S&P: Tyco could fall to junk

Standard & Poor's said the ratings of Tyco International Ltd. and subsidiaries, including the BBB- senior debt, remain on negative watch.

S&P acknowledged that recent refinancing activity, including the $4.5 billion of new convertibles and the establishment of a $1.5 billion 364-day revolving credit facility, has alleviated liquidity concerns.

And, S&P noted Tyco has said it intends to execute guarantees relating to certain intercompany debt to address structural subordination concerns.

If the guarantees are executed and S&P is satisfied that they successfully address these concerns, ratings are likely to be affirmed.

If not, the corporate credit ratings would likely still be affirmed but holding company debt-level ratings would be lowered one notch, including the senior unsecured debt to BB+.

Under either scenario, all of the ratings would be removed from watch and the outlook likely to be stable.

Moody's cuts EDS to Baa2

Moody's Investors Service downgraded Electronic Data System's senior unsecured rating to Baa2 from A3, reflecting weak free cash flow to debt measures and credit weakness among several of its large clients, among other things.

The expectation for continued cash usage under its Navy contract, which will put a strain on 2003 cash flow, the current environment of reduced demand for IT services and declines in business under contract with General Motors, which were greater than expected, also were factors.

The outlook is stable.

EDS has built up cash and alternate sources of liquidity but Moody's expects a number of calls on that liquidity in 2003, including the $800 million 0% convertible that is putable in October.

Moody's said also that EDS may need to cover about $220 million of commercial paper, a $200 million deferred tax payment and an amortizing potential prepaid expense obligation estimated at $170 million on Sept. 30 under a rating trigger tripped by this downgrade.

S&P cuts Host Marriott

Standard & Poor's lowered the ratings of Host Marriott Corp., including senior debt to B+ from BB- and preferreds to CCC+ from B- on weak credit measures.

The outlook is stable.

S&P expects operating leased adjusted debt to EBITDA will be just under 7x at Dec. 31, while interest coverage is expected to be under 2x.

Given S&P's current expectations for 2003, the credit measures are not expected to improve to levels consistent with the previous rating during the intermediate term, even assuming some success in selling assets.

S&P cuts FelCor to B+

Standard & Poor's lowered the ratings of FelCor Lodging Trust Inc., including senior debt to B+ from BB- and preferreds to CCC+ from B- on weak credit measures.

FelCor's 2002 RevPAR declined 8.1% from 2001 and EBITDA of $306 million declined 17%. For 2003, management expects flat RevPAR and EBITDA to decline 6% to 10%.

Based on management's 2003 guidance, FelCor's credit measures are not expected to recover to levels consistent with the prior rating in the intermediate term.

The outlook is stable, however, as S&P does not expect FelCor's credit measures will not materially weaken from current levels.

S&P expects debt leverage to be in the mid-6x area throughout 2003.

But, S&P said FelCor has adequate liquidity and its portfolio is well positioned to benefit once a recovery materializes.

S&P cuts Getronics

Standard & Poor's downgraded Getronics NV including cutting its €350 million 0.25% notes due 2004 and €500 million 0.25% convertible subordinated notes due 2005 to C from CCC+. The CreditWatch was changed to developing from negative.

S&P said the downgrade follows proposed changes to the company's debt restructuring that could force bondholders to suffer a significant loss.

The new restructuring has asubstantially higher equity component, giving bondholders 81.5% of the group's ordinary shares (with a maximum of about 2.3 times as many new shares to be created), a reduced cash element of up to €75 million (versus about €140 million previously) and no new convertible bonds (versus about €100 million in the previous offer), S&P said.

Under the terms of the new offer, bondholders would be left with few alternatives but to accept the restructuring at a potentially very significant loss, given the limited amount of cash offered, and the very high volatility of the company's share price, S&P said.

As a result, if completed as proposed, the offer would trigger a downgrade of the group's subordinated bonds to D, S&P added.

Moody's puts Village Roadshow on review

Moody's Investors Service put Village Roadshow Ltd. on review for possible downgrade including its subordinated debt at Ba3.

Moody's said the review was prompted by Village Roadshow's announcement of increased investment in its film production business.

Moody's said it is concerned that Village Roadshow's decision to provide an additional US$122 million investment to convert the film production affiliate into a wholly owned subsidiary continues the increase in the company's risk profile and may limit the company's financial flexibility to mitigate its relatively high lease-adjusted leverage.

Fitch rates Solectron bank debt BB+

Fitch Ratings assigned a BB+ rating to Solectron Corp.'s new credit facility made up of a $200 million 364-day revolver and a $250 million multi-year facility due 2005 and confirmed the company's existing ratings including its senior unsecured debt at BB and ACES at B+. The outlook remains negative.

The new facility is $50 million smaller than the $500 million facility it replaces and is secured by the company's domestic assets and benefits from a covenant package that limits excess leverage, protects against ongoing operating losses, and requires a minimum liquidity profile.

Fitch said its rating of the secured bank facility also recognizes the senior position the facility has in the company's capital structure and the large amount of capital junior to the bank facility. If fully drawn, Fitch estimates the senior secured credit facility would represent approximately 10% of the company's capital structure.

Solectron's ratings continue to reflect the challenging demand environment for technology, especially telecommunications, pricing pressures for printed circuit board (PCB) fabrication, lower but improved capacity utilization levels, and event risk of restructuring programs, Fitch said. The ratings also consider Solectron's top-tier position in the electronic manufacturing services industry, consistent operating cash flow and free cash flow, diversity of end-markets and geographies, altered capital structure, solid cash position, and recent working capital improvements (mostly from increased inventory turns) albeit in an industry downturn.

The negative outlook indicates that if adverse market conditions persist, outsourcing contracts do not materialize from new customers, the company makes significant cash acquisitions, or if it is unsuccessful in execution of announced restructurings, the ratings may be negatively impacted, Fitch said.

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