Moody's cuts Williams Communications ratings

Moody's Investors Service lowered all of the ratings of Williams Communications Group, Inc., including senior unsecured to Ca from Caa3 and preferred stock to C from Ca., reflecting the expectation that WCG will restructure its balance sheet converting substantial portions of its debt for equity. On Monday, Moody's noted that Williams announced that it is considering the potential benefits of a negotiated Chapter 11 reorganization as an option to restructure its balance sheet. Although the terms of the proposed restructuring have not been finalized, Moody's considers that it will likely result in a substantial dilution in the value of unsecured debt-holder's original investment.

In its most recently filed balance sheet dated Sept. 31, WCG reported cash and short-term investments of about $1.4 billion and net PP&E of $5.8 billion to support about $5.3 billion of debt and $240 million of preferred securities. In Moody's opinion, given the current depressed market value of fiber assets resulting from bankruptcies and abandoned projects as well as ongoing build-up of capacity, unsecured debt-holders would face poor recovery prospects in a distress scenario.

S&P rates Danaher shelf at A+/A

Standard & Poor's assigned preliminary A+ senior unsecured and preliminary A subordinated debt ratings to Danaher Corp.'s $1 billion shelf registration, reflecting the firm's above-average business profile, together with a sound balance sheet, strong cash flow protection and a moderately conservative financial policy.

Although Danaher's business is cyclical, factors such as strong brand-name recognition, diversity and limited capital intensity mitigate earnings and cash flow volatility. This also bodes well for continued strong operating performance, S&P said. For 2001, net earnings, excluding restructuring charges, were $324.2 million, up 5% from 2000. Pretax return on permanent capital for 2001 was 24%, and is expected to average between 20%-30% over the economic cycle.

Danaher's business plan calls for it to exceed industry growth for existing units, to accelerate international growth and to expand through acquisitions. With efficient operations and minimal dividends, Danaher generates substantial discretionary cash flow. This gives the firm the flexibility to pursue its aggressive growth strategy while maintaining a sound balance sheet, S&P said. Debt to capital at Dec. 31 stood at 35%, within the firm's expected 25% to 40% range, and the firm maintained good liquidity with cash and equivalents of $706 million. Funds from operations to total debt for 2001, adjusted for excess cash balances, was 58% and is expected to average between 50% to 60%, appropriate for the ratings.

Limited cyclical exposure, strong cash flow generation and very good financial flexibility reduce downside ratings risk. An aggressive growth appetite, which could result in periodic spikes in debt leverage, limits upside potential, S&P said.

Moody's upgrades Entercom convertible to B2

Moody's Investors Service raised the ratings of Entercom Communications Corp., including the $125 million of convertible TIDES due 2014 from B3 to B2, and its subsidiaries, and assigned a Ba3 rating to Entercom Radio, LLC's proposed $150 million issue of senior subordinated notes due 2014. The issuance of notes is expected to be done in conjunction with the sale of $150 million of common equity, the successful completion of which has been incorporated into the assigned and upgraded ratings. The proceeds of the debt and equity sales will be used to finance the purchase of four radio stations in Denver. The outlook for all ratings is stable.

The ratings reflect the company's strong cash flow coverage, the size and market presence of the company's geographically diverse station clusters and the high underlying asset value of the company's station portfolio. However, the ratings are constrained by Entercom's high leverage through the convertible, its highly acquisitive nature and the company's tendency to pay high cash flow multiples to acquire under-performing stations. Management has shown its willingness to re-lever its balance sheet to finance acquisitions and maintains a target leverage range that is still quite broad (2 times to 5 times total debt/EBITDA). Structural issues associated with the corporate organization and debt capitalization also continue to impact the ratings.

The upgrade is predicated on the sale of $150 million of common equity to finance the announced acquisitions and further reflects Moody's expectation that management will continue to maintain its conservative risk tolerance. Further, the ratings incorporate the likelihood that the TIDES will convert to common stock in lieu of potentially being redeemed at the company's first optional redemption date in October 2002.

The stable outlook incorporates the likelihood that the advertising environment will remain soft well into 2002 and the expectation that Entercom will remain focused on improving its balance sheet and continue to finance future acquisitions with a prudent mix of debt and equity. If the advertising environment improves and the company can further reduce its debt levels, including the TIDES, positive ratings momentum could be created. If management's risk profile increases and it further re-levers the company's balance sheet, a negative outlook could be warranted. The Ba3 rating on the senior subordinated notes reflects contractual and effective subordination to the bank credit facilities. The B2 rating on the convertible reflects deep subordination and dependence on upstreaming cash flow from LLC for debt service on the instrument, notwithstanding the expectation that this instrument is likely to be extinguished later this year.

Moody's confirms Cendant senior unsecured at Baa1

Moody's Investors Service confirmed both Cendant's senior unsecured ratings at Baa1, reflecting the extent to which its operating performance has been less adversely impacted by the events of Sept. 11 given its fee-for-service business model and its ability to quickly reduce costs at Avis and its variable cost structure that enables the company to adjust to lower volumes, as well as the positive performance of its time share exchange and real estate services businesses. The confirmation also incorporates Moody's expectation that the company will improve its credit statistics in the near term. Cendant's rating outlook remains negative, Moody's said, reflecting near term refinancing risk associated with the $1.0 billion convertible securities that could be put back to the company in May 2002 and the improving, but still uncertain, operating environment for the company's travel businesses. Additionally, ratings could be pressured if credit measures do not improve from current levels, or if future acquisition activity increases the company's business or financial risk profile. Moody's noted that the company does have significant undrawn committed bank credit line availability.

Moody's puts Encompass on downgrade review

Moody's Investors Service put Encompass Services Corp. on review for a possible downgrade. Ratings affected include Encompass' $130 million senior secured term loan A due 2006, $170 million senior secured term loan B due 2006 and $300 million senior secured revolving credit facility due 2005, all rated Ba3, its $335 million 10.5% senior subordinated notes due 2009, rated B2, and its $284.3 million (accreted amount) 7.25% mandatorily redeemable convertible preferred stock, rated B3.

Moody's said it put Encompass on review in response to the company's "reduced near-term prospects for profitability, the possibility that it may violate its bank debt covenants by mid-year 2002, and the likelihood that a significant portion of its $1.3 billion of goodwill will have to be written off in the near term."

The review also reflects "the substantial debt burden that the company assumed during its acquisition phase of the last few years, the pressures on its end markets, particularly technology and telecommunications, and the continuing challenges in integrating the numerous acquired entities," Moody's added.

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