S&P cuts Mirant to junk

Standard & Poor's lowered the corporate credit and senior unsecured ratings on Mirant Corp. and subsidiaries to BB from BBB- and preferreds to B from BB. The outlook is negative.

The cut follows S&P's expectation that probable financial performance in the next two to three years will not support an investment-grade rating and, furthermore, that the combination of depressed power prices, high leverage, and weakening liquidity suggest the potential for greater financial uncertainty.

Dependence on an asset sale strategy to support liquidity, weak trading fundamentals, some uncertainty surrounding Mirant's accounting issues and practices and potential liabilities resulting from legal proceedings indicate a negative outlook.

Favorable developments on all of these challenges are required to move the outlook to stable, S&P said.

The ratings could fall further, however, if Mirant's liquidity position weakens to the point that its ability to meet near-term obligations is in jeopardy.

S&P affirms Dominion ratings

Standard & Poor's affirmed the ratings of Dominion Resources Inc. (BBB+/stable/A-2) and subsidiary Consolidated Natural Gas Co. (BBB+/stable/A-2).

But S&P lowered the ratings on subsidiary Virginia Electric & Power Co. as a result of a review of regulatory insulation in Virginia. It does not reflect diminished credit protection measures, as those on a stand-alone basis remain strong.

The outlook is stable.

Ratings are supported by cash flow stability, favorable regulation and an above-average business profile.

Strengths are offset by the higher-risk nature of integrated energy strategy, heavy capital requirements in, regulatory uncertainty beyond 2007 and financial measures that are currently weak for a BBB+ rating.

Dominion's balance sheet has become over-leveraged, causing cash flow interest coverage ratios to fall below targets on an adjusted basis, S&P said.

Adjusted debt-to-total capital at yearend 2002 is expected to decline to 57% and funds from operations interest coverage should improve to 3.8x, with a commitment to improve interest coverage to 4.0x in 2003.

Dominion has improved liquidity with $100 million extendible commercial notes in July, a $500 million letter of credit facility to support trading operations in August and a $250 million bridge loan to back commercial paper in August.

The company has $2 billion in bank loan revolvers to back its commercial paper program.

Further, despite a tightening of capital for energy merchants, Dominion maintains good relationships with banks and has demonstrated continued access to capital markets.

Dominion has a $1 billion debt maturity coming due at the end of January 2003, expected to be refinanced or partially paid down with proceeds from the recent $1 billion equity issuance.

Another $1 billion in debt maturities are spread out in 2003, with an additional $1 billion spread out in 2004 and 2005. The largest maturity in the medium term, after January 2003, is $700 million senior notes due in July 2005.

The stable outlook is conditional on to improving and sustaining better cash flow interest coverages in 2003 and 2004, S&P added.

Fitch revises Interpublic outlook

Fitch Ratings changed the rating outlook on the debt of The Interpublic Group of Cos. Inc. to negative from stable, reflecting earnings guidance revisions by the company that show credit metrics will be well below previous expectations.

Fitch rates IPG's senior unsecured debt and multi-currency bank credit facility BBB, convertible subordinated notes BBB- and commercial paper F2.

Based on the near-term outlook, if current leverage trends are not reversed, additional rating actions could follow.

Revised guidance indicates the operating shortfall at its Octagon sports marketing business will be significantly more acute than previously anticipated as well as further weakening in marketing services and public relations businesses, Fitch said.

These factors will continue to pressure credit metrics, with debt/EBITDA now expected in a range between 3.0x and 3.5x and adjusted debt/EBITDAR in a range between 4.5x and 5.0x.

While liquidity appears adequate, with $48 million drawn on $875 million of committed credit facilities as of June 30, the negative outlook also reflects concerns about financing flexibility in 2003.

With the $500 million 364-day portion of the committed credit facility expiring in May 2003 and a potential put of $587 million of 0% convertibles in December 2003, IPG is expected to put new financing in place in the near term.

S&P affirms AIMCO ratings

Standard & Poor's affirmed the BB+ corporate credit rating and B+ preferred stock rating on Apartment Investment and Management Co. The outlook is stable.

Ratings reflect a seasoned and deep management team, solid geographic diversification and relatively stable operating performance.

Strengths are tempered by the inherent risks associated with AIMCO's transaction-oriented growth strategy, an aggressive financial profile and the uncertain depth and duration of the currently weak multifamily leasing environment, S&P said.

The financial profile, including capital structure and liquidity, is more aggressive than the typical apartment REIT. Book value leverage was 58% at June 30, up from historical levels due to the highly leverage nature of recent acquisitions. This figure, however, increases to 75% when preferred securities are included.

The leveraged capital structure results in comparatively modest debt coverage measures. Debt service coverage, which includes interest incurred and principal amortization, has been in the 2.2x range.

Fixed-charge coverage, which incorporates preferred dividend payments for the six months-ended June 30 was 1.9x and common dividends were covered roughly 1.2x.

Future ratings improvement would depend on a migration of fixed-charge coverage above the 2.0x range, S&P said.

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