S&P cuts Charter

Standard & Poor's downgraded Charter Communications Inc. and kept it on CreditWatch with negative implications. S&P cut Charter Communications' $500 million 4.75% convertible senior notes due 2006 and $750 million 5.75% convertible senior notes due 2005 to CCC+ from B-, Charter Communications Holdings' $1.018 billion 11.75% senior discount notes due 2011, $1.5 billion 8.625% senior unsecured notes due 2009, $200 million senior discount notes due 2012, $200 million senior notes due 2010, $200 million senior notes due 2012, $300 million 11.75% senior discount notes due 2010, $325 million 10.25% senior notes due 2010, $350 million 9.625% senior notes due 2009, $500 million 11.125% senior notes due 2011, $575 million 10% senior notes due 2011, $600 million 8.25% senior unsecured notes due 2007, $675 million 10% senior notes due 2009, $675 million 13.5% senior discount notes due 2011, $750 million 9.92% senior discount notes due 2011, $850 million senior unsecured notes due 2008 and 2011 notes and $900 million 10.75% senior notes due 2009 to CCC+ from B-, Avalon Cable's $150 million 9.375% senior subordinated notes due 2008 and $100 million 11.875% senior discount notes due 2008 to CCC+ from B-, CC VI Operating Co. LLC's $1.2 billion senior secured credit facility to B from B+, CC VIII Operating LLC's $450 million revolving credit facility due 2007, $500 million tranche A term loan due 2007 and $500 million tranche B loan due 2008 to B+ from BB-, Charter Communications Operating, LLC's $5.2 billion senior secured bank loan to BB- from BB and Renaissance Media's $75 million 10% senior discount notes due 2008 to CCC+ from B-.

S&P said the downgrade follows Charter's release of lower revenue and cash flow guidance for the 2002 fourth quarter.

S&P said it is concerned that the competitive pressure that has eroded the company's basic subscriber base could continue. Charter may be challenged to achieve operating improvement needed to stabilize deteriorating credit measures and generate break-even free cash flow in 2003.

The rating remains on CreditWatch primarily due to uncertainty surrounding the ongoing federal grand jury subpoena into Charter's subscriber accounting practices, S&P added. In an action related to the grand jury investigation, the company announced yesterday that it has terminated its chief financial officer. Charter also terminated its chief operating officer, who had earlier been placed on leave.

Although management changes may likely benefit the company in the longer term, they could be disruptive in the near term, S&P said.

S&P said it is also concerned about the possibility of public debt restructuring transactions, given depressed debt trading levels. Completion of a sub-par exchange offer could be considered coercive to bondholders and tantamount to a default on initial debt issue terms.

Charter lost about 86,000 basic subscribers in the 2002 third quarter, which slowed revenue and operating cash flow growth to 12.6% and 8.7%, respectively, S&P noted. This performance was short of that delivered by other cable operators. Competition from satellite TV services and customer resistance to higher prices in the company's rebuilt markets contributed to the subscriber count reduction. The company expects to lose between 30,000 and 40,000 basic subscribers in the fourth quarter.

To stem customer defections, Charter said that it is testing lower priced programming tiers. However, S&P said it is concerned that less expensive offerings could erode overall pricing power and profitability. Digital cable so far has not helped offset basic service declines. While digital revenues grew by about 39% on a year-over-year basis in the third quarter, digital expenses rose at a faster rate. Digital churn in some of Charter's markets is as high as 5%.

Moody's cuts ASML

Moody's Investors Service downgraded ASML Holding NV including cutting its $520 million 4.25% convertible subordinated notes due 2004 and $575 million 5.75% convertible subordinated notes due 2006 to B3 from B2. The outlook is stable.

Moody's said it lowered ASML because of continued weak market conditions for semiconductor equipment suppliers, with continued resulting pressure on profitability and cash flows, as well as a current lack of visibility regarding the timing and extent of a potential upturn in the industry.

ASML has recently announced an extensive re-structuring program aimed at bolstering profitability and cash flows going forward, in light of continued pressure on shipment levels and top-line growth at least over the next 12 months.

As part of the re-structuring program, the company aims to close its Track division and dispose of its Thermal division, both of which have incurred significant losses over recent quarters.

The closure of the Track division is expected to require cash severance costs of approximately €12 million relating to 300 employees. ASML is currently in discussions with potential acquirers regarding the Thermal business; however, timing of the sale and potential costs associated with the transaction remain highly uncertain.

From a cash flow perspective, the ratings downgrade reflects the expectation that there should be no material improvements in market conditions or unit shipment figures in 2003, Moody's said. Cash flow improvements will therefore derive from internal cost control measures (including paring down R&D expenses, SG&A costs, and capital expenditures), and importantly, from working capital management.

Having invested significantly in new technology over recent years (in particular TwinScan 300mm/193nm technology), there is scope for material working capital improvements, including improved receivables collection (in particular subsequent to the "de-bugging" phase of new technology with customers), inventory reductions (including the negotiation of shorter lead times with suppliers), and tighter payable terms, Moody's said.

Given the significant weight of working capital accounts on the company's asset base (as of June 30, 2002, net receivables and inventories alone accounted for €1.5 billion or 45.3% of total assets of €3.4 billion, including cash and equivalents of €602.8 million), improvements in working capital are likely to have a significant impact on the company's cash flows, Moody's said.

S&P says Duke Energy unchanged

Standard & Poor's said news that Duke Energy Corp.'s Engage Energy Canada subsidiary will have to refund $40.3 million to Alberta's Transmission Administrator will have a minimal effect on earnings since the amount had been anticipated and a reserve set aside.

However, the $40.3 million cash refund, much of which had been anticipated in the company's projections, is still a negative for credit quality, S&P said.

The rating agency added that Duke Energy has been experiencing a string of negative events that contributed to S&P revising its outlook to negative from stable on Dec. 13. S&P rates Duke at A.

Moody's raises ChipPac outlook

Moody's Investors Service raised its outlook on ChipPac, Inc. to stable from negative and confirmed its ratings including its $165 million 12¾% senior subordinated notes due 2009 at B3 and $37 million guaranteed senior secured term loan B due 2006 and $50 million guaranteed senior secured revolving credit facility due 2005 at B1.

Moody's said the action reflects ChipPac's strengthening of its balance sheet with funds raised in 2002 from two equity placements. The outlook also is based on Moody's expectation that the company will continue to comply with the debt leverage and interest coverage covenants on its credit facilities.

During the first half of fiscal 2002 ChipPac raised $163 million in two equity offerings, Moody's noted. In addition it showed year-over-year improvements in revenue and operating margins for the two quarters ended June 30 and September 30, has exposure to the wireless segment, which has exhibited some strength in the demand for back-end services, the benefits of a firming in the worldwide demand for semiconductors.

The ratings, however, also take into consideration ChipPac's leveraged profile, with a pro forma debt to EBITDA, adjusted for the subsequent repayment of the $50 million previously drawn under the revolving credit facility, of 4.5 times for the 12 months ending in the third quarter of fiscal 2002, Moody's said. EBIT would not have provided coverage of interest expense over the same period.

The ratings also reflect uncertainty in the company's computing and consumer end-markets, Moody's said. There have been seven quarters of recorded net income loss, with loss expected in the fourth quarter of fiscal 2002.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.