Moody's downgrades XO

Moody's Investors Service downgraded XO Communications, Inc., affecting $6.8 billion of debt securities. Ratings reduced include the senior secured credit facility, lowered to Caa3 from B3, and the senior notes, cut to Ca from Caa1, the subordinated notes and the convertible subordinated notes, lowered to C from Caa2, and the preferred stock, the exchangeable redeemable preferred stock and the convertible redeemable preferred stock, all lowered to C from Caa3.

Moody's said the downgraded follows release of XO's third quarter earnings.

Moody's noted XO now says it is funded into the second half of 2002, compared to expectations of sufficient liquidity through the first half of 2003 in April 2001.

Moody's said it "believes that third quarter repurchase of senior notes and preferred stock for $288 million in cash is largely responsible for this contraction of the company's estimated funding time line. In addition XO noted that it has retained an investment banking firm to provide financial assistance in evaluating strategic alternatives to position the company to obtain additional funding including transactions designed to achieve a restructuring of the company's balance sheet. The company anticipates that such restructuring may entail a significant conversion of debt and preferred securities into common equity. There can be no assurance that such restructuring can be accomplished outside of bankruptcy proceedings."

The rating agency believes it will be "difficult" for XO to raise additional funding in the current market.

"Accordingly, absent additional unidentified funding, we do not expect that the company will be able to sustain its current business plan in the short term," Moody's said.

Moody's rates AT&T new bonds at A3, puts ratings on watch for possible downgrade

Moody's Investors Service on Friday assigned A3 ratings to a series of new senior unsecured securities issued by AT&T Corp. that total over $10 billion. The issues include 5, 10 and 30-year U.S. dollar issues which were sold under Rule 144A with subsequent registration rights. In addition the company issued 2-year floating rate and 5-year fixed rate debt denominated in euros. All issues will be listed on the Luxembourg exchange. These securities are structured in a manner to become senior unsecured obligations of the Communications Services entity upon the completion of the separation of AT&T's Broadband and Communications Services units.

The newly assigned ratings will be on review for possible downgrade, along with the existing long-term ratings of AT&T and its subsidiaries. With respect to the rating review, Moody's believes that there are reasonable scenarios regarding the ultimate capital structure and operating performance at the telephony unit that could continue to support an A3 senior unsecured rating. However, under other, less favorable outcomes, further downgrades may be appropriate. Moody's expects a resolution of the AT&T Broadband situation in the coming months, and will be able to conclude the reviews on the long-term debt ratings at that time. The key rating considerations will be the debt service requirements and the prospective cash generating characteristics at the respective entities.

S&P cuts Agilent ratings, assigns new convertible at BBB-

Standard & Poor's has assigned a BBB- rating to Agilent Technologies Inc.'s $1.15 billion senior convertible debenture offering. S&P also lowered its corporate credit and senior unsecured bank loan ratings on to BBB- from BBB+. The company's short-term corporate credit and commercial paper ratings were lowered to'A-3 from A-2. The ratings outlook is negative.

The downgrade is based on deteriorating operating performance and significant exposure to the cyclical communication equipment, computing, and semiconductor end markets that are in the midst of a severe industry downturn. The difficult industry conditions are expected to persist for at least the first half of 2002. Moreover, operational and financial performance, particularly in Agilent's test-and-measurement business, is subpar and is not consistent with the company's market leadership position, resulting in diminished predictability of operating performance. Sales deteriorated throughout 2001 as end-market conditions worsened. Almost two-thirds of Agilent's business is dependent on capital equipment expenditures that are primarily in the weak communication, computing, and semiconductor end markets. For fiscal 2001, ended Oct. 31, on a continuing operations basis (i.e. excluding the gain from the sale of discontinued operations), Agilent was not profitable. Management expects sales for its fiscal first quarter of 2002 to be almost 20% lower than its fiscal fourth quarter of 2001 and just one-half of sales for the similar period of a year ago. Therefore, Agilent's return to sustained profitability is likely to be more difficult than management previously expected. Still, ratings reflect Standard & Poor's expectation that management's restructuring actions will improve financial performance over the intermediate term.

Ratings incorporate the expectation that financial metrics will sequentially improve from the first quarter of fiscal 2002 and that Agilent will return to profitability by the last quarter of the fiscal year. Ratings could be lowered if the company is unable to demonstrate meaningful sequential near-term improvement in operating performance.

Fitch rates IndyMac convertible WIRES at BB+

Fitch assigned a BB+ rating to the $175 million IndyMac Capital Trust I convertible warrants and income redeemable equity securities (WIRES) and said the rating outlook for the issue is stable. Despite considerable structural changes, Fitch said IndyMac's long time business model of originating residential mortgages and related products via electronic and traditional channels remains intact. This business model has historically produced satisfactory risk-adjusted profitability measures, and Fitch said it is the rating agency's expectation that within the current economic and yield curve environment that such returns will continue over the near term.

