S&P notes AES tender extension

Standard & Poor's said it will not change the corporate credit rating of AES Corp. (B+/negative watch) following AES' announcement of the extension until Dec. 3 of the tender offer for its December 2002 notes and June 2003 ROARS, with changes in the terms of the offer.

S&P believes the extension reflects difficulty in reaching an agreement given the multitude of parties involved.

S&P reiterated that if the transaction is not consummated, the rating would fall substantially given that liquidity to pay the Dec. 15 maturity would be tight, and the likelihood of rolling the bank debt in 2003 would be lower given that this is currently contingent on the exchange offer.

As such, if the tender is unsuccessful, a default or bankruptcy filing is possible.

S&P rates TECO issue

Standard & Poor's assigned a BBB- rating to TECO Energy Inc.'s $200 million senior unsecured notes offering. The proceeds will be used to retire a series of notes purchased by Credit Suisse First Boston Corp., with the remainder of the proceeds used to repay short-term debt. The outlook is negative.

Tampa, Fla.-based TECO Energy has about $2.7 billion in outstanding debt.

The rating reflects an average business risk profile, supported by subsidiary Tampa Electric Co., offset by a weakened financial profile attributed to lower consolidated cash flow and higher debt balances.

TECO currently has sufficient liquidity since adequate availability exists, including cash on hand, within the company's $700 million in credit facility capacity, although TECO has not yet renegotiated its $350 million, one-year credit facility maturing Nov. 13, 2002, which is expected to be converted into a one-year term loan.

TECO's ability to issue the $200 million in notes is a key driver of liquidity because the notes account for about 25% of its consolidated credit facility capacity.

TECO's inability to date to enter into a new bank facility by itself does not contain a ratings consequence, but does increase concerns about its long-term financing strength, S&P said.

Proposed asset sales, if completed in a timely fashion, will further improve liquidity, because they will reduce credit facility borrowings.

A ratings trigger exists for a $500 million equity bridge financing, associated with two uncompleted power projects. In the event of a trigger, TECO would have to post a letter of credit in the amount of the equity bridge loan, its remaining equity contribution, and additional costs, if any, required for the completion of the projects.

Tampa Electric's $300 million credit facility can provide further support to TECO, if needed.

The company's maturities are minimal, with $130 million maturing in 2003 and about $30 million per year through 2006.

S&P puts Vishay on watch

Standard & Poor's put Vishay Intertechnology's BB+ corporate credit and senior unsecured debt ratings and BB- subordinated debt rating on negative watch, following the announcement that Vishay intends to acquire BCcomponents, a leading Netherlands-based global manufacturer of passive electronics components.

Vishay had lease-adjusted debt outstanding of $550 million at Sept. 29.

The acquisition will add significantly to exposure to passive components, which have experienced weak pricing and utilization rates over the past year. Also, however, it will add complimentary product lines, increase manufacturing capacity in low-cost areas and allow for elimination of duplicated costs.

Credit-protection metrics, although improving, remain weakened from the 2000 timeframe.

Total debt-to-EBITDA has reflected recent EBITDA weakness, increasing to 2.5x-4x in each of the four quarters ended Sept. 29 from 0.5x and below throughout 2000 and 2001.

Cash balances were $408 million as of Sept. 29, 2002. Vishay maintains a $660 million revolving credit facility, of which only $5 million was drawn as of June 30, 2002.

S&P cuts LabCorp

Standard & Poor's lowered Laboratory Corp. of America Holdings' subordinated debt to BBB- from BBB, following the agreement to buy Dianon Systems Inc.

The outlook is stable. However, S&P does not expect LabCorp to make additional large debt-financed acquisitions near term, which might result in a change in the ratings or outlook.

At Sept. 30, Burlington, N.C.-based LabCorp had about $635 million in debt outstanding.

The purchase, for $600 million in cash, will be funded with a combination of $350 million bridge loan, borrowings from its credit facility and cash on hand. The transaction is expected to close in first quarter.

The acquisition strengthens LabCorp's position in the profitable, growing anatomic-pathology business and provides several cost-saving opportunities, S&P said. LabCorp will also be able to rationalize laboratory capacity and facilities, which should further reduce costs and make its combined U.S. operations more efficient.

However, competition in the laboratory-services industry remains intense and pricing will remain an ongoing issue, as economic conditions remain soft.

At Sept. 30, LabCorp had $100 million of cash and short-term investments. LabCorp does not have any significant near-term maturities. The company has $744 million in convertibles, which mature in 2021, and a $300 million senior unsecured revolver.

On Sept. 30, 2002, LabCorp repaid both $50 million in borrowings from the revolver.

The company generated about $325 million in cash flow from operations during the first nine months of 2002.

S&P cuts Westport Resources

Standard & Poor's downgraded Westport Resources Corp. and put it on CreditWatch with negative implications. Ratings lowered include Westport Resources' $275 million 8.25% senior subordinated notes due 2011, cut to B+ from BB-, $400 million revolving credit facility due 2005, cut to BB from BB+, $75 million convertible preferred stock, cut to B from B+, and Belco Oil & Gas Corp.'s $150 million 8.875% senior subordinated notes due 2007, cut to B+ from BB-.

S&P said the action follows Westport's proposed acquisition of certain oil and natural gas properties from El Paso Corp. for $502 million in cash.

S&P noted that the company's intention to fund its announced acquisition with approximately $500 million of debt follows the debt-financed purchase of properties from Smith Production Co. for $120 million in September. This transaction will result in both a weakened capital structure and decreased liquidity beyond S&P's expectations.

S&P added that it put Westport on CreditWatch because it is concerned that near-term debt reduction may not be sufficient to maintain the current ratings.

While the company intends to pursue asset sales and a proposed equity issuance as a means to reduce debt, the magnitude and timing of these actions remains in question, S&P said. Should Westport Resources fail to substantially reduce its debt levels in the near-term and show clear longer-term plans for maintaining lower leverage, its ratings will likely be lowered further.

Westport's aggressive capital structure will lead to average profitability measures that are at the low end of S&P's expectations. Westport is anticipated to generate EBIT interest coverage averaging between 1x to 2x and EBITDAX coverage of interest expense between 6x to 7x in the near-term including the full impact of interest related to the debt assumed with recent acquisitions. Operating cash flow is expected to be sufficient to fund Westport's capital expenses, with planned 2003 excess cash flow of approximately $100 million used to repay borrowings under its bank credit facility. Debt leverage is expected to remain somewhat aggressive in the near- to medium-term as Westport endeavors to repay debt through various means.

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