S&P rates new Protein Design Labs convert CCC

Standard & Poor's assigned a CCC rating to Protein Design Labs Inc.'s new $250 million of 2.75% convertible subordinated notes due 2023 with a stable outlook.

The ratings reflect significant risks inherent in drug discovery efforts and unpredictable future royalty-based revenues, S&P said.

These factors are partially offset by the company's patented technologies to humanize monoclonal antibodies, which are used by other pharmaceutical companies in return for royalties that provide the majority of its revenues.

At March 31, PDLI had cash and marketable securities of $592 million. The company plans to use the new convertible proceeds to refinance its $150 million of 5.5% convertible debt due 2007 and collateralize the first three years of interest payments on the new notes.

While PDLI has an adequate liquidity position, the success of its development efforts are highly uncertain and a product launch from its clinical pipeline is not expected for several years. These factors will continue to be the over-arching considerations in the credit profile, S&P said.

Moody's rates Hanover Compressor notes B3

Moody's Investors Service assigned a B3 rating to Hanover Compressor's subordinated 0% notes issued to Schlumberger Inc. and confirmed its other ratings, including the convertible trust preferreds at B3, with a negative outlook.

Ratings reflect sizable, fairly durable cash flow tempered by high leverage, soft results, high capital needs, limited internal ability to materially reduce debt and liquidity risks inherent to tight fourth quarter 2003 bank covenants and 2004 debt maturities, Moody's said.

Effective debt divided by annualized expected second quarter EBITDAR from operations is a very high 6.3x and 6.0x on estimated 2003 EBITDAR.

Effective debt divided by effective book capital is roughly 68% and effective debt/effective enterprise value is roughly 66%.

EBITDAR cover of financing costs was roughly 2.1x in first half 2003 and, on the current financial structure, may approximate 2.2x for calendar 2003, Moody's said.

Regarding liquidity, EBITDAR driven covenants under the $350 million revolver are very tight for yearend 2003, when covenants step-up to originally scheduled levels, and material EBITDAR growth in third and fourth quarter 2004 is needed to pass those covenants.

S&P ups Chesapeake to B-

Standard & Poor's raised the ratings of Chesapeake Energy Corp., including the convertible preferreds to B- from CCC+. The outlook is stable.

Also, S&P assigned a BBB- rating to Chesapeake's new $350 million secured revolving bank credit facility due 2007.

The upgrade reflects deleveraging, hedged natural gas prices for 2003 and 2004, expectations for improved natural gas fundamentals and good liquidity as a result of light debt maturities until 2011, S&P said.

S&P expects total debt to EBITDA will fall to around 2.0x in 2003 and to about 4.0x in 2004.

Projected 2003 discretionary cash flow, which has been fortified by recent hedging activity, should exceed projected capital spending of $600 million to $650 million and recent acquisitions totaling $220 million.

Liquidity is adequate for operations, largely because of the lack of sizeable debt maturities until 2011, when about 40% of total debt matures. Liquidity is largely provided through cash balances of about $90 million and a $350 million revolving bank credit facility that matures in 2007.

S&P rates Fairfax convert BB

Standard & Poor's assigned a BB rating to Fairfax Financial Holdings Ltd.'s new $150 million of 5% convertible senior unsecured notes due 2023.

Although the issue will cause an incremental increase in financial leverage, it is within S&P's tolerance for the rating.

Moreover, S&P expects management to use a majority of proceeds for either debt reduction or to improve holding company liquidity.

At the end of first quarter, financial leverage was about 41% and cash at the holding company was about $229 million. The latter has improved significantly as a result of capital-raising activities, which increased cash on hand by about $470 million.

In second quarter, the company raised cash through its IPO of its now majority-owned subsidiary, Northbridge Financial Corp., and a debt debt by subsidiary, Crum & Forster Holdings.

Major areas of focus continue to be underwriting, reserving and liquidity management.

S&P puts TECO on negative watch

Standard & Poor's placed the ratings of TECO Energy Inc. and affiliates on negative watch as a result of an Internal Revenue Service announcement of potential complications related to its sale of interests in synthetic fuel production facilities.

The ratings depend on the company completing potential asset sales to reduce debt leverage. Absent such sales and the ability to achieve capital spending reductions, TECO may need to externally finance obligations, which could further negatively affect credit quality.

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