S&P rates Baxter mandatory A

Standard & Poor's assigned an A senior unsecured debt rating to Baxter International Inc.'s proposed $850 million senior unsecured mandatory convertible notes.

The outlook is stable, reflecting an expectation that Baxter will meet remaining near-term obligations in a conservative manner and exercise disciplined financial policies in regard to acquisitions and R&D spending, S&P said.

The offerings supplement current liquidity sources and enable Baxter to reinstate a more conservative capital structure and a more manageable debt maturity schedule.

Ratings reflect Baxter's position as a leading medical-products manufacturer, with relatively non-cyclical and well-entrenched primary product lines that demonstrate strong cash-flow characteristics.

Strengths are offset by vulnerability to both technological change and the financial investment required to remain a diversified leader, S&P added.

Operating margins are expected to average in the mid-20% area, funds from operations to total debt above 50% and EBITDA interest coverage above 12x. Medium-term capital structure is expected to average a more conservative 30% to 40% total debt to total capital once the company meets near-term obligations.

The ratings assume that Baxter will use less aggressive hedge instruments in connection with its employee stock option program and will contribute material equity funding in the event of a large acquisition, S&P said.

Liquidity benefits from very strong operating cash flow, nearly $280 million of cash and short-term investments at Sept. 30, $1.6 billion of senior unsecured revolving bank facilities maturing in 2003 and 2007 and up to $375 million of issuance capacity after these offerings.

Material cash obligations could temporarily obligate a portion of liquidity near term, including about $750 million to unwind remaining equity forward purchase contracts and potential $800 million put in mid-2003 on the 1.25% convertible bonds.

Baxter also has contingent liabilities in the form of several pending product-liability lawsuits. However, S&P believes potential obligations can be adequately met by established reserves and longer term liquidity sources.

Moody's cuts American Electric Power

Moody's Investors Service downgraded American Electric Power Co.'s senior unsecured rating to Baa2 from Baa1 and placed its commercial paper under review for possible downgrade. The long-term rating remains under review for possible downgrade as well.

The downgrade reflects declining earnings and operating cash flow, poor returns from substantial non-regulated investments, a high dividend payout ratio that reduces financial flexibility and continuing financial drag from the large energy trading business while the company winds down its speculative trading activity, Moody's said.

AEP appears to have reasonably strong liquidity to support its businesses as it has taken steps to strengthen liquidity and to reduce leverage through the sale of common equity and assets.

Moody's does not currently anticipate that the rating of AEP's senior unsecured debt would fall below investment grade.

S&P cuts PerkinElmer to junk

Standard & Poor's lowered PerkinElmer Inc.'s senior unsecured ratings to BB+ from BBB- and assigned a BB+ bank loan rating to the proposed $445 million senior secured credit facilities due 2008 and a BB- rating to the proposed $225 million of senior subordinated notes due 2012.

The outlook is stable, as S&P expects material debt reduction in the next year along with improved operating performance to result in stronger credit measures that are more consistent with the rating.

The rating action is based on weak credit measures for the rating and sub-par operating performance in 2002.

Ratings previously incorporated the expectation that management would divest its Fluid Sciences business, and use proceeds from the sale to reduce debt and improve credit measures. Management decided to retain that business.

Management's refinancing actions provide the benefit of extending potential near-term maturities and enhancing liquidity, but they do not materially improve credit measures, S&P said.

Proceeds will be used to repay the existing credit facility and to repurchase outstanding 0% convertibles and senior notes.

Pro forma for the financing actions, liquidity is expected to be sufficient to meet intermediate term needs. As of September, cash and cash equivalents were $98 million with the cash balance expected to be in the $40 million area after financing actions and proposed debt repayments.

S&P cuts Cypress

Standard & Poor's lowered Cypress Semiconductor Corp.'s ratings, including the convertibles to B- from B.

The downgrade reflects a belief that profitability and financial flexibility metrics are not likely to return to former levels over the intermediate term, S&P said.

Ratings reflect ongoing stresses in the data networking and computing markets and diminished financial flexibility.

The company has opportunistically repurchased debt, which has reduced its interest obligations and moderately reduced longer-term maturities. But the repurchases have reduced near-term liquidity, at a time of uncertain business conditions. These factors have all reduced the company's financial flexibility, S&P added.

Cash and equivalent balances at Sept. 30 were $234 million. This level of liquidity provides relatively little cushion for any unforeseen circumstances, as Cypress does not have a revolving credit agreement.

The outlook is negative, as Cypress faces substantial price pressures and soft market conditions. If profitability does not improve, or if other financial measures continue to erode, ratings could be lowered.

Moody's ups Merrill Lynch outlook

Moody's Investors Service raised the outlook on the long-term ratings of Merrill Lynch & Co. Inc. (senior unsecured at Aa3) to stable from negative, saying the firm continues to make good progress in improving core profitability in a challenging revenue environment.

As a result, Merrill Lynch has narrowed the gap between its operating margins and those of other comparably rated securities firms, as third quarter results provide concrete evidence of the profitability improvement, Moody's said.

Emphasis on expense reduction, efforts to grow recurring revenues and the exit from less-profitable businesses, may also lead to lower earnings volatility in the future.

Merrill Lynch continues to maintain very strong liquidity with a $12.5 billion portfolio of liquid securities immediately available. The firm also holds other securities collateral, which can be pledged or sold, to meet obligations that come due within the next year.

Merrill Lynch remains disciplined in its approach to market and credit risks and allocates equity to all transactions reflecting economic risk, Moody's said.

