Fitch cuts Qwest

Fitch Ratings downgraded Qwest Communications International, Inc. including lowering the senior unsecured debt of Qwest Communications International, Qwest Capital Funding, Inc. and LCI International to CCC+ from B. Qwest Corp. senior unsecured debt remains unchanged at B. Fitch also removed the ratings from Rating Watch Negative and assigned a negative outlook.

Fitch said the action reflects its growing concern that the sale of the directories business will not generate the level of proceeds necessary to offset the reduced EBITDA and free cash flow implications of losing this high margin business.

Fitch said Qwest will need to sell assets to generate liquidity but added that it believes the timing and level of proceeds could be impacted by the uncertain outcome of the ongoing investigations by the Securities and Exchange Commission and the Department of Justice as well as the timing and scale of Qwest's intention to restate its financial statements dating back to 1999.

Also factored into the rating are the company's precarious liquidity position, lack of financial flexibility and potential to violate covenants in its bank facilities, Fitch said.

Qwest Corp.'s rating is higher because of the A range credit protection metrics of the local exchange operation, the valuation of its asset base that greatly exceed its outstanding debt and the structural seniority of the Qwest Corp. bonds within Qwest Communications International's capital structure, Fitch said. These positive attributes are significantly affected by the potential stress placed on Qwest Corp. by its parent's debt levels.

Fitch upgrades Solutia

Fitch Ratings upgraded Solutia Inc. including raising its senior secured bank facility to BB- from B and its senior secured notes to B from CCC+. All ratings were removed from Rating Watch Negative and a negative outlook assigned.

Fitch said it upgraded Solutia because of the company's recent completion of its delayed refinancing plans, its ability to handle increased interest payments, the company's leverage, and the potential for earnings recovery, as well as the company's overall business profile.

The negative outlook reflects continuing concerns surrounding the strength and pace of an earnings recovery relative to Solutia's financial covenants, and the ultimate liability related to the polychlorinated biphenyls (PCBs) contamination litigation in Anniston, Ala., Fitch said.

Moody's lowers Allegiance Telecom

Moody's Investors Service downgraded Allegiance Telecom, Inc. including cutting its $205 million 12 7/8% senior unsecured notes due 2008 and $445 million 11¾% senior unsecured discount notes due 2008 to Ca from Caa2 and Allegiance Finance Company, Inc.'s $500 million senior secured bank credit facility to Caa2 from B3. The outlook is negative.

Moody's said the downgrade is in response to Allegiance's second quarter earnings and reflects Moody's concern that the company's performance continues to fall short of Moody's expectations and may lead to a near-term breach of its senior secured credit facility covenants.

Although Moody's said it believes Allegiance may deliver EBITDA positive results later this year, the rating agency expects positive free cash flow to be is at least a couple of years away.

For the quarter ended June 30,2002, Allegiance met its minimum revenue covenant by a margin of less than 2%, Moody's noted. Allegiance will continue to face covenant pressure during 2002 and that this pressure will be heightened under the stage 2 covenants starting next year, the rating agency added.

Allegiance is in talks with its bank group about possible changes in its covenants. In addition management has indicated that three of its banks failed to fund under a recent drawdown notification from the company. There can be no assurance that the company will succeed in obtaining a modification to its bank covenants or that it will satisfy the information requests of the non-funding banks.

Fitch cuts PerkinElmer

Fitch Ratings lowered PerkinElmer Inc. and put it on Rating Watch Negative. Ratings lowered include PerkinElmer's $270 million credit facility due March 2003, $100 million credit facility due March 2006, $115 million unsecured notes due 2005 and $490 million of zero coupon convertible debentures due 2020, all cut to BB+ from BBB+, and its commercial paper to B from F2.

Fitch said it put PerkinElmer on Rating Watch Negative because of uncertainty associated with the possible violation of a financial covenant in the company's revolving credit facilities, the timing and use of proceeds from asset sales, the company's zero coupon convertible debenture put option in August 2003, and the recovery of key end-markets affecting global sales.

Fitch said it is concerned that the financial covenant, minimum interest coverage (rolling four-quarter EBITDA to interest of 5:1 times), listed in PerkinElmer's revolving credit facilities may be violated in the coming quarters. The company has experienced continued lower-than-expected revenues and earnings, negatively affected by lower demand from key end-markets, such as the pharmaceutical industry (representing approximately 28% of the global customer base).

