S&P cuts Qwest

Standard & Poor's downgraded Qwest Communications International Inc. and changed the CreditWatch to developing from negative. Ratings lowered include Qwest Communications' senior unsecured debt, cut to B from BB, Qwest Capital Funding Inc.'s senior unsecured notes, cut to B from BB, and senior unsecured bank loan, cut to B from BB+, Qwest Corp.'s senior unsecured debt, cut to B+ from BB+, and LCI International Inc.'s senior unsecured debt, cut to B from BB+.

S&P said it lowered Qwest because it believes there is a higher degree of uncertainty about the company's ability to meet the debt-to-EBITDA covenant in its $3.4 billion bank loan, coupled with increased risk that the company will not be able to meet its roughly $6.5 billion in maturities beginning in May 2003 and continuing through 2004, including repayment of the bank loan, which is due in early May 2003.

Previously, S&P said it had expected that the company would be able to pay off these upcoming debt maturities with proceeds from the sale of its directories business for about $8 billion in total.

However, it is now more likely that the company will have to sell this business on a piecemeal basis to expedite receipt of proceeds because sale of a portion of the business is subject to regulatory approval by at least several states and the timing for such approval is even more uncertain, S&P said. Moreover, proceeds from the unregulated part of the business and attendant debt pay-down may prove insufficient to meet the 4 times debt-to-EBITDA test contained in the bank loan agreement.

S&P also said it believes the current SEC investigation could result in the restatement of the company's prior years' financial statements. It is not clear if such a restatement would have an impact on the company's ability to meet terms under its bank loan agreement for 2001. In particular, it is uncertain whether a restatement would trigger the material adverse change clause under the loan agreement if the company's restated financial metrics bring it out of compliance with the maximum 3.75x total debt-to-EBITDA required in the bank loan agreement for the period in question, S&P added.

S&P said it lowered Qwest Capital Funding's bank loan to the same level as the unsecured debt at Qwest Capital Funding to reflect that this debt is pari passu with the public unsecured debt.

Previously, the bank loan had been the same as the corporate credit rating because its near-term full recovery prospects were considered superior to that of the public debt, S&P said.

The bank loan agreement specifically requires the company to prepay the bank loan with asset sales proceeds until the outstanding loan is $2 billion or less; S&P said it had previously expected proceeds from the directories sales to be used to pay down the full bank loan by its May 2003 maturity. However, given heightened uncertainties about the prospects for a near-term sale of the entire directories business, the bank loan's credit risk is now comparable to that of the unsecured public debt.

Moody's rates URS Corp's loan Ba3, notes B1; lowers outlook

Moody's Investors Service assigned a Ba3 rating to URS Corp.'s proposed $650 million senior secured bank facility and a B1 rating to its proposed $250 million seven-year senior notes. The existing $200 million senior subordinated notes due 2009 were confirmed at B2 as was the Ba3 senior implied rating and the B1 senior unsecured issuer rating. The outlook is lowered to stable from positive.

The proposed credit facility consists of a $200 million revolver due 2007, a $100 million secured term loan A due 2007 and s $350 million secured term loan B due 2008. Proceeds from the term loans and the notes plus $approximately $170 million of new equity will be used to fund the purchase of EG&G Technical Services from the Carlyle Group. Remaining proceeds will be used to refinance the $354 million outstanding amount of URS Corp.'s existing bank loan. The revolver will probably be undrawn at closing and will be used for working capital purposes.

The ratings and outlook change reflect integration challenges in assimilating two separate companies, URS Corp.'s negative tangible net worth and its active acquisition strategy, Moody's said.

Ratings are supported by the company's improving credit profile since 1999, successful integration of Dames & Moore, benefits to be garnered by the EG&G acquisition, significant organic growth opportunities, diversity of contracts and size of its backlogs, Moody's said.

Following the acquisition, total debt to capitalization will rise to 59%, total debt to EBIDTA will rise to 3.7 times and EBIDTA to interest will fall to 3.1 times.

S&P cuts WorldCom

Standard & Poor's downgraded WorldCom Inc. including cutting some ratings to D. Ratings lowered include WorldCom's long-term corporate credit rating, cut to D from C, short-term corporate credit rating, cut to D from C, 7.375% senior unsecured notes due 2006, cut to D from CC, and Intermedia Communications Inc.'s long-term corporate credit rating and 8.5% senior unsecured notes due 2008, both cut to D from CC. WorldCom, Intermedia and MCI Communications Corp.'s remaining senior unsecured debt was cut to C from CC and kept on CreditWatch with negative implications. WorldCom and Intermedia's preferred stock remains at C on CreditWatch with negative implications and Intermedia and MCI's subordinated debt remains at C on CreditWatch with negative implications.

