Moody's rates new Amgen convertible at A2

Moody's Investors Service confirmed the A2 ratings of Amgen Inc., and assigned an A2 rating to the new Amgen convertible, concluding its review of the expected opportunities and risks associated with Amgen's pending acquisition of Immunex Corp. as well as a review of financing plans for the merger. Confirmation of the ratings is based on Amgen's strong cash flow generating capabilities, which Moody's believes will be enhanced due to recent product approvals, including Aranesp, Neulasta and Kineret. Moody's notes the benefits of the pending Immunex acquisition, such as cost synergies, the blockbuster arthritis product Enbrel and improved revenue diversity over Amgen's currently concentrated sales mix in Epogen and Neupogen. Offsetting these strengths, Moody's noted much higher gross debt levels than the $300 million level that Amgen has managed historically. Moody's believes that Amgen's strategy to issue large, incremental, bullet-repayment debt when cash balances are already high (approximately $2.8 billion and rising) increases financial risks of the company. On a gross debt basis, Moody's believes that Amgen's cash flow to debt metrics would not support the existing rating category, especially in light of the ongoing albeit reduced product concentration risk. However, the ratings incorporate a belief that Amgen will continue to maintain large balance sheet cash holdings in the $2.5 billion to $3 billion range, even after share repurchases, resulting in very low net debt levels. Moody's expects that Amgen will continue to be invested in high-quality corporate or government securities.

The rating outlook is currently stable, but Moody's noted that the Immunex transaction is still subject to shareholder and regulatory approvals, and is not expected to close until the second half of 2002. The confirmation of Amgen's ratings assumes that the transaction will close without material modifications. Should that not be the case, Moody's said it may need to reassess Amgen's acquisition and growth strategies, capital structure and uses of cash balances, which may result in a change in credit quality.

Moody's puts Northrop Grumman on review for downgrade to junk

Moody's Investors Service put Northrop Grumman Corp. and TRW, Inc. on review for downgrade, affecting $23.4 billion of securities. Ratings affected include Northrop's senior debt at Baa3 and TRW's senior debt at Baa2.

Moody's said its action follows Northrop's unsolicited proposal to merge with TRW.

For Northrop, Moody's said it will look at the risk that the cost of acquiring TRW could increase. The review will also look at integration risks.

As currently structured, the transaction could enhance Northrop's business position and "provide a basis for further improvement in earnings and cash flows," Moody's said. That would lead to Northrop's current ratings being confirmed.

However Moody's said Northrop's ability to receive adequate valuation for TRW's automotive businesses is uncertain in weakening global automotive markets. Without this sale, Northrop will have higher debt levels.

For TRW, Moody's said its review reflects concerns about the defense mechanisms TRW might use to remain independent and which could have negative implications for the company's current credit ratings.

S&P affirms Northrop Grumman on TRW bid

Standard & Poor's on Friday affirmed its BBB- corporate credit rating and stable outlook on Northrop Grumman Corp. following the defense contractor's unsolicited bid to acquire TRW Inc. in an all-equity offer valued in a merger valued at about $11 billion, including $5 billion of TRW debt to be assumed.

The rating affirmation reflects the strong business profile of the combined defense operations of Northrop Grumman and TRW and preservation of adequate financial flexibility at the combined entities, said S&P credit analyst Martin Knoblowitz. The action assumes Northrop Grumman will be able to realize appropriate value for TRW's very large automotive operations, which would be separated at the close of the merger. If the acquisition closed in 2002, the combined entity would generate over $26 billion revenues in 2003, S&P said, and Northrop Grumman's debt-to-total-capital would not rise above the mid-40% level, adjusted for operating leases, attained at year-end 2001.

Northrop Grumman's management has demonstrated a strong commitment to maintaining investment-grade credit rating, S&P noted.

Moody's puts Vitesse on review for downgrade

Moody's Investors Service placed under review for possible downgrade the ratings of Vitesse Semiconductor Corp., including the B2 rating for the $441 million of 4% convertible subordinated debentures due 2005. Moody's said the review will take into account Vitesse's focus on supplying high-performance integrated circuits for use in telecom and storage technology and the severe retrenchment in capital investment now affecting those end use markets.

