encompass lowered its guidance for 2002 revenues to a range of $3.5 to $3.8 billion, which Moody's said was below its previous expectations.

Similarly, EBITDA guidance was reduced to a range of $155 to $195 million, and the goodwill charge of $452 million reduced book net worth to $221 million.

As a result, Encompass' credit profile, weakened by the poor 2001 operating results, will be further stressed during the coming year and this will prevent the company from complying with its current bank covenants, Moody's said. The company has begun discussions with its bank group to modify the covenants.

Although the company is not expecting difficulty in obtaining bank consent, this will be the second such modification in less than one year, and the amount of additional room to maneuver that the banks will permit the company is unclear at this time, Moody's commented.

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