S&P said the action follows WorldCom's failure to pay interest on its 7.375% senior unsecured notes and the 8.5% senior unsecured notes of Intermedia.

Although WorldCom has a 30-day grace period to make interest payments on these issues, S&P said it "feels it is unlikely that the payments will be made given the company's weak liquidity position."

Explaining, the remaining downgrades, S&P added that it "does not expect WorldCom to service its debt due to its precarious financial condition and the likelihood of a debt restructuring or Chapter 11 filing in the near term."

Moody's rates ProSiebenSat.1 notes Ba3

Moody's Investors Service assigned a Ba3 rating to ProSiebenSat.1 Media AG's planned offering of senior notes due 2009. The outlook is negative.

The proposed notes will rank pari passu with the ProSiebenSat.1's existing senior unsecured debt, including the eurobond due 2006 also rated Ba3, but Moody's noted the new 2009 notes will benefit from some additional indenture protection compared with holders of the existing 2006 bond, including a change-of-control put.

Moody's said the rating is based on ProSiebenSat.1's position as one of the leading commercial broadcasters in Germany and added that the company should be in a position to continue to operate independently in the German free-to-air TV market on a going concern basis.

The negative outlook reflects the ongoing uncertainty which nevertheless persists surrounding ProSiebenSat.1's ultimate future ownership pending resolution of the KirchMedia insolvency proceedings, Moody's said.

It also takes account of the potential refinancing requirement faced by the group in certain circumstances where there is a change of control, the rating agency added.

S&P rates Bank Mandiri notes CCC

Standard & Poor's assigned a CCC rating to PT Bank Mandiri's planned $100 million subordinated notes due 2012.

S&P said the rating is based on the issue's subordinate ranking to all senior unsecured debt of Mandiri, but ranks pari passu with all future unsecured and subordinated debt.

As the bank's counterparty credit rating of B- is non-investment-grade, the proposed issue is rated two notches below the bank's counterparty credit rating, S&P said. That notching is in accordance with S&P's criteria, which hold that for non-investment-grade ratings as default risk increases the concern over recoverability takes on greater relevance, and therefore, the greater rating notching.

S&P added that the negative outlook on the bank's long-term counterparty rating recognizes both the severe operating environment facing Bank Mandiri and the significant financial pressures on the Indonesian government.

The struggling domestic economy substantially reduces the degree of freedom the bank has to improve its own financial profile, S&P said.

Moody's cuts Advanced Glassfiber

Moody's Investors Service downgraded Advanced Glassfiber Yarns LLC including lowering its $148 million 9 7/8% guaranteed senior subordinated notes due 2009 to C from Caa3 and its $50 million guaranteed senior secured revolving credit facility due 2004, $57 million guaranteed senior secured term loan A due 2004 and $95 million guaranteed senior secured term loan B due 2005 to Caa3 from B3. The outlook remains negative.

Moody's said the downgrade reflects the heightened likelihood of only a partial recovery of principal for Advanced Glassfiber Yarns' senior secured lenders, implying only a marginal recovery, if any, of principal for the company's senior subordinated noteholders.

Advanced Glassfiber did not make the July 15 interest payment on the senior subordinated notes and is currently in discussion with senior secured lenders regarding a potential restructuring of the company's debt, while the senior lenders forbear from exercising their rights and remedies through Aug. 13, 2002.

The protracted downturn in telecommunications service provider and enterprise information technology spending should continue to constrain capacity utilization, adversely affect operating performance, and erode the market valuation of the company's property, plant, and equipment. Moody's said.

Additionally, the company announced that it expected to take a goodwill impairment charge ranging from $75 million to $150 million during fiscal 2002.

Moreover, the tenuous financial position of BGF Industries, Advanced Glassfiber's largest customer which itself was prevented from meeting a July 15 interest payment, could create further pressure on operating performance, and thrust into jeopardy a portion of the company's receivables, Moody's said.

S&P says Deutsche Telekom unchanged

Standard & Poor's said Deutsche Telekom AG's ratings and outlook are not affected by the resignation of Ron Sommer as chairman of its board of management. S&P currently gives Deutsche Telekom a BB+ corporate credit rating with a stable outlook.

