S&P cuts Foster Wheeler

Standard & Poor's lowered the ratings of Foster Wheeler Ltd., including its senior unsecured debt to CC from CCC+ and bank debt to CCC+ from BB-, citing the possibility of bankruptcy.

The downgrade reflects S&P's expectations that modest domestic liquidity will further diminish in the next few quarters because construction activities will use working capital at a faster pace than new awards will provide cash sources.

Diminishing liquidity, within the context of an onerous debt burden, weak end-market fundamentals, virtually no access to the capital markets, rising asbestos claims and a significantly underfunded pension may force the company to pursue a financial restructuring or file for bankruptcy protection, S&P said.

Thus, ratings reflect nominal liquidity and a distressed financial position, notwithstanding its position as a large global engineering and construction firm.

Liquidity is considered onerous and may erode further in the next couple of quarters. At March 28, Foster Wheeler had $473 million of cash, although just $125 million was available for domestic uses and no real access to its bank lines, account receivable securitization program or the capital markets.

The company is expected to generate negative free cash flow in 2003. Should the company remain viable into 2004, it will experience a rise in cash pension contributions, now estimated in the $40 million area, compared with some $5 million currently.

Ratings could be lowered shortly should the company pursue a financial restructuring to help alleviate its distressed financial position.

S&P takes Delta off watch

Standard & Poor's removed Delta Air Lines Inc. from CreditWatch negative, confirmed its rating including its equipment trust certificates at BB+, senior secured debt at BB- and senior unsecured debt at B and assigned a negative outlook.

S&P said Delta's ratings reflect financial damage from substantial losses over the past two years and a heavy debt and lease burden, but benefit from a solid market position in the U.S. domestic and trans-Atlantic markets and the work rule flexibility and productivity made possible by a mostly nonunion work force.

A gradually improving airline environment, substantial cost-cutting initiatives, and adequate liquidity should enable the company to improve its credit profile over the next several years, S&P said.

Delta, like other large airlines, has announced capacity cuts and expense reductions in response to the adverse revenue outlook, most recently a program intended to lower cost per available seat mile 15% by the end of 2005. It is in the early stages of discussions with its pilots, who have agreed to consider concessions to reduce labor costs. Other employees are not unionized, so the company has greater flexibility to change compensation and has revised the pension plans of noncontract employees to narrow a substantial pension-funding gap, S&P said.

Fitch cuts Fiat

Fitch Ratings downgraded Fiat SpA's senior unsecured debt to BB from BB+ and maintained a negative outlook.

Fitch said the downgrade reflects the worse than expected current operating performance of Fiat Auto.

Fitch added that it is concerned that this business will remain affected by the adverse conditions in its main markets. These developments have made it necessary to intensify the relaunch plan.

The negative outlook is based on the modest earnings prospects during the next two years, while the relaunch plan underway, as well as the substantial execution risk involved in the implementation of the initiatives started, Fitch said. During this time, Fiat is expected to retain a negative net free cash flow generation. The cyclical markets in which Fiat operates are undergoing structural changes and consolidation.

Fitch said it also expects the European auto market to decline by 2% in fiscal 2003 due to the weaker economic environment, which will increase competitive pressure.

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