S&P cuts American Tower

Standard & Poor's lowered American Tower Corp.'s ratings, including the three convertibles - $209.2 million (accreted amount) of 2.25% convertible due 2009, $212.7 million of 6.25% convertibles due 2009 and $450 million of 5% convertibles due 2010 - to CCC from B-.

The rating remains on negative watch due to liquidity concerns.

Also, S&P assigned a CCC rating to American Tower's proposed $400 million senior subordinated discount notes due 2008, the proceeds of which will be used to satisfy a put on teh 2.25% convertible debt issue and pay down bank debt.

The downgrade is due to concerns that weak tower industry fundamentals will make it challenging for American Tower to reduce its heavy debt burden in the next several years, S&P said.

At Sept. 30, debt-to-annualized EBITDA leverage was about 11x. Without significant improvement in industry fundamentals or further reduction in overhead, American Tower could find it difficult to materially lower leverage below the 9x area.

Without completing the new notes offering and amending its bank credit agreement, American Tower faces two liquidity issues near term.

First, the company does not have the cash to satisfy the $200 million convertible put since availability under the bank revolver could not be used to satisfy the put.

Second, the company's annualized operating cash flow to pro forma debt service bank covenant does not leave much headroom against execution missteps.

A successful completion of the new notes offering would enable American Tower to meet the put, reduce proforma debt service as to enable more headroom under this covenant and be free of a liquidity issue for the next two to three years.

Moody's rates American Tower notes

Moody's Investors Service assigned a B3 rating to the pending issue of $400 million (anticipated gross proceeds) of senior subordinated discount notes of American Tower Escrow Corp., a unit of American Tower Corp., and confirmed existing ratings but changed the outlook to negative from stable.

Confirmed ratings included all three convertibles at Caa1.

The revised outlook reflects concern that the company is issuing an expensive and accreting piece of debt that ultimately increases the total amount of debt outstanding and adds pressure to increase cash generation over the intermediate term, Moody's said.

Further, the issuance of these new discount notes puts stress on the ratings of the unsecured debt at American Tower Corp.

Noting the put on the 2.25% convertibles in October, Moody's pointed out that restrictions in the company's credit agreement prohibit American Tower from using undrawn amounts to fund the put.

Absent the proposed debt offering American Tower has little ability to repurchase those notes with cash, as its cash balance at the end of third quarter was $64.9 million.

The company has the option to satisfy the put with shares and thus reduce the amount of debt outstanding, Moody's said, but instead is issuing more debt that will ultimately accrete to over a $700 million obligation at maturity in exchange for retiring $417 million of debt.

The use of additional debt to solve an upcoming liquidity event, while it is immediately debt neutral, ultimately increases the financial risk of the company.

Moody's acknowledged that American Tower has taken aggressive action to improve the stability of its business profile by exiting various service lines and is looking to exit satellite services. This should improve the predictability of future results, but the company still requires substantial growth in cash flow to grow into its balance sheet.

EBITDA has been growing smartly, with 26% sequential growth in third quarter, but despite EBITDA for the nine months ended September 2002 of $210.4 million, the company only generated $35.1 million of cash from operations in that period.

Going forward, factors that could improve the ratings outlook would be equity issuance to truly delever the balance sheet.

The ratings would be negatively effected, however, by any material shortfalls to financial performance, or the absence of any meaningful amortization relief from its bank group, Moody's said.

S&P rates new Freeport-McMoRan notes

Standard & Poor's assigned a B- rating to Freeport-McMoRan Copper & Gold Inc.'s $250 million of senior unsecured notes and affirmed its other ratings, including the convertible preferreds at CCC.

Proceeds from the offering will be used to repay bank facilities that will then allow it to use the facilities along with cash to redeem the Series I gold-denominated preferred stock, which is mandatorily redeemable in August 2003.

Freeport-McMoRan would have been restricted under its bank credit facility from paying dividends or redeeming any of its preferred stock if it did not extended the maturity on 80% of the Series I gold-denominated preferred stocks beyond 2005. This deal will relieve it of that restriction, S&P said.

At year-end 2002, debt leverage was a very aggressive 90% as a result of significant capital expenditures and share repurchase programs. However, the company has not repurchased stock since early 2001 and paid down $300 million of debt in 2002.

The company faces a put on its $250 million of 7.2% senior notes in November, but S&P noted the credit facility allows drawdowns for principal repayments on other debt.

The company generates significant cash flows from operations with free cash flow of $325 million for 2002.

Other sources of liquidity include cash of $463 million available on a $734 million bank credit facility that expires on Dec. 31, 2005.

The outlook is stable, reflecting the expectation that the company will continue to face considerable risk but will meet near-term debt maturities.

Moody's cuts Broadwing

Moody's Investors Service lowered all ratings of Broadwing, Inc., including the convertible bonds to B3 from B2 and convertible preferreds to Caa1 from B3, to reflect concern about its tightening liquidity position, which is exacerbated by debt amortization requirements and funding needs in broadband operations.

The outlook is negative.

Although Broadwing has recently attained positive free cash flow results, this has largely been achieved through spending cuts, and local and wireless businesses generate strong cash flows.

Both businesses, however, represent relatively mature properties whose combined cash flow is unlikely to grow faster than 10%.

Even if Broadwing Communications' cash needs are structurally contained or eliminated through a possible sale of that subsidiary, Moody's considers that Broadwing would still be challenged in its ability to service a debt burden that was originally designed to fund a substantially more aggressive broadband-driven growth model.

At the end of September, Broadwing reported liquidity of $212 million but in Moody's opinion bank covenants constrain its ability to draw down the full balance of its bank revolver.

Broadwing is presently in negotiations with its banks to amend and extend its bank facilities, which are currently scheduled to reduce by $350 million in 2003 and by $995 million in 2004.

Bank syndicate approval of an amendment is necessary to enable the company to meet its 2003 liquidity requirements.

The company also recently announced that Goldman Sachs has arranged a $350 million subordinated debt commitment, which would alleviate some pressure on liquidity by terming out some amortization, Moody's said. This, however, is conditional on the bank amendment.

Assuming that proceeds from this subordinated debt issue are used to pay down bank debt, bank debt would still represent 44% of total debt.

If Broadwing demonstrates that it is able to resolve successfully these overhanging problems, Moody's would expect to change the outlook to stable.

Conversely, if Broadwing is unable to obtain any meaningful progress on these fronts, then its ratings would likely be downgraded.

Moody's raises Central Garden & Pet

Moody's Investors Service assigned a B2 rating to Central Garden & Pet Co.'s proposed $150 million senior subordinated notes and raised its senior unsecured ratings to B1 from B2

The upgrade is subject to the note offering and the prior-to-closing consolidation of all existing credit lines into a $175 million master credit facility maturing July 2004.

The B3 ratings on its $115 million 6% convertible subordinated notes due 2003 will be withdrawn with the completion of the above extensions of credit.

The upgrade reflects the regularization of the capital structure and liquidity profile as a result of the financings, which address concerns about the upcoming maturity of the convertible and Pennington's $95 million revolver, and frictional access to cash flows due to dividend restrictions.

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