Moody's cuts Arrow ratings

Moody's Investors Service lowered the senior unsecured rating of Arrow Electronics Inc. to Baa3 from Baa1, reflecting expectations that operating performance and debt protection measures will remain under pressure over the intermediate term.

The outlook is stable, considering its leading market position as well as acceptable liquidity to address debt maturities next year and operational requirements during the ongoing downturn, Moody's said.

Arrow, consistent with the flexible nature of its working capital intensive business model, has generated significant working capital reduction driven free cash flow since the downturn began near the end of 2000, with $2.1 billion generated over the last six quarters.

As a result, Arrow has zero commercial paper outstanding, zero borrowings under its $625 million committed bank facility and no usage of its $750 million accounts receivable securitization program.

At the same time, however, financial covenants currently limit full usage of the bank facility and a non-investment grade rating could limit access to its securitization program, Moody's said.

After repurchasing, in August a 6.45% $250 million private note scheduled to mature November 2003, cash was about $659 million and total debt $2.2 billion. Nearest term debt maturities include about $365 million in October 2003 and $250 million in October 2005.

Although debt is the lowest in two to three years, debt leverage remains exceedingly high because of depressed profitability. Gross debt to EBIT was about 15x on a latest 12 month basis at June.

S&P rates AT&T Comcast bank facilities

Standard & Poor's assigned a BBB corporate credit rating to AT&T Comcast Corp. and BBB to its $12.8 billion of unsecured credit facilities.

S&P affirmed its ratings on Comcast Corp. but said AT&T Corp. debt remains on negative watch.

Upon closing of the merger, AT&T debt transferred to AT&T Comcast will be rated BBB with a negative outlook and the debt that remains at AT&T Corp. is expected to be rated BBB+, S&P said.

The merger will create the largest U.S. cable operator. While AT&T shareholders will own a 56% stake in AT&T Comcast, S&P noted Comcast's Roberts family will control a third of the voting shares and hold a significant degree of management control.

The rating reflects anticipated synergies, an annualized debt to EBITDA ratio for the merged entity in the mid-3x area by yearend 2003 and significant asset value relative to total debt, S&P said.

Liquidity for the new company is good.

Initial financing requirements of about $12 billion will be funded from $17 billion of credit facilities. Applicable financial covenants stipulate debt to EBITDA and EBITDA interest coverage tests should be comfortably met.

The negative outlook reflects the challenge AT&T Comcast will face in improving margins in Broadband properties. While AT&T Comcast will continue to provide telephony service, it will need to shift Broadband marketing efforts away from emphasis on cable telephony to traditional, higher initial margin products.

While some savings should be recognized almost immediately, the outlook also recognizes it may take a somewhat longer period of time to ascertain the magnitude and pace of further Broadband margin improvement, S&P said.

If the company is able to demonstrate operational integration has succeeded, that sustained improvement in Broadband margins is likely and that Broadband's subscriber erosion has been reversed, the negative outlook could be revised within two or three quarters after the merger.

Moody's rates FMC refinancing debt

Moody's Investors Service assigned a Ba2 rating to FMC Corp.'s planned new second-priority secured bonds and a Ba1 rating to its planned second-priority secured credit facilities. Moody's also confirmed FMC's senior implied rating at Ba1 and downgraded its existing unsecured debt including cutting its debentures, medium-term notes and notes to Ba2 from Ba1 and its industrial revenue bonds to Ba3 from Ba1. The ratings remain on review for downgrade.

Moody's said the existing unsecured debt is being downgraded because of the security being added to FMC's financial structure.

Proceeds raised in the refinancing total about $600 million and will be used to fund $260 million in reserve accounts for debt maturities in 2002 and 2003, repay its existing revolver and accounts receivable facility, and fund a restricted account that will be used for cash collateralization of surety bonds and letters of credit.

FMC will also enter into a new $250 million revolver.

Moody's noted that FMC applied the proceeds of the $101 million equity offering in July to debt reduction.

On completion of the financing plan, FMC will have substantially improved its overall financial liquidity profile. Liquidity will consist primarily of the new $250 million bank facility, a $40 million facility specifically for letters of credit and a $135 million cash account.

The ratings remain under review for further downgrade pending successful completion of the new credit facilities and bond offering.

Moody's expects the outlook to be negative, reflecting continued concerns about weak operating performance and limited ability for meaningful debt reduction in 2002-2003 due to several one-time expenditures.

S&P cuts Orion Power

Standard & Poor's downgraded Orion Power Holdings Inc.'s senior unsecured debt including cutting its $375 million 12% senior notes due 2010 and $200 million 4.5% convertible senior notes due 2008 to BB- from BB+. The ratings remain on CreditWatch with negative implications.

S&P said it lowered the notes to reflect their subordinated nature. Orion Power's corporate credit rating was confirmed at BB+.

S&P said it had expected the existing debt at Orion Power New York and Orion Power MidWest would be refinanced at the corporate Reliant Resources level. If that had occurred, the Orion Power Holdings senior unsecured notes would bear a rating of BB+.

However, due to a series of events that has seriously eroded the credit environment for Reliant Resources and for many other industry participants, this plan was never executed.

As a result, Reliant Resources will need to refinance the Orion companies' debt separately from the subsequent planned refinancing at Reliant Resources, S&P said.

The CreditWatch listing reflects the refinancing risk associated with the holding company debt and credit facilities ($5.9 billion, including a $1.4 billion synthetic lease) at parent Reliant Resources, debt at Orion Power Holdings, and its respective subsidiaries ($1.3 billion net of cash).

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