S&P cuts Broadwing, still on watch

Standard & Poor's downgraded Broadwing Inc. and kept it on CreditWatch with negative implications. Ratings lowered include Broadwing's $900 million five-year revolving credit facility, $750 million five-year term loan A, $450 million term loan B, $200 million senior secured tranche C revolving credit facility due 2007 and $50 million 7.25% secured notes due 2023, cut to B- from BB, Broadwing's $400 million 6.75% convertible subordinated notes due 2009 and Broadwing Communications' $450 million 9% senior subordinated notes due 2008, cut to CCC from B+ and $135 million 6.75% cumulative convertible preferred stock, cut to CCC- from B, and Cincinnati Bell Telephone Co.'s $120 million 7.2% medium-term notes due 2023 and $150 million 6.3% guaranteed debentures due 2028, cut to B- from BB.

S&P said the downgrade reflects a potential liquidity shortfall starting in the second half of 2003 and the increased risk of bank covenant violation if the company's long-haul data subsidiary, Broadwing Communications Inc., continues to perform below expectations in the absence of an amendment to Broadwing's bank credit agreement.

Broadwing may not be able to meet significant bank debt amortization starting in the second half of 2003. S&P said that based on its projection of about $200 million of liquidity at the beginning of 2003 and moderate free cash flow, Broadwing may not be able to meet about $200 million of bank debt amortization in the second half of 2003 and still have the financial flexibility to deal with execution risks.

Broadwing has already disclosed that it currently would not be able to meet about $1 billion of bank debt amortization in 2004. A material extension of the bank amortization schedule and/or new capital would be required for Broadwing to address a potential liquidity crisis in 2003 and beyond, S&P said.

Aside from the amortization issue, Broadwing faces increased risk of violating bank maintenance covenants if financial performance of Broadwing Communications, which accounts for about 50% of consolidated revenues and 30% of consolidated EBITDA, does not improve in the near term, S&P added. Due to the weak economy, glut of data transport capacity, and customers having financial problems, Broadwing Communications has experienced much weaker-than-anticipated revenues and EBITDA in the last two quarters.

S&P upgrades Lukoil

Standard & Poor's upgraded Lukoil OAO. The outlook is now stable. Ratings affected include LukInter Finance BV's recently issued $350 million convertibles bonds, upgraded to BB- from B+,

S&P said the upgrade reflects general improvement in the operating environment for Russian oil companies and reflects Lukoil's standing as the Russian Federation's largest oil company in terms of crude reserves, production and exports, tempered by its moderate cost structure and leveraged financial profile.

Also helping the rating is management's recent measures to improve the company's overall cost structure, as well as Lukoil's relatively prudent debt maturity profile and historically sound cash flow generation, S&P said.

Liquidity has also been strengthened by Lukoil's widened access to international capital markets; in November 2002, it successfully placed a $350 million 5-year convertible bond, S&P noted.

S&P rates Temple-Inland

Standard & Poor's assigned a BBB bank loan rating to Temple-Inland Inc.'s new $400 million unsecured revolving credit facilities, reflecting the lenders' equal status with other senior unsecured creditors. Existing ratings, including the BBB rating associated with the 7.5% convertible preferreds, were confirmed. The outlook is stable.

Liquidity is satisfactory and has improved recently in conjunction with significant changes to the bank facilities, S&P said.

Over the intermediate term, funds from operations should be sufficient to cover capital spending, dividends and moderate debt reduction. Debt maturities, litigation, environmental liabilities and pension outlays appear manageable.

Moody's rates USA Interactive

Moody's Investors Service assigned a rating of Baa3 to the new senior unsecured notes to be issued by USA Interactive, and the HSN Inc. convertibles were confirmed at Ba1.

The rating is based on the company's multiple well-known brand names, growth in sales and operating cash flow, logistical expertise and its liquid capital structure. Competition and ongoing acquisitions that consume capital and possible operating losses, however, constrain the rating.

The outlook is stable, assuming that USAI will continue to successfully integrate acquired businesses and raise their profitability, as well as remain willing to use stock to fund purchases in order to maintain credit metrics that are appropriate for is ratings.

USAI's large cash balance of $1.9 billion at the parent alone on Sept. 30 fully covers existing debt of $507 million and preferred stock of $646 million.

Proceeds from the new issue will further bolster liquidity and fund the cash portion of future acquisitions, but the company's complex corporate structure is a credit negative, Moody's said.

S&P keeps Aspect on negative watch

Standard & Poor's said the ratings of Aspect Communication Corp. (0% convertibles at CCC+) remain on CreditWatch with negative implications following the sale of $50 million of convertible preferred stock to a private investor.

At completion of the sale, S&P expects to remove the ratings from watch, but the outlook will be negative, reflecting depressed operating levels and profitability, limited financial flexibility and weak debt protection metrics.