Fitch added that it anticipates that the terms of the credit facility agreement may need to be re-negotiated with the current bank group in the near-term horizon.

The company has approximately $490 million in zero convertible debentures (due in 2020) that are deeply-out-of-the-money (PerkinElmer's share price is down approximately 80% since the beginning of the year) and can be put to the company in cash or equity in August 2003. Fitch said it expects that the put option will be exercised on the majority of the debentures which places pressure on the company to purchase or replace the securities prior to the put date.

Moody's withdraws BayanTel ratings

Moody's Investors Service withdrew its ratings on Bayan Telecommunications, Inc. (BayanTel) including its senior unsecured bond rating of Ca and senior implied rating of Caa3.

The company failed to make an interest payment on $200 million 13.5% senior notes due January 15, 2001, as part of an ongoing debt restructuring process, Moody's noted. BayanTel continues to negotiate with bank creditors and bondholders for the restructuring of its entire debt, prompting Moody's to withdraw its ratings.

Fitch cuts Bladex to junk

Fitch Ratings downgraded Banco Latinoamericano de Exportaciones (Bladex) to junk, cutting its long-term foreign currency debt rating to BB+ from BBB- and its short-term foreign currency debt rating to B from F3. The outlook is stable.

Fitch said the downgrade reflects Bladex's heightened risk profile, partly the byproduct of its departure from its original mission as a trade finance lender in Latin America, as well as the overall deterioration in its principal markets, Argentina and Brazil.

Fitch said it viewed positively management's stated intention to return to its core expertise, trade finance lending. But it noted that unsecured short- and medium-term working capital loans to banks and corporations accounted for 53% of the loan portfolio at the end of June 2002.

Moreover, balance sheet reduction of roughly $2 billion in the first half of 2002, the result of management's efforts to reduce exposure in Brazil and Mexico, as well as a decline in funding, has resulted in a growing concentration in unreserved non-trade risks in Argentina, rated DDD and Brazil, rated B+ and placed on Rating Watch Negative recently, Fitch said.

In the first half of 2002, the bank posted losses of $299 million due mainly to provisioning for its Argentine exposure, Fitch said. As a result, the bank's capital base declined to $291 million and its risk adjusted capital ratio dropped to 11.9% from 17.1% at end-2001.

In response, management announced its plan to raise capital by roughly $100 million among its Class A shareholders and multilateral agencies.

Fitch said it feels confident that the capital-raising exercise will result in the desired fresh capital infusion, it believes that the capital levels which will be in place following the exercise may prove inadequate to cushion against the potential for further asset quality deterioration, given the high geographic concentrations in Bladex's loan portfolio, and are incompatible with investment grade ratings.

S&P puts Brand Services on developing watch

Standard & Poor's put Brand Services Inc. on CreditWatch with developing implications. Ratings affected include its $130 million 10.25% senior notes due 2008 at B-.

S&P said the action follows Brand Services' announcement that J.P Morgan Partners, the private equity arm of J.P. Morgan Chase & Co., has signed a definitive agreement to acquire the company for about $500 million.

Ratings may be raised, lowered, or maintained, depending on the prospective capitalization of the company, and the attendant effect on Brand Services' financial profile, S&P added.

S&P cuts US Airways

Standard & Poor's downgraded the corporate credit ratings of US Airways Group Inc. and its US Airways Inc. subsidiary to D from SD.

S&P said the action follows U.S. Airways' Chapter 11 filing.

Ratings on most issues of US Airways Inc. that have not already defaulted are lowered, as well, and remain on CreditWatch with developing implications, S&P added.

The airline is expected to continue to pay on its obligations backed by Airbus aircraft (which form its new fleet) and on its airport revenue bonds, but is seeking to renegotiate obligations backed by Boeing aircraft, S&P added.

S&P puts Omnicare on watch

Standard & Poor's put Omnicare Inc. on CreditWatch with negative implications.

Ratings affected include Omnicare's $345 million 5% convertible subordinated debentures due 2007 and $375 million 8.125% senior subordinated notes due 2011 at BB+ and its $495 million senior unsecured revolving credit facility due 2004 at BBB-.

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