Moody's raises EchoStar outlook, rates notes Ba3

Moody's Investors Service raised its outlook on EchoStar Communications Corp. to positive from stable, assigned a Ba3 rating to EchoStar DBS Corp.'s new $2.5 billion of senior unsecured notes and confirmed the company's existing ratings including EchoStar Communications' $1 billion 4 7/8% convertible subordinated notes due 2007 and $1 billion 5¾% convertible subordinated notes due 2008 at B2 and EchoStar DBS' $1.625 billion 9 3/8% senior unsecured notes due 2009, $455 million 9 1/8% senior unsecured notes due 2009 and $1 billion 10 3/8% senior unsecured notes due 2007 at Ba3.

Moody's said the shift to a positive rating outlook partially incorporates EchoStar's credit strengths, particularly the improving trends, but, importantly, also reflects Moody's expectation that the company will primarily use its excess liquidity to effect a substantial deleveraging of its balance sheet.

While the company's key financial metrics appear comparatively strong in consideration of excess cash balances, further rating action may not be forthcoming prior to the permanent repayment of some portion of currently outstanding debt obligations, Moody's added. It is expected that the company will use the proceeds from the new offerings to retire EchoStar DBS' 9 3/8% and 10 3/8% notes when they become callable in 2004, if not sooner. In addition to this almost dollar-for-dollar effective debt refinancing, however, which will also benefit the company through a fairly material reduction in interest expense, the positive outlook further reflects Moody's belief that a meaningful portion of cash on hand will be utilized to effect a permanent deleveraging of the balance sheet on an opportunistic basis over the ensuing 12 to 18 months.

However Moody's said it remains concerned about the company's medium-to-long-term business prospects, particularly in the absence of a competitive and economically viable high-speed internet service product offering. With most of the major cable system operators having substantially completed their network upgrade programs, which arguably were accelerated in many cases in defense of the rapid encroachment by competing direct broadcast satellite operators such as EchoStar, the company will have to combat the bundled service offerings increasingly being provided by these larger (both on an absolute basis in some instances and on a market-by-market basis in most others) competitors, which will shortly add telephony services to their already in high demand data services.

Overall, Moody's said EchoStar's ratings reflect the company's moderately high financial leverage and modest coverage levels; a heightened competitive environment and related expectations of higher costs to both grow and keep subscribers; and lingering uncertainties with respect to the company's strategic intentions for its considerable current financial flexibility and enhancement of the long-term viability of its business.

Moody's said these broad-based risks serve to constrain what might otherwise appear to be a stronger credit profile. The ratings are wholly supported, nonetheless, by the company's very good liquidity position; ongoing successes in growing its subscriber base and taking market share from incumbent service providers; positive and improving cash flow generation; and correspondingly steady balance sheet improvements, particularly on a comparative basis relative to the company's pay television peer group.

S&P says Nextel unchanged

Standard & Poor's said Nextel Communications Inc.'s ratings are unchanged including its corporate credit at BB- with a stable outlook following the company's issuance of $1 billion of 7.375% senior serial redeemable notes due 2015 and a near-simultaneous announcement by the company that it plans to redeem about $1.2 billion of notes comprising all of its 9.75% senior serial redeemable notes due 2007 and 12.00% senior serial redeemable notes due 2008.

By refinancing more expensive debt, annual free cash flow will moderately increase by about $48 million, S&P said. However, this improvement does not enable the company to materially improve its balance sheet due to the magnitude of total debt.

S&P says AmeriSource-Bergen unchanged

Standard & Poor's said AmeriSource-Bergen Corp.'s ratings are unchanged including its corporate credit at BB+ with a positive outlook in response to issues surrounding the possible ongoing investigation of the company by the Food and Drug Administration and the Federal Bureau of Investigation.

Although the company has not had contact with these agencies since the spring of 2001, the investigation is believed to stem from a customer who illegally resold merchandise purchased from AmeriSource-Bergen, S&P said. The company had discontinued business with this customer in February 2000, prior to the government beginning its investigation, based on its own internal review of suspicious activities. The AmeriSource-Bergen employee associated with the account left the company in the spring of 2000. AmeriSource-Bergen denies that it knowingly sold merchandise to customers who resold the product in violation of manufacturer agreements, or that it knowingly purchased product which had been illegally resold. The company states that less than 2% of its drugs are purchased from secondary sources, and that rigorous systems are in place to monitor the flow of specific product to prevent such illegal activity.

S&P said it will continue to monitor the path of the investigation, if it is still active, and respond as needed to new developments.

AmeriSource-Bergen continues to generate solid profitability and credit measures which support the rating, S&P noted. The operating margin rose for the third quarter ended June 30, 2003, and EBITDA coverage was satisfactory at about 6x.

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