Junk funds see $141 mln inflow in week, second straight gain

High yield mutual funds saw their consecutive weekly inflow, as $141.2 million more came into the funds than left them in the week ended Oct. 24, according to market participants who track the weekly fund flow statistics released by AMG Data Services. The numbers are considered to be a reliable indicator of overall high yield market liquidity trends. The junk bond funds had seen a $470.1 million inflow in the week ended Oct. 17 - the first inflow reported since the Sept. 11 terrorist attacks on the U.S. In the intervening five weeks, nearly $1.6 billion had flowed out of the junk funds in an apparent investor flight to safety.

Italian govt blocks Crown Castle buy of major tower network stake

The Italian government blocked Crown Castle International Corp.'s proposed $380 million purchase of a 49% stake in RaiWay S.p.A., a subsidiary of RAI - Radiotelevisione Italiana SpA, the Italian state-owned television and radio broadcaster. The escrowed funds were returned to Crown Castle.

News reports indicated that the Ministry of Communications felt the price which the Houston-based communications antenna tower operator had agreed to pay for the RaiWay stake was too low; officials said the deal attached the same valuation to the RaiWay stake that it had 10 years ago. The deal would have included a radio and television broadcast transmission contract with RAI through 2014.

There were also fears among Italian officials that sale of such a large stake to CCI would have given it a strong voice in making strategic decisions for the unit, which could in turn impact the state-run broadcaster.

Opponents of Italian Prime Minister Silvio Berlusconi's center-right government attacked the Communications Ministry's decision as harmful to the state broadcaster, noting that Berlusconi's family controls RAI's main rival, Mediaset SpA.

AMR warns that loss may trigger covenant breach

AMR Corp. warned in a Securities and Exchange Commission filing on Thursday that a "significant" fourth-quarter loss could cause it to violate one or both of the financial covenants in its credit facility. The Dallas-based operator of American Airlines reported a company record $414 million quarterly net loss on Wednesday. It said that it is trying to arrange for modifications in its covenants so that it can remain in compliance with them.

The carrier - whose public bonds were recently downgraded to junk bond status by the major ratings agencies, along with the debt of several other formerly investment-grade-rated airlines - said in the filing that without those desired changes, the $819 million currently outstanding under the credit agreements could become due and payable in next year's first quarter.

CMS report huge net loss, announces asset sales

CMS Energy Corp. reported a third quarter net loss of $569 million, or $4.29 per share, versus net income of $53 million, or 49c per share, in third quarter 2000. Revenues rose to $3 billion from $2.3 billion. The independent power producer also announced planned asset sales that are expected to raise about $2.4 billion in cash which, together with the utility securitization proceeds expected yet this year, will result in a total of about $2.9 billion of cash proceeds. The company said it anticipates to receive $2.1 billion of the capital by January.

CMS said it forecasts earnings per share from operations in 2002, excluding net gains associated with the asset sales in the range of $2.00 to $2.05. With respect to earnings beyond 2002, the company said it expects to be able to grow earnings per share, excluding any gains on asset sales, by 7% to 9%, with growth principally in electric and gas marketing, exploration and production, pipelines, midstream and liquefied natural gas receiving and processing. CMS shares closed down 48c to $20.54.

New-home sales fell in September to lowest level in more than a year.

The Commerce Department said Friday that the level of new U.S. homes sold in September was the lowest in more than a year, with 864,000 new homes sold last month. That was off about 1% from the August level of 876,000, which was revised downward from the 898,000-unit pace initially reported. But the September sales level was still well above the 851,000-unit pace analysts had been looking for.

Focal Communications closes recapitalization, says fully funded

Focal Communications Corp. said it closed a $430 million recapitalization designed to give it greater financial and operating flexibility. With the additional capital and reduction in debt, Focal said it anticipates being fully funded until it becomes cash flow positive in the second half of 2003.

The Chicago-based provider of local phone and data services said the recapitalization included $150 million of private investment capital from Madison Dearborn Capital Partners IV, LP, Frontenac VIII LP, Battery Ventures III and VI, LP and Great Hill Equity Partners II LP; a $280 million debt for equity exchange and a purchase of bonds that will retire a total of $295 million of junk bonds; and an amendment of its secured bank credit facility to provide up to $225 million of borrowing capacity.

Moody's upgrade Pride sr notes to Ba2

Moody's Investors Service upgraded Pride International, affecting $1 billion of debt securities. Among the ratings raised are the $431.5 million face zero-coupon senior convertible notes due 2021, the $200 million of 10% notes due 2009 and the $325 million of 9 3/8% notes due 2007, all upgraded to Ba2 from Ba3; and the $214 million of zero coupon convertible subordinated notes due 2018, upgraded to Ba3 from B2. The rating outlook is stable.