Deutsche Telekom continues to be excessively leveraged for its ratings and it is assumed that the group will generate free cash flow and improve its ratio of adjusted debt to EBITDA to about three times as assets are sold, as controlled EBITDA (that is, EBITDA generated by controlled subsidiaries) grows, and as capital expenditure cuts strengthen cash flow, S&P said.

S&P added that it will continue to monitor closely the progress of Deutsche Telekom's debt reduction strategy and its operational performance, with a particular focus on the performance of its key domestic fixed-line business and its U.S.-based mobile subsidiary Voicestream Wireless Corp.

The current ratings on Deutsche Telekom "incorporate no headroom for underperformance," S&P said.

S&P puts Fairchild on watch developing

Standard & Poor's put Fairchild Corp. on CreditWatch with developing implications. Ratings affected include Fairchild's $225 million 10.75% senior subordinated notes due 2009 at CCC+ and $100 million revolver due 2005 and $225 million term loan due 2006, both at B+.

S&P said the action reflects Fairchild's announcement that it is selling its main unit, Fairchild Fasteners, to Alcoa Inc. for $657 million in cash.

Fairchild plans to use the proceeds to repay its bank debt and to commence a tender offer for its outstanding $225 million 10.75% senior subordinated notes due 2009. The sale is expected to close before Nov. 30, 2002. Fairchild had approximately $492 million in debt at March 31, 2002.

Fairchild Fasteners is a leading supplier of fasteners and fastening systems to commercial aerospace, defense, and industrial markets and had sales of $571 million in the 12 months ended March 31, 2002, almost 90% of Fairchild's total revenue, S&P said. The rest of the company's sales are derived from the distribution of aircraft parts.

Fairchild will be essentially debt free after the sale of its fasteners subsidiary, but the scope of its business will be drastically reduced, S&P noted.

S&P says AMR unchanged

Standard & Poor's said AMR Corp.'s ratings and outlook are unchanged on the announcement of a "heavy" second-quarter 2002 net loss of $495 million." S&P gives AMR and its American Airlines Inc. unit a BB- corporate credit rating with a negative outlook.

American Airlines' revenue performance was weak, with a 10% decline in passenger revenues per available seat mile, worse than the expected industry average decline for the quarter, S&P noted.

This reflects in part the airline's concentration in several particularly weak markets: domestic business markets, routes to the U.K., and routes to South America.

Cost performance was better, with cost per available seat mile up less than 1%, despite decreased flying (which tends to drive up costs per available seat mile), S&P said.

AMR anticipates a further sizable operating loss in the third quarter, with a material write-down of goodwill also possible, S&P noted.

Despite the substantial losses, AMR's liquidity remains satisfactory, with $2.6 billion of cash, an undrawn $1 billion secured credit facility (due Sept. 30, 2002), and $6 billion unencumbered aircraft potentially available for secured borrowing, S&P said.

Moody's puts Fairchild on upgrade review

Moody's Investors Service put The Fairchild Corp. on review for possible upgrade. Ratings affected include Fairchild's $244 million senior secured bank facility at B1 and $225 million 10.75% senior subordinated notes due 2009 at Caa1.

The action was prompted by Fairchild's announcement it has signed a definitive agreement to sell its Fasteners business for approximately $657 million in cash to Alcoa Inc. Additionally, the company may also receive up to $50 million in cash, depending on an earnout formula based on the number of Boeing and Airbus commercial aircraft deliveries during 2003-2006.

Proceeds from the sale will be used to repay bank debt, to commence a tender offer at par for the redemption of all of the outstanding senior subordinated notes and to provide funds for new acquisitions.

Moody's said its analysis will focus on the new business mix of the company, the cash-flow generation potential and the protection it will provide for the remaining part, if any, of the credit facilities.

The Fasteners division alone is a significant part of Fairchild's business with revenue of about $540 million in FY2001 ended in June, 2001 (86% of total revenue) and assets of $580 million (48% of total assets).

After the sale, and before any acquisitions, majority of Fairchild's business will be concentrated in real estate, including shopping center in Farmingdale, N.Y. and in aerospace distribution through its wholly-owned subsidiary Banner Aerospace, Inc., Moody's noted.

Moody's rates Constar notes B3, loan B1

Moody's Investors Service assigned a B1 rating to Constar International, Inc.'s proposed $250 million guaranteed secured credit facility and a B3 rating to its proposed $200 million senior subordinated notes due 2012. The outlook is stable.