Nonetheless, the credit and liquidity risks posed by wholesale loans and commitments remain an area of concern for Moody's.

Moody's expects commitments from syndicated loans to fluctuate from quarter to quarter at Merrill Lynch, since the absolute size of this portfolio is still small and transactions turn over fairly quickly. However, rapid growth, or excessive concentrations, in Merrill Lynch's credit portfolio may put pressure on the rating.

S&P rates SanDisk convert CCC+

Standard & Poor's assigned SanDisk Corp.'s 4.5%convertible due 2006 a CCC+ rating.

The rating reflects SanDisk's leading position in the flash memory card market and a moderate capital structure offset by the sometimes-extreme volatility in pricing and volumes of the flash memory market, S&P said.

SanDisk's financial profile has improved since 2001 when the company generated EBITDA losses of $121 million. Operating cash flow of $65 million for the three quarters ended Sept. 30 reflects a combination of improved profitability and reduced working capital.

Still, profitability and cash flows are subject to a high degree of uncertainty.

The outlook is stable. Although SanDisk faces unpredictable demand ramp-up, its cash position should provide a cushion over the intermediate term as it tries to capitalize on the expected rapid growth in the market for flash cards, S&P said.

S&P rates Navistar convertibles BB-

Standard & Poor's assigned a BB- rating to Navistar International Corp.'s $190 million convertible notes.

Moody's confirms Westport, rates notes Ba3

Moody's Investors Service confirmed Westport Resources ratings, ending a review for downgrade, and assigned a Ba3 rating to its new $300 million senior subordinated notes due 2011. Ratings confirmed include Westport's $275 million of 8.25% senior subordinated notes due 2011 and $126 million of 8.875% senior subordinated notes due 2007 at Ba3 and $75 million convertible preferred stock at B1.

Moody's noted that the subordinated note ratings are one notch below the Ba2 senior implied rating but that Westport's bank agreement calls for its banks to become secured by virtually all of its oil and gas reserves if its senior implied rating is not upgraded to Ba1 by year-end 2003. It is thus highly possible the note ratings would be notch down by one rating level to B1.

Moody's began the review on Nov. 8 after Westport announced it a $520 million acquisition of Uinta Basin (northeastern Utah) natural gas reserves, gathering and processing assets, and exploration acreage from El Paso.

The purchase is a potentially transforming transaction, adding a new core area of large scale, concentration, and considerable exploitation potential, Moody's said. It adds visibility to production replacement, lengthens the proven developed (PD) reserve life, and reduces Westport's reliance on short-lived Gulf of Mexico (GOM) and South Texas production.

The issue of $250 million of gross equity this quarter funds almost 50% of the purchase price and properly shifts a large amount of the fully-priced acquisition's substantial development, exploration, and regional price risk to the most junior level of capital, Moody's said. Westport's basis risk and price risk hedging program protects 2003 realized prices.

Westport also says it will under-spend expected 2003 cash flow by $100 million and sell up to $100 million of non-strategic assets to further reduce debt, Moody's said.

S&P confirms Westport, rates notes B+

Standard & Poor's confirmed Westport Resources Corp.'s ratings, removed it from CreditWatch with negative implications and assigned a B+ rating to its new $300 million 8.25% senior subordinated notes due 2011. Ratings confirmed include Westport Resources' $275 million 8.25% senior subordinated notes due 2011 at B+, $600 million revolving credit facility due 2005 at BB and $75 million convertible preferred stock at B and Belco Oil & Gas Corp.'s $150 million 8.875% senior subordinated notes due 2007 at B+. The outlook is now stable.

S&P said the rating actions follow Westport Resources' successful pricing of a 10 million share common stock offering with net proceeds of roughly $188 million in combination with an already completed private placement of $50 million in equity that will bring Westport Resources' expected, year-end 2002 debt leverage down to the low-40% range from above 50%.

Also, the company intends to underspend cash flow by $100 million in 2003 to provide additional cash for debt reduction, S&P noted. Cash flow in 2003 is supported by natural gas price hedges at prices above $3.75 per million cubic feet on 100% of the projected production, from the acquired El Paso Corp. properties.

The ratings on Westport Resources reflect its midsize reserve base and moderate financial profile, reflected by its somewhat aggressive debt leverage, S&P said. The pending acquisition of properties from El Paso should give Westport Resources a backlog of over 2,000 exploitation projects, strengthen its position in the Rocky Mountains region, and further its diversification away from reliance on the Gulf of Mexico for production. These advantages are offset in part by high finding and development costs, with little near-term improvement expected.

Moody's puts Nissho Iwai on upgrade review, Nichimen on downgrade review

Moody's Investors Service put Nissho Iwai Corp.'s long-term unsecured senior debt rated B2 on review for possible upgrade and Nichimen Corp.'s long-term unsecured senior debt rated B1 on review for possible downgrade. Moody's also put Nissho Iwai's convertible debentures at B2 on review for possible downgrade.

Moody's said the action follows the companies' announcement of plans for business integration under a newly created holding company structure. The downgrade review on Nissho Iwai's convertibles is because they are likely to be moved to the holding company where they will have structural subordination.

Moody's said it believes the plan to create a new holding company with the objectives of achieving further expense reduction, coupled with planned re-capitalization at the holding

company, may have the potential to positively impact the rating of Nissho Iwai. However, the credit risk profile of Nichimen may be negatively impacted by future integration of its business with larger sized counterpart.

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