S&P rates Northwest convert B-

Standard & Poor's assigned a B- rating to Northwest Airlines Corp.'s $150 million convertible senior unsecured notes due 2023 but the rating was placed on negative watch along with the airline's other ratings as of March 28.

The rating is two notches below the B+ corporate credit rating because secured debt and leases represent a substantial portion of owned and leased assets.

Ratings reflect a satisfactory competitive position, substantial liquidity and relatively good operating performance, S&P said.

But the ratings are constrained by industrywide risks, an increasing debt and lease burden, substantial unfunded postretirement liabilities, still significant capital expenditure requirements and few unencumbered aircraft that could support further secured borrowing.

Liquidity remains good, with $2.15 billion of unrestricted cash at March 31, benefiting from a $217 million tax refund. Also, the company expects to receive $219 million for reimbursement for security expenditures in May, in connection with the recent federal airlines aid legislation, S&P added.

However, the company has no available bank lines and little unencumbered collateral for secured borrowing. Debt maturities total about $350 million in 2003, and cash capital expenditure needs are about $220 million.

In its most recent quarterly report, the company noted its lenders had amended the company's revolving credit agreement to defer the application of the fixed-charge coverage covenant until June 30, 2004.

Fitch rates PPL Energy convert at BBB+

Fitch Ratings assigned a BBB+ rating to PPL Energy Supply LLC's new 2.625% convertible senior notes due May 15, 2023. The outlook is negative.

Because the conversion to equity is optional, Fitch does not give any equity credit to the notes for rating purposes.

The ratings reflect significant earnings and cash flow from a long-term supply contract with affiliate PPL Electric Utilities that with other contractual commitments on average account for about 70% PPL Energy's gross margin over the next five years.

The outlook results from an increase over the past year in the portion of PPL Energy's generating asset portfolio that is dependent on merchant sales from the addition of new plant, continued weakness in U.S. merchant energy markets and exposure to Latin America and the U.K., Fitch said.

Also considered was management's plan to retire about $800 million of subsidiary PPL Capital Funding Inc. debt over the next five years and the need to raise a portion of those funds through the issuance of additional debt at PPL Energy Supply.

S&P rates new Valassis convert at BBB-

Standard & Poor's assigned a BBB- rating to Valassis Communications Inc.'s new convertible senior notes due 2033 and confirmed its other ratings. The outlook is stable.

The ratings reflect a leading market position in the free-standing inserts Sunday newspaper coupon industry, healthy and relatively stable internal cash flow generation, and a financial profile that is currently strong for the rating, S&P said.

These factors are tempered by Valassis' narrow business focus and medium-size cash flow base. In addition, the company is currently facing competitive pricing pressures.

Debt to EBITDA is in the low-1x area, and EBITDA to interest is more than 10x.

At March 31, Valassis had $68 million in cash and an undrawn $125 million revolving credit agreement that matures in November 2006. In addition, liquidity benefits from significant free operating cash flow generation.

There are also no debt maturities until 2009 when the $100 million 6.625% senior notes mature. However, the 0% convertible due 2021 is putable in 2004 at an $158 million accreted value at March 31.

Moody's puts Fiat on downgrade review

Moody's Investors Service placed the long-term ratings of Fiat SpA on review for possible downgrade, including the Fiat Finance Luxembourg SA convertible at Ba1.

The review was prompted by continued underperformance of Fiat Auto, weak profitability in first quarter and substantial operational challenges likely to be encountered in the medium term, Moody's said.

Moody's said the review will assess the impact of Fiat's restructuring plan and asset disposals accelerated by the new management as it relates to the liquidity situation, which weakened in 2002. Particular attention will be paid to residual execution risks related to asset disposals.

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