The pending affirmation is based on an assessment of Aspect's capacity to meet the put on the convertible in August 2003 at an accreted value of $129 million.

Expected debt balances after the put and the sale of preferred stock includes a term loan of $25 million, potentially $5 million drawn on a $25 million revolving credit line and about $28 million of mortgage-related debt.

Based on EBITDA of $17.5 million for the four quarters ended Sept. 30 and post-put total funded debt of $58 million, pro forma total debt to EBITDA would be 3.3x, S&P said.

Despite the sale of the $50 million of preferred stock, however, financial flexibility following the put is expected to remain under pressure, with cash balances lower than current levels and limited access to external sources of liquidity.

Moody's cuts Cable & Wireless

Moody's Investors Service downgraded Cable & Wireless plc to junk, including cutting its £200 million 8.75 % eurobonds due 2012, $400 million 6.5% eurobonds due 2003, $1.504 billion zero-coupon exchangeable bonds due 2003 and Cable & Wireless International Finance BV's £200 million 8.625% guaranteed eurobonds due 2019, all cut to Ba1 from Baa2. The outlook is negative. The downgrade concludes a review begun on Nov. 15.

The downgrade reflects uncertainties over the timing and size of potential costs and/or liabilities from restructuring the poorly performing Cable & Wireless Global operations, Moody's said

The rating considers an expectation that management will be able to move Global to a free-cash - flow breakeven position within C&W's operating year to March 2004.

The outlook is negative, reflecting potential for further rating deterioration if this does not occur.

S&P cuts Alliant

Standard & Poor's lowered Alliant Energy Corp.'s senior debt rating to BBB+ from A-, reflecting inability to achieve financial targets commensurate with its previous rating. Also, the outlook was revised to negative from stable.

The company still falls short of the measures S&P expected in order to maintain its rating, specifically funds from operation interest coverage of 4x and funds from operation to total debt of 25%.

In addition, the company's adjusted debt to total capital of over 60% still remains high.

On Nov. 22, Alliant announced a plan to strengthen its credit profile by reducing business risk and debt through the sale of some of its nonregulated businesses, a cut in its common stock dividend, reductions in capital expenditures and equity issuances in 2003 that would be used to fund capital expenditures at the regulated utilities.

Nevertheless, assuming the plan is executed as planned, financial performance is expected to come in line with a BBB+ rating in 2003 and not demonstrate material improvement until 2004 and beyond.

The negative outlook reflects a high degree of execution risk in realizing benefits from the credit-strengthening plan. To attain a stable outlook, Alliant must demonstrate tangible results from the plan.

Moody's confirms Sealed Air

Moody's Investors Service confirmed the Baa3 senior unsecured rating of Sealed Air following the tentative agreement with asbestos claims creditor groups in the W.R. Grace bankruptcy court.

The confirmation reflects the elimination of legal uncertainty by the agreement.

Additionally, the payment of $512.5 million of cash, accruing at 5.5%, and 9 million common stock shares should be manageable, provided that Sealed Air establishes appropriate financing arrangements. The company's main source of liquidity is a $525 million revolving credit that matures March 30, 2003.

The outlook is negative, reflecting uncertainty about how the company intends to finance the proposed payments, as well as uncertainty about the terms of the new bank facility likely to be put in place in the coming months.

If security is granted under any new bank facility, this would create effective subordination of existing senior unsecured indebtedness and could result in the ratings of the senior unsecured debt and preferred stock being notched down, Moody's said.

S&P cuts Interpublic, still on watch

Standard & Poor's lowered its long-term corporate credit rating to BBB- from BBB on The Interpublic Group of Cos. Inc. All long-term ratings remain on negative watch and the short-term ratings were placed on negative watch as well.

The rating action is driven by liquidity concerns with respect to Interpublic's 0% convertible notes issue that is putable on Dec. 14, 2003, at the accreted value of $587 million, and the May 2003 maturity of the $500 million revolving credit facility.

Additionally, consistently weaker-than-expected financial performance that is restraining the company's prospects for generating meaningful discretionary cash flow and reducing debt is also a key concern.

S&P cuts TranSwitch outlook

Standard & Poor's confirmed TranSwitch Corp.'s senior debt rating at B-, but revised the outlook to negative from stable, reflecting diminished liquidity and ongoing cash usage.

TranSwitch's quarterly revenue run rate has been below $5 million and negative free cash flow has been about $20 million per quarter since June of 2001.

While cash and investments of $221 million exceed debt of $115 million, TranSwitch will be challenged to materially improve cash usage near term. TranSwitch has no bank lines or other external financing programs in place, and no debt maturities before 2005.

Failure to materially decrease cash usage rates could lead to a downgrade, S&P said.

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