Vitesse has accumulated substantial operating losses, Moody's said, and although the company has successfully reduced its quarterly breakeven revenue rate through two restructurings, revenues are expected to remain well below the lowered breakeven level for the near-term. Management's current operating strategy, in light of Moody's outlook for enterprise and service provider IT investment, will additionally be assessed.

S&P rates Weatherford's $750 million shelf

Standard & Poor's assigned a BBB+ senior unsecured, BBB subordinated and BBB preferred ratings to Weatherford International Corp.'s new $750 million shelf, and affirmed Weatherford's BBB+ corporate credit rating. The outlook is stable. The ratings reflect Weatherford's position as a large, diversified, international oilfield services provider.

Weatherford's management has committed to maintaining moderate financial policies, S&P said, and in 2002 Weatherford is expected to maintain average EBITDA interest coverages above 6 times and to reduce discretionary debt to the mid-40% area. Near-term financial statistics are expected to be appropriate for the rating, with EBITDA margins exceeding 25%, pretax interest coverage 4 times and EBITDA interest coverage 7.5 times, S&P said. Financial flexibility is supported by modest cash, about $400 million, and S&P noted that Weatherford faces no material near-term debt maturities.

The stable outlook reflects expectations for debt reduction, deleveraging and consistent fixed-charge coverage levels in 2002.

Fitch rates Mutual Risk convertible at CC

Fitch Ratings on Friday assigned a CC rating to Mutual Risk Management Ltd.'s existing convertible exchangeable subordinated debt and put the rating, among other Mutual Risk ratings, on evolving watch. The ratings, which imply a high degree of default risk, are based on Fitch's view that Mutual Risk faces significant near-term challenges tied to both its operating and financial profile. Barring extraordinary actions by management, the success of which are largely outside of management's control, Fitch believes it is possible that the company will be unable to meet certain debt and other fixed income obligations.

The actions follow Mutual Risk's fourth quarter earnings announcement, which disclosed a number of charges and transactions. Most importantly, Fitch said, the company reported the establishment of a $63 million valuation reserve against its U.S. net deferred tax asset, implying a great uncertainty as to its ability to generate future taxable income in the U.S. In Fitch's view, the inability to generate future income puts the company's viability in doubt. Fitch estimates Mutual Risk's debt-to-total capital leverage to be 57% at Dec. 31. Successful completion of the planned sale of it Hemisphere unit would reduce financial leverage to 49%, but Fitch said even at that level it would be very high.

Fourth quarter results put the company in violation of certain debt covenants, Fitch noted, adding that Mutual Risk previously breached a negative covenant at Sept. 30 requiring its U.S. subsidiaries to have a statutory combined ratio at the end of each fiscal quarter of no more than 125% for the previous 12 months. The company sought, and successfully obtained, waivers from its bank lenders and debenture holders,a nd is negotiating to obtain additional waivers and covenant amendments.

S&P cuts Mutual Risk, keeps on negative watch

Standard & Poor's lowered its subordinated debt ratings on Mutual Risk Management Ltd. to B- from BB-, and lowered other ratings. S&P said the ratings remain on negative watch, as well, reflecting S&P's opinion that Mutual Risk's core corporate risk management and program business might no longer be viable as a going concern. Although management is pursuing strategic alternatives to preserve its franchise, S&P said it does not have information to suggest that its efforts will be successful.

The losses Mutual Risk announced on Feb. 19 cite the emergence of further deterioration in the business platform. In addition, the announced changes in the valuation of deferred taxes has triggered new breaches in financial covenants, which raise increased doubt about Mutual Risk's continued viability. As a result, there is considerable uncertainty about Mutual Risk's ability to accept increasing levels of risk as planned since 2001. The revised ratings also reflect management's disclosure that a qualified audit opinion could be provided as of Dec. 31, which will heighten the difficulty of raising new capital and limit strategic alternatives.

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