Moody's said the ratings are prospective for the initial public offering of Constar from its former parent Crown Cork & Seal scheduled for August 2002 (anticipated proceeds of $150 million) and for the concurrent proposed transactions involving a $250 million secured credit facility and a $200 million senior subordinated notes issuance.

Moody's said the ratings reflect its concern about the sustainability of Constar's already weak EBIT margins notably given the current level of price discounting essentially used to buy volume throughout this less than favorable competitive pricing environment.

The current business mix, which is weighted toward more commoditized products (i.e. PET carbonated soft drinks) as well as significant customer concentrations (the top 10 customers account for approximately 63% of consolidated 2001 revenues), exacerbates this issue, Moody's said.

The ratings also reflect the capital intensive nature of the business and the cumulative time lag between sizable historical capital investments and adequate returns, Moody's added.

Moody's said that pro-forma liquidity is adequate given the company's anticipated ability to fund its working capital needs internally with likely modest reliance on the proposed revolver.

Furthermore, expected cushion under proposed covenants should provide orderly access to bank financing, Moody's said. Liquidity benefits from approximately $87 million available under the proposed revolver at closing.

For fiscal 2002, pro-forma for the proposed transactions, the balance sheet is weak with intangibles of approximately $332 million exceeding equity of approximately $244 million, Moody's said. Pro-forma financial leverage is high with total debt to EBITA at 11.5 times (4.2 times pro-forma EBITDA of approximately $87 million).

S&P rates Constar notes B, loan BB-

Standard & Poor's assigned a B rating to Constar International Inc.'s planned $200 million senior subordinated notes due 2012 and BB- rating to its planned $100 million revolving credit facility due 2007 and $150 million term due 2009. The outlook is stable.

Pro forma for the proposed financing plans, total outstanding debt will be about $363 million, S&P said. Constar, a wholly owned subsidiary of Crown, Cork & Seal Co. Inc. since 1992, will be about 45% owned by Crown following a proposed IPO. Proceeds from the debt financings and IPO (expected proceeds of about $140 million) will be transferred to Crown, which will use the funds to repay its outstanding debt.

S&P said Constar's ratings reflect a below-average business profile in the fragmented and highly competitive rigid plastic packaging industry and an aggressive financial profile.

Constar's business position is supported by leading market shares in polyethylene terephthalate (PET) containers for carbonated beverages and water, long-standing and mostly contractual relationships with well-established customers, and modest geographic diversity, S&P said.

Contractual provisions that allow for the pass through of raw material price changes generally mitigate vulnerability to PET resin price increases, although some temporary margin contraction can be expected during periods of rapid price change, S&P added.

Still, the business profile recognizes Constar's dependence on a narrow product line and a high level of customer concentration, with the largest customer, PepsiCo., accounting for about 37% of revenues, and the top 10 customers contributing about 63% of revenues, S&P said.

The company plans to grow in the value-added, custom PET container segment for food, non-carbonated beverages, beer and flavored alcoholic beverages, which currently represent about 13% of its overall revenues, S&P continued. Although significant conversion opportunities are driving double-digit growth in the custom PET container market, it is currently dominated by three players and requires advanced technologies and product designs, some of which are proprietary.

S&P cuts Ziff Davis Media notes

Standard & Poor's downgraded Ziff Davis Media Inc.'s $250 million 12% subordinated notes to D from C following the company's failure to make its scheduled July 15 interest payment.

The corporate credit rating and senior secured bank loan ratings, both at CCC-, remain on CreditWatch with negative implications where they were placed on Aug. 14, 2001.

A significant majority of the holders of the senior subordinated notes have agreed to participate in an exchange offer, which has been extended until July 23, 2002, S&P noted.

This offer would significantly reduce the company's cash interest requirements over the next few years.

In conjunction with the exchange being completed, Willis Stein & Partners, III, LP, the company's controlling stockholder, has also agreed to make an equity infusion of $80.0 million, S&P added. The bank loan ratings will be lowered to D if the company files for Chapter 11 protection.

Advertising pages in the company's publications remain weak reflecting depressed high tech advertising demand, S&P said. The company incurred a pre-tax restructuring charge of $22.5 million in the second quarter ended June 30, 2002, to implement an operational restructuring.

EBITDA losses, including developing businesses, narrowed to $0.5 million in the quarter ended June 30, 2002, from $13.9 million a year ago due to cost reductions and reduced Internet losses, S&P said.

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