As part of its conversion approval, the Office of Thrift Supervision required that IndyMac abide by two specific capital conditions. The OTS requires that IndyMac's core capital ratio be maintained at a level of 8.00% for its first three years as a depository institution, while also requiring it to double the risk-based capital weighting assigned to its subprime loans. IndyMac has continually met the capital requirements of the OTS since its conversion, Fitch noted.

S&P upgrades Biovail corporate credit rating to BB from BB-

Standard & Poor's has raised its corporate credit rating on Biovail Corp. to BB from BB-. At the same time, S&P assigned a BB senior secured debt rating to the company's $400 million senior secured bank facility. The outlook is stable. The ratings reflect greater visibility afforded by a larger product portfolio, a track record of success to date in the integration of acquisitions, the establishment of a sales and marketing presence in the U.S. and Canada, the competitive advantages of a broad technology platform, and management's prudent approach to financing through the repayment of debt and new equity issuances. These factors are mitigated by the risks associated with the company's rapid expansion, and execution risks associated with the management of a larger sales force.

A more diversified revenue base and enhanced financial flexibility through a $600 equity issue in November 2001 have significantly improved the company's financial profile. EBITDA interest coverage and debt to capitalization (adjusted for operating leases) amounted to 11.6 times and 48.0% at Sept. 30, respectively. S&P believes Biovail will continue with its growth through acquisition strategy, which may be reflected in varying degrees of leverage in the near term. Nevertheless, an established North American sales presence of about 400 sales representatives (growing to 900 sales representatives in 2002), and a solid base of marketed and pipeline products, makes strategic acquisitions an upside opportunity and not a necessity. Out-licensing and marketing agreements are expected to grow in number.

Biovail's commitment to a well-balanced capital structure and improving cash flow generation resulting from a number of positive developments related to product filings and approvals should further enhance credit protection measures, which are currently strong for the rating. S&P believes Biovail will continue with its prudent approach toward strategic growth opportunities through debt financing.

S&P cuts Pinnacle senior unsecured debt to CCC- from CCC

Standard & Poor's on Thursday lowered its ratings on independent tower operator Pinnacle Holdings Inc. and its subsidiary, Pinnacle Tower Inc. Pinnacle's senior unsecured debt rating was cut to CCC- from CCC and the corporate credit rating was lowered to CCC+ from B-. The ratings remain on watch with negative implications. The downgrade is based on S&P's heightened concerns about the company's liquidity, in light of its announcement that it is not in compliance with financial covenants under its bank facility. The company is negotiating with the bank group to obtain waivers and amendments to the bank covenants, though it is uncertain whether Pinnacle will be successful in these efforts. Absent receipt of this agreement in the near term, the ratings will be lowered further. Pinnacle Holdings' business position is very weak relative to other tower operators, S&P said.

The investigation of the company's public accounting firm by the SEC continues to create uncertainty as to whether Pinnacle will be required to restate its financial reporting, and effectively eliminated the company's ability to access the public capital markets over the past year. With the recent weakening of the overall economy and financial markets, the company's ability to obtain additional funding remains extremely limited

Moody's downgrades Fleetwood Enterprises

Moody's Investors Service downgraded Fleetwood Enterprises, inc., cutting its trust preferred stock to Caa3 from B3. The outlook is negative.

Moody's said the downgrade reflects "the continuing erosion in the company's operating performance due to a protracted decline in the manufactured housing industry and a similar slowdown in the recreational vehicle business."

Moody's noted Fleetwood expects a net loss for the quarter ended Oct. 28, 2001.

Debt protection measures will be weak through fiscal 2002, ending in April 2002, and will remain under pressure into fiscal 2003 in the absence of a marked improvement in demand in the manufactured housing and recreational vehicle sectors, the rating agency commented.

Moody's added that its ratings anticipate that Fleetwood will be able to obtain a waiver or amendment to its bank facility covenants.

S&P puts CommScope on positive watch

Standard & Poor's put CommScope Inc.'s ratings on CreditWatch positive, including its $150 million of 4% convertible subordinated notes due 2006 rated B+ and its $360 mil senior secured credit facility rated BB+.

S&P downgrades Interpublic

Standard & Poor's downgraded Interpublic Group of Cos., Inc. and removed the ratings from CreditWatch with negative implications. The outlook is stable.

Affected ratings include Interpublic's $361 million 1.87% convertible subordinated notes due 2006, lowered to BBB from BBB+, its bank facilities, cut to BBB+ from A- and its floating rate notes and senior unsecured notes, also cut to BBB+ from A-.

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