Moody's warns on wireline telecom sector

Moody's Investors Service warned that the worsening economy is likely to put further downward pressure on the "constrained liquidity and fragile business prospects" of many new wireline telecom operators. The rating agency put a series of issuers on review for downgrade and change the outlook to negative on others.

Moody's said its review will compare company projections to recent operating performance and examine the liquidity and funding assumptions for a fully funded business plan.

The rating agency put the following ratings on review for possible downgrade:

--FLAG Ltd.'s Ba3 senior unsecured and issuer ratings and Ba2 senior implied and senior secured debt ratings, FLAG Telecom Holdings Ltd.'s B2 senior unsecured and issuer ratings and Ba3 senior implied rating;

--Fairpoint Communications Inc.'s B1 senior implied rating, B2 issuer rating, B1 senior secured rating and subordinated debt rated B3;

--ITC^DeltaCom's B2 senior unsecured and issuer ratings, B1 senior implied rating, and subordinated debt rated B3; Interstate Fibernet, Inc.'s Ba3 senior secured rating;

--Asia Global Crossing, Inc.'s B2 senior unsecured rating;

--Allegiance Telecom, Inc.'s B3 senior unsecured and issuer ratings and B2 senior implied and senior secured ratings;

--Madison River Capital, LLC's Caa1 senior unsecured and issuer ratings and B2 senior implied rating;

--McLeodUSA Inc.'s B3 senior unsecured and issuer ratings, B2 senior implied and senior secured ratings, and preferred stock rated Caa2;

--GT Group Telecom Inc.'s Caa1 senior unsecured and issuer ratings and B2 senior implied and senior secured ratings;

--Level3 Communications, Inc.'s Caa1 senior unsecured and issuer ratings, B3 senior secured and senior implied ratings, B2 senior secured rating and subordinated debt rated Caa2;

--Williams Communications Group, Inc.'s Caa1 senior unsecured and issuer ratings, B3 senior implied rating, B2 senior secured rating, and preferred stock rated Caa3 (Williams Communications Group Note Trust's Baa3 senior secured rating is confirmed and unaffected by this rating action);

--XO Communications, Inc.'s Caa1 senior unsecured and issuer ratings, B3 senior implied and senior secured ratings, Caa2 subordinated debt rating and preferred stock rated Caa3;

--Pac-West Telecomm, Inc.'s Caa1 senior unsecured and issuer ratings and B3 senior implied rating;

--Choice One Communications, Inc.'s Caa2 issuer rating and B3 senior implied and senior secured ratings;

--KMC Telecom Holdings, Inc.'s Caa2 senior unsecured and issuer ratings and B3 senior implied and senior secured ratings,;

--Primus Telecommunications Group, Inc.'s Caa2 senior unsecured and issuer ratings, Caa1 senior implied rating and Caa3 subordinated debt rating;

--Focal Communications Corp.'s Caa3 senior unsecured and issuer ratings and Caa2 senior implied rating; and

--IMPSAT Fiber Networks, Inc.'s Caa3 senior unsecured rating and Caa2 guaranteed senior unsecured rating.

Moody's changed the outlook to negative and confirmed the ratings of the following companies, saying they were "in a stronger position to survive a potentially more severe and protracted economic downturn":

--Broadwing Inc.'s Ba2 senior unsecured and issuer ratings, Ba1 senior implied and senior secured ratings, Ba3 subordinated debt rating and preferred stock rated B1; Broadwing Communications, Inc.'s B1 subordinated debt and junior preferred ratings (Cincinnati Bell Telephone Company's Baa3 senior unsecured rating is confirmed and unaffected by this rating action);

--GCI Inc.'s B2 senior unsecured and issuer ratings, Ba3 senior implied rating and Ba2 senior secured rating;

--Time Warner Telecommunications, Inc.'s B2 senior unsecured and issuer ratings, B1 senior implied rating and Ba3 senior secured rating;

--Valor Telecommunications, Inc.'s B2 issuer rating, B1 senior implied rating and Ba3 senior secured rating;

--Alaska Communications System Holdings, Inc.'s B2 issuer rating, B1 senior implied and senior secured ratings and subordinated debt rated B3.

Moody's noted several operators have announced capital restructuring plans, largely focusing on bond repurchases. The rating agency said this can provide attractive short-term capital returns and deleverage balance sheets but cautioned they deplete scarce cash.

It commented: "On balance, we consider that bond buy-back programs are generally ratings negative to these issuers prior to the attainment of positive free cash flow. Moreover, these discounted debt buy-back plans serve to confirm explicit recognition, on the part issuers, of the sub-par recovery prospects of unsecured debt-holders."

Moody's puts lodging, leisure and gaming companies on review for downgrade

Moody's Investors Service said it put 15 lodging- and leisure-related companies on review for possible downgrade, four gaming-related issuers on review for possible downgrade, and revised the rating outlook on three gaming-related issuers to negative from stable. Moody's overall outlook for the lodging, leisure and gaming industry is now negative, cut from stable.

