Moody's puts Diamond Offshore on downgrade review

Moody's placed Diamond Offshore Drilling Inc.'s ratings under review for possible downgrade, including the 0% convertible senior debentures at A3 and 1.5% convertible subordinated notes at Baa1.

The review primarily reflects that the company's return on assets, return on equity and EBIT margins are low and well below levels achieved in previous periods of cyclical weakness in drilling, significantly higher debt levels relative to retained cash flow and the lack of free cash flow.

S&P cuts Arris converts to CCC+

Standard & Poor's lowered the ratings of Arris Group Inc., including the convertible subordinated notes to CCC+ from B-, stemming from weakened profitability combined with an uncertain outlook for telephony services over cable systems by multiple service operators.

The outlook is negative.

The rating reflects heavy dependence on capital spending by cable MSOs, significant customer concentration and a competitive business environment. Concerns are partially offset by long-term industry trends favoring broadband and Arris' position as a leading supplier.

Because of weakened profitability, total debt-to-EBITDA has increased to 7.3x for the four quarters ended June 30. A return to profitability is uncertain, making further deterioration in debt protection measures likely.

Cash balances $67 million at June 30 are down from $77 million at March 30 and $98 million at Dec. 30. The redemption of its convertible notes and Nortel Networks Ltd. preferred stock resulted in the declining cash balances, despite the sale of $125 million of new convertible bonds in first quarter.

Along with cash, Arris maintains an asset-based revolving credit facility that allows for borrowing up to $115 million. Contributions from operating cash flow have been neutral to slightly negative in the first half of 2003. Recent acquisitions, including Atoga Systems Inc. and COM21 Inc. also were of no impact.

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