Moody's said the action follows Pride's stock-for-stock acquisition of debt-free Marine Drilling.

The rating agency said that despite the cyclical downturn in Pride's Gulf of Mexico segment the company's credit is benefiting from its five-year business transformation and fleet expansion, upcycle cash flows, and continuing strength in international drilling markets, and, "importantly the favorable business and deleveraging benefits" of the Marine merger.

Moody's said the senior unsecured note ratings could be raised to match the Ba1 senior implied rating if Pride "substantially reduces parent debt and/or permanently substantially reduces subsidiary debt."

The company could reach investment grade rating in two years if it can "substantially reduce leverage through cash flow, equity issuance, and/or conversion of debt covertibles to equity," Moody's added.

Moody's confirms CMS Energy, raises outlook to positive

Moody's Investors Service raised its outlook on CMS Energy Corp. to positive from negative based on the company's new strategic plan. It also confirmed existing ratings. The outlook for Consumers Energy Co. remains unchanged at stable. Ratings affected include CMS Energy's Ba3 senior unsecured debt and B1 subordinated debt.

Moody's said the revised outlook reflects "the company's decision to refocus its energy supply and services activity in North America and the improvements to the company's risk and financial profile that could arise as a result of this significant shift in business strategy."

The proposed actions, reflect a more conservative business strategy, Moody's said.

"Execution and implementation risks pose a significant risk to the company's financial plan as intermediate term improvements will depend largely not only on its ability to sell these assets, but also to sell these assets at its projected values," the rating agency commented. "In addition, the company may encounter challenges in growing its business activities along the natural gas value chain and in gas and electricity marketing in light of its desire to significantly reduce its capital program."

Moody's noted that cutting capital spending by $1 billion a year along with asset sale proceeds "are expected to significantly improve the company's financial profile and financial flexibility by 2004. The company believes that is this timeframe frame it will be in a position to sustain prospective financial performance sufficient for an investment grade credit rating."

Moody's rates Westport Resources new sr sub notes at Ba3

Moody's Investors Service assigned a Ba3 rating to Westport Resources' planned sale of $200 million of senior subordinated 10-year notes. It also confirmed, among other ratings, its Ba3 rating for the former Belco Oil & Gas $147 million of 8 7/8% senior subordinated notes due 2007 and its B1 for Belco's perpetual preferred stock. The outlook is stable.

Moody's said the ratings are supported by Westport's seasoned management and "historically disciplined approach" to growing an exploration and production company, the acceptable upcycle cost at which Westport acquired Belco and the stock-for-stock nature of the purchase, the company's substantial reserve base diversified across five basins, satisfactory pro-forma liquidity, favorable underlying unit economics for the rating, absent the negative impact of Belco's below-market hedging portfolio, and satisfactory leverage on reserves for the ratings.

The rating agency said Westport has a "reasonable mix" of 75% proven developed and 25% proven undeveloped reserves.

It added that excluding exploration expense, full-cycle unit costs total approximately $15.25 per barrel of oil-equivalent production, including unit production, G&A, gross interest expense, preferred dividends, and all-sources reserve replacement costs.

S&P puts Allied Holdings on negative watch

Standard & Poor's put Allied Holdings Inc. on CreditWatch with negative implications. Ratings affected include Allied's CCC+ senior unsecured debt.

S&P said the action reflects continuing losses that began in mid-2000 and a deteriorating credit profile. For the first nine months of 2001, S&P said the company lost $37.2 million versus a profit of $1.2 million in the prior-year period, due primarily to transporting 19% fewer vehicles. At the same time, funds generated from operations were negative $15 million versus $45 million a year earlier.

While an administrative fee should aid revenues and the company has reduced costs, S&P said that automobile production, which had declined before Sept. 11, is expected to remain at depressed levels.

S&P added: "As a result, Allied's already weak financial profile is not expected to improve significantly over the near term."

S&P cuts Crescent Real Estate outlook to negative.

Standard & Poor's cut its outlook Crescent Real Estate Equities Co. and Crescent Real Estate Equities LP to negative from stable. Ratings affected include the company's B+ senior unsecured debt rating and its preferred stock rating.

S&P said the revision reflects "concerns regarding the company's pursuit of a large share repurchase program that may be aggressively financed, and reduced funds from operations driven by weakness in the company's high-end residential developments and resort/hotel properties."

Moody's raises Central Vermont Public Service pfd stock to Ba2

Moody's Investors Service upgraded Central Vermont Public Service Corp.'s preferred stock to Ba2 from Ba3, affecting $4.6 million of securities. The outlook is now stable.

The action reflects Moody's expectations for "more stable and predictable earnings and cash flow following the June 26, 2001 approval by the Vermont Public Service Board (VPSB) of an agreement between CVPS and the Vermont Department of Public Service (VDPS)."

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