The rating agency said its action is in response to the expected deterioration in credit quality resulting from the terrorist attack on Sept. 11. Last week, Moody's put five lodging and four gaming companies on review for possible downgrade.

Moody's said there is still a high degree of uncertainty about the impact of the Sept. 11 tragedy it believes a significant number of ratings are at immediate risk. Companies put on review for possible downgrade include those with debt levels that are already high for their current rating, those required to sell assets and/or restructure operations in the near-term to improve their liquidity profile, those with a heavy reliance on airlines and cruise ships to bring customers to their destination locations and those that pursue material share repurchase programs at the expense of credit quality.

Moody's put the following lodging companies on review for possible downgrade: Extended Stay of America, Inc. (Ba3 senior implied), John Q. Hammons Hotels, LP (B2 senior implied), Lodgian, Inc. (B3 senior implied), Prime Hospitality Corporation (Ba2 senior implied), ShoLodge Inc. (B3 senior implied), MOA Hospitality, Inc. (Caa2 senior implied) and Sunburst Hospitality Corp. (Ba3 senior implied).

Moody's put the following leisure companies on review for possible downgrade: Sun International Hotels Ltd. (Ba2 senior implied), Boca Resorts, Inc. (Ba3 senior implied), American Skiing Co. (B3 senior implied), Vail Resorts, Inc. (Ba2 senior implied), Booth Creek Ski Holdings, Inc. (B3 senior implied), Intrawest Corp. (Ba3 senior implied), KSL Recreation Group, Inc. (Ba3 senior implied), and Bluegreen Corp. (B2 senior implied).

Moody's put the following gaming companies on review for possible downgrade: Boyd Gaming Corp. (Ba2 senior implied), Eldorado Resorts LLC (Ba3 senior implied), Isle of Capri Casinos, Inc. (Ba3 senior implied) and Venetian Casino Resorts, LLC (B3 senior implied).

Moody's revised to negative outlook from stable the following gaming-related companies: Alliance Gaming Corp. (B1 senior implied), Mikohn Gaming Corp. (B2 senior implied) and Herbst Gaming, Inc. (B2 senior implied).

S&P upgrades Nabi 6.5% convertibles to CCC+ from CCC-

Standard & Poor's on Wednesday upgraded its corporate credit rating on Nabi to B from CCC+. At the same time, S&P raised its rating on Nabi's $78.5 million outstanding 6.5% subordinated convertible notes due 2003 to CCC+ from CCC-. S&P said the upgrade reflects Nabi's increased financial flexibility, following its completed the sale of its antibody collection business to Australian-based CSL Ltd. for $152 million in cash. The outlook is stable. S&P noted that Nabi may use proceeds from the sale of the antibody collection sites to retire this debt and fund research and development costs relating to its product pipeline. With lessened concerns surrounding the maturity of its convertible notes and the fact that the company remains marginally cash flow positive, S&P said Nabi enjoys increased financial flexibility.

Fitch affirms AES ratings but revises outlook to negative

Fitch on Wednesday affirmed the ratings of AES Corp.'s senior unsecured debt at BB+ but changed the rating outlook from stable to negative. The ratings of the remarketable or redeemable securities (ROARs) and corporate revolving facility were also affirmed at BB+, senior subordinated notes at BB, convertible junior debentures and term convertible preferred securities (TECONs) at B+, all with a negative outlook. Fitch also said the rating outlooks of IPALCO Enterprises and Indianapolis Power and Light Co. were changed from stable to negative.

The ratings are based on AES' substantial upstream cash flow in the form of dividend income from a diverse list of projects and subsidiaries, Fitch said, noting that parent cash flows are supported by ownership of assets and businesses totaling around $31 billion at yearend 2000. The outlook revision, Fitch said, reflects the increase over the past two years in AES' parent leverage in the form of recourse debt plus non-recourse loans enhanced by collateral of parent company stock. Also, Fitch noted that AES has increased its investment concentration in countries in which non-recourse financing and currency hedges are not readily available. And, Fitch noted that on Sept. 26, AES reduced its earnings guidance for the year 2001 based on lower Brazilian currency valuation; reduced near-term earnings expectation in the U.K. and the absence of additional earnings from expected new business acquisitions that did not occur.

Moody's cuts Nortel ratings

Moody's Investors Service on Wednesday lowered the ratings on Nortel Networks Ltd.'s long term debt and senior unsecured debt to Baa2 from Baa1. Mooyd's also cut Nortel's subordinated debt to Baa3 from Baa2 and preferred stock to Ba1 from Baa3. In addition, Moody's put the long term ratings and the Prime-2 short term ratings on review for possible further downgrade. Nortel's dramatic fall off in revenues and our belief that revenue levels for the foreseeable future will be below Moody's previous expectations prompted the ratings action, the agency said.

Moody's noted that Nortel has been successful in rapidly reducing its cost structure, is ahead of the targets that it set out and anticipates that incremental cost savings will be attained. However, the ability to fully reset its cost structure to a significantly reduced revenue level while maintaining appropriate capacity and employee morale remains a significant challenge.

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