S&P cuts Exodus convertible debt to CC from CCC

Standard & Poor's on Tuesday lowered its ratings on Exodus Communications Inc. and removed them from watch where they had been placed with negative implications on June 21. At the same time S&P withdrew its B senior secured rating on the company's $600 million credit facility. The outlook is negative. The rating actions were based on Exodus' "deteriorating operating performance, vulnerable financial position and looming liquidity concerns. These concerns are exacerbated by significant management departures and continued weakness in demand for information technology spending. Management had previously lowered expectation of EBITDA and sales for the second half of 2001 and expects EBITDA for the year to be $80 million, down from its May 2001 guidance of $270 million."

Standard & Poor's said it believes that achieving even these lowered measures is likely to be challenging in a weakening economy.

It said: "Sales are likely to lag due to a decrease in the rate of new customer installations, an increase in the rate of cancellations, reductions of orders from existing customers, and concerns about Exodus' financial position. Exodus is highly leveraged with more than $3 billion of debt and sales of slightly more than $1 billion and has yet to achieve sustained operating profitability. Given its current performance, debt service requirements, and expected capital expenditures, the company is in a vulnerable financial position and will likely need additional financing to continue to operate. The availability of such financing is questionable. Exodus recorded about $450 million in cash at the end of June 2001, after repaying outstanding loans under its credit facility. S&P added that Exodus' inability to secure additional funding could lead to further lowering of the ratings."

The corporate credit and senior unsecured notes ratings were cut to CCC from B-, and the convertible notes to CC from CCC.

Moody's rates Fleming's upcoming sr sub notes B2, raises outlook

Moody's Investors Service assigned a B2 rating to Fleming Cos. Inc.'s planned $250 million offering of senior subordinated notes, confirmed the company's existing ratings and revised its outlook to positive from stable. The action affects $2 billion of debt.

Moody's said it raised the outlook as it considered that the Kmart integration has gone according to plan. With continued efficiency improvements from increased volume, Moody's said the rating could be upraded in the next four to six quarters. At the same time, leverage and fixed charge coverage have stabilized after a multi-year decline, and Moody's said cash flow increases leading to materially improved trends in debt protection measures could prompt an upgrade.

Moody's added that the new permanent capital from the note issue will provide a larger borrowing cushion for working capital needs as anticipated growth in the company's wholesale and retail segments requires greater capital investment.

Fitch affirms PacifiCare's BB+ rating, negative outlook

Fitch affirmed its BB+ senior debt rating on PacifiCare Health Systems, Inc. and kept the outlook as negative.

Fitch said the "considers the recent deterioration in PacifiCare's operating performance, modest levels of capitalization at the operating level, and high levels of debt refinance risk."

It added: "The company's profitability challenges can be attributed to a provider-driven movement away from capitated contracting and towards shared risk contracting, as well as to a continued poor operating environment in the Medicare + Choice marketplace."

Although Pacificare has a new corporate strategy, Fitch noted the senior management team has undergone "significant turnover" in the last year.

The rating agency called PacifiCare's $805 million of outstanding debt as appropriate for the rating category but said the structure is not. It noted full principal repayment is due in 2003, most in January.

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