Moody's cuts Cypress Semiconductor

Moody's Investors Service downgraded Cypress Semiconductor Corp. including cutting its $186 million 3¾% convertible subordinated notes due 2005 and $283 million 4% convertible subordinated notes due 2005 to B3 from Ba3.

Moody's said the downgrade reflects continued weakness and low visibility in Cypress Semiconductor's computing and communications end markets.

Third quarter revenues of $205 million, the fourth sequential increase since the $180 million trough in the third quarter of fiscal 2001 was recorded, failed to enable the company to achieve break even EBITA, while low bookings activity has led the company to prepare for a 5-10% decline in fourth quarter revenues, Moody's noted.

As of Sept. 29, 2002, debt to last 12 months EBITDA was 4.7 times, having increased from 1.1 times at the end of fiscal 2000 and 2.5 times at the end of fiscal 2001, Moody's said. This is relatively high for a semiconductor company.

Cypress' inveterate, albeit aggressive, management team has proven itself adept in continually managing through semiconductor industry volatility over the company's 20-year operating history, but the protracted character of the current downturn and constricted capital markets raise liquidity concerns for the company's IDM (integrated device manufacturer) business model, Moody's said. Cash, short-term and long-term investments were down to $235 million, including $62 million of restricted investments, at the end of the third quarter end, compared to $1.16 billion at the end of fiscal 2000.

S&P cuts Mosel Vitelic

Standard & Poor's downgraded Mosel Vitelic Inc. The outlook remains negative.

Ratings lowered include Mosel Vitelic's $150 million 1% exchangeable bonds due 2005, cut to CCC+ from B-.

S&P cuts DDi

Standard & Poor's downgraded DDi Corp. and maintained a negative outlook. Ratings lowered include DDi's $100 million 5.25% convertible subordinated notes due 2008 and $100 million 6.25% convertible subordinated notes due 2007, cut to CCC- from CCC+, and $300 million credit facility due 2003, cut to CCC+ from B, and Details Capital Corp.'s $60.054 million 12.5% senior discount notes due 2007, cut to CCC- from CCC+.

S&P said it lowered DDi because of its vulnerable credit measures and weak operating performance.

A severe downturn in the printed circuit board (PCB) fabrication industry caused DDi's sales to fall nearly 40% in the first nine months of 2002 from the like period in the prior year, S&P noted. Management's rationalization and restructuring actions have not been enough to offset the severe sales decline as the PCB fabrication industry copes with overcapacity and aggressive price competition.

The company generated less than $6 million of EBITDA in the first nine months of 2002, S&P added. Deteriorating cash flow protection measures are a concern as EBITDA coverage of interest is likely to be well below 1 times for 2002, from more than 4x in 2001.

Operating margins, which were in the 20%-25% range during the past three years, are likely to remain pressured and below 5% in the near term because of low sales and capacity utilization, S&P said.

S&P cuts Ipsco to junk

Standard & Poor's downgraded Ipsco Inc. to junk. Ratings lowered include Ipsco's $100 million 6.94% senior notes series A due 2004, $100 million 7.32% senior notes series B due 2009, $200 million revolving credit facility due 2005, C$100 million 7.8% debentures due 2006 to BB+ from BBB- and C$550 million 5.5% cumulative redeemable first preferred shares to B+ form BB. The outlook is stable.

S&P said its lowered IPSCO because weak demand for its core products has led key financial measures to fall below expectations. The prospects for improvements are clouded by uncertainty in industrial end markets.

Ipsco's fair business position as a competitive steel minimill producer of coil and plate to industrial users, and tubular goods to the energy industry is offset by a weakened financial profile stemming from an extended period of difficult steel conditions, particularly in the market segments that Ipsco serves, S&PO commted.

The outlook for the company's markets is mixed. Demand for plate and coil from industrial users is tied to North American economic growth, and the outlook is increasingly uncertain, S&P said. Demand from the oil and gas industry, which accounts for about 35% of revenues, has run below expectations but is expected to pick up over the winter.

The effect of poor market conditions on Ipsco's credit measures has been compounded by capital expenditures undertaken to complete its third minimill, which increased the company's debt levels and added capacity during a period of weak demand, S&P said. Management responded to this weakness through a C$125 million equity issue in the spring, which reduced total adjusted debt to capital to about 37% (31% treating convertible subordinated notes as equity). Trailing EBIT and EBITDA interest coverage ratios are weak at 1.2 times and 2.3x, respectively.

Moody's cuts CenterPoint Energy to junk, rates loan Ba1

Moody's Investors Service downgraded CenterPoint Energy, Inc. to junk, affecting $12 billion of debt, and assigned a Ba1 rating to its new $3.85 billion bank facility. Ratings lowered include CenterPoint's senior unsecured debt, cut to Ba1 from Baa2. Moody's also lowered CenterPoint Energy Resources Corp.'s senior unsecured debt to Ba1 from Baa2 and CenterPoint Energy Houston Electric to Baa2 from A3 and assigned a Baa2 secured rating to its new $850 million secured bank facility.

Moody's said the downgrades reflect the limited financial flexibility experienced by the holding company given delays in spinning-off its 80% owned subsidiary, Reliant Resources, Inc. (RRI, Ba3) which it finally accomplished Sept. 30.

Reliant Resources-related challenges have constrained CenterPoint Energy's access to capital markets and as a result, the company implemented new credit facilities on Oct. 10 which Moody's believes contain onerous terms.

New facilities available to CenterPoint total $4.7 billion in 364 day bank financing, due in October 2003. However, the facilities ($3.850 million available to the parent and $850 million available to the Houston Electric) mature on Nov. 15 unless $420 million is arranged at Houston Electric to replace a maturing bond. Both facilities contain mandatory commitment reductions next year ($600 million in each of February and June of 2003 for the parent, and $450 million in April for the Houston Electric.) The company is in discussions with third parties to arrange the financing and plans to access the capital markets to replace bank funding next year.

The negative outlook at CenterPoint Energy reflects near term liquidity challenges in the mandatory commitment reductions required in the bank financing, Moody's added. The negative outlook at CenterPoint Energy Resources reflects its dependence upon CenterPoint Energy for interim liquidity needs.

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