Moody's raises Telus outlook

Moody's Investors Service raised its outlook on Telus Corp. to stable from negative, affecting $4.2 billion of securities including its senior unsecured debt at Ba1.

Moody's said the action was prompted by Telus' execution of improvements to negative free cash flow in 2002 which has increased Moody's confidence in the company's ability to generate positive free cash flow in 2003 and 2004, an equity issue subsequent to Moody's July 2002 rating action which modestly strengthened Telus' balance sheet, successful execution of an operational efficiency program, with an increase in expected annual savings, and a strong improvement in Telus Mobility's margin.

In addition, Telus' rating is supported by its strong strategic position as the incumbent telephone company in Western Canada, the absence of significant wireline competition and now-reduced wireless competition, a regulatory environment that favors facilities-based competitors, Moody's view that the financial impact on the company of a new labor contract and/or a strike, should one occur, is manageable, and a new contract should lead to further operating efficiencies, and Moody's expectation that management actions, including any possible acquisitions, will be, at a minimum, neutral to Telus' creditworthiness, given the high priority management has placed on improving its credit ratings.

Limitations on the rating are consolidated negative free cash flow to date, and a high debt level, expected continuing negative cash flow at its eastern Canadian wireline start-up, albeit improving, slowing growth in the wireless industry, which is an important Telus business segment, an expected increase in wireline competition in its territory, and the structural superiority of debt and payables at its main operating subsidiary.

S&P puts East Coast Power on positive watch

Standard & Poor's put East Coast Power LLC on CreditWatch with positive implications including its $184 million 7.066% senior secured notes due 2012, $193.5 million 6.737% senior secured notes due 2008 and $248 million 7.536% senior secured notes due 2017 at BB+.

S&P said the watch placement follows the announcement that El Paso Merchant Energy, a business unit of El Paso Corp. (B+/Negative), has executed an agreement to sell its 99% interest in East Coast Power to GS Linden Power Holdings LLC, a subsidiary of The Goldman Sachs Group Inc. (A+/Stable), for $456 million in cash.

The BB+ rating on East Coast Power is currently a cap on the rating as a result of the ownership of that entity by El Paso, S&P said.

The transfer of ownership to Goldman Sachs will allow East Coast Power to be rated at its BBB- stand-alone credit quality. Therefore, barring any prior changes to East Coast Power's stand-alone credit quality, S&P said it will raise the rating on East Coast Power's senior secured notes to BBB- upon closing of this transaction. The outlook will be stable.

S&P raises Ryland outlook

Standard & Poor's raised its outlook on The Ryland Group Inc. to positive from stable and confirmed its ratings including its $100 million 8.0% senior unsecured notes due 2006 and $147 million 9.75% senior unsecured notes due 2010 at BB+ and $100 million 8.25% senior subordinated notes due 2008 and $143.5 million 9.125% senior subordinated notes due 2011 at BB-.

S&P said the outlook revision acknowledges Ryland's more cautious organic growth strategy and disciplined focus on affordably priced homes, which has resulted in steady revenue increases during the past five years, while consistently high inventory turnover and improved efficiencies have significantly bolstered profitability. These factors should continue to support further improvements in profit margins, which have historically been below average relative to like-positioned peers.

While revenues have grown at a moderate and consistent pace during the past five years, net earnings have expanded at a more robust rate of nearly 50% as homebuilding operating margins have doubled to 10.7% due to growing unit sales and prices combined with tighter cost controls and increased operating efficiencies, S&P said.

It is important to note that these margin improvements have not been inflated by aggressive price increases, with the average home price rising at an annual rate of only 3%, as Ryland has kept a disciplined focus on affordable first-time and move-up homes.

Ryland has a conservative capital structure with modest debt levels and a largely tangible and fairly liquid asset base, S&P said. At Dec. 31, 2002, debt totaled $491 million, or 41.9% of capital, and had a weighted average maturity and cost of about six years and 8.9%, respectively. Ryland also had a $1.7 billion asset base, of which, cash and homebuilding inventories totaled $1.4 billion. Notably, goodwill is negligible at about 1% of total assets.

Ryland has ample liquidity and manageable capital needs with no debt maturities until 2006, at which time $100 million of 8% senior notes mature. The company's solid cash flow produced homebuilding EBITDA/interest coverage of 8.2x and homebuilding debt-to-homebuilding EBITDA of 1.3x despite the higher cost of Ryland's debt and a $200 million increase in inventories in 2002, S&P said.

Moody's raises National Health outlook

Moody's Investors Service raised its outlook on National Health Investor Inc. to positive from stable and confirmed its ratings including its senior unsecured debt at B1 and preferred stock at B3.

Moody's said the change in outlook reflects the improvement in National Health's balance sheet over the past year.

Moody's also noted that National Health has been aggressive in writing down the value of assets to market value. This has enabled National Health to take charges to earnings and to retain cash, as opposed to paying of all cash flow as dividends. Moody's believes NHI has completed most of its write-downs.

Fixed charge coverage has been improving, and for 2002 was over 3.0x, Moody's said. Effective leverage has been falling and is now around 27% of gross assets.

With less than $17 million in debt maturing by year-end 2005, National Health has little refinancing risk. In addition, unencumbered assets cover unsecured debt by over 3.5x, Moody's added.

Moody's puts East Coast Power on upgrade review

Moody's Investors Service put East Coast Power LLC on review for possible upgrade.

Moody's said the action reflects the announcement of El Paso's intent to sell the project to a subsidiary of Goldman Sachs Group, Inc.

The current rating reflects concerns about the potential impact of El Paso's credit quality upon East Coast Power. If the proposed sale takes place, this significant credit consideration would be revised, Moody's said.

S&P rates Alrosa bonds B

Standard & Poor's assigned a B rating to Alrosa Finance SA's planned $300 million bonds due 2008 to be guaranteed by Alrosa Co. Ltd.

S&P said Alrosa's ratings are constrained by its high capital requirements, a reduction in sales, high leverage with a short-term maturity profile, and close links with the Russian Republic of Sakha (Yakutia).

The company's capital expenditure program is challenging, and access to long-term finance has been limited by country factors and industry regulations, S&P noted.

S&P added that it does not expect the government of the Russian Federation - a 37% shareholder in ALROSA - necessarily to provide timely and direct support if a situation of financial stress were to occur at the company.

Positive factors for Alrosa's rating include ongoing lucrative sales to the South African diamond company De Beers, which is 45% owned by Anglo American plc, a solid position in the relatively stable diamond industry, and rich reserves - although these have not been verified by a third party, S&P said.

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