Moody's confirms FMC

Moody's Investors Service confirmed the ratings of FMC Corp., including its 6.75% convertible due 2005 at Ba2, following the completion of the company's financial restructuring.

FMC's results are somewhat less susceptible to economic cycles and are generally less impacted by volatile feedstock costs than most commodity chemical manufacturers, Moody's said. The ratings are notched to reflect various levels of security in FMC's financial structure.

The outlook is stable, although an increase in environmental costs or additional costs related to past operations could renew downward pressure on the ratings, Moody's said.

Moody's noted FMC has limited ability to accomplish meaningful debt reduction in the 2002-2003 time frame due to several one-time expenditures.

S&P rates Masco shelf

Standard & Poor's assigned a preliminary BBB+ senior unsecured and BBB subordinated debt ratings to Masco Corp.'s $2 billion Rule 415 shelf registration. S&P affirmed existing ratings, including the 0% convertible due 2031 at BBB+. The outlook is stable.

The ratings incorporate healthy competitive positions in a broad range of home improvement and home construction products and the expectation cash flow protection will continue to strengthen.

These strengths are partially offset by business cyclicality and moderate financial policies, S&P said.

Funds from operations as a percentage of total debt is expected to average 30% to 35%, versus the current 25% to 30% range.

Financing of prospective acquisitions with a significant equity component will remain necessary to help lift this key credit quality measure to the targeted level.

EBIT interest coverage is satisfactory in the 5.0x to 5.5x range.

At June 30, cash position was $692 million. Also, Masco has ample availability under a $1.25 billion revolving credit facility expiring in 2005 and a $1 billion 364-day line of credit expiring in November 2002 with a one-year term-out option.

The company should not have any difficulty meeting the financial covenants under the credit facilities, including minimum consolidated net worth and a debt limitation, S&P aid.

Total debt includes a significant issue of 0% convertibles with a put feature that is a moderate negative for credit quality.

Moody's rates Rite Aid liquidity

Moody's Investors Service assigned a speculative grade liquidity rating of SGL-3 to Rite Aid Corp., reflecting that operating cash flow is expected to approach breakeven over the next 12 months, making it reliant on cash balances and revolving credit facility borrowings to fund capital expenditures and upcoming debt maturities.

The company is expected to remain in compliance with the financial covenants in its bank credit agreement, which was amended in February 2002.

However, the quarterly tightening of the amended financial covenants could pose problems for Rite Aid over the next year if there is not a commensurate increase in cash flow, Moody's said.

Rite Aid is targeting EBITDA of at least $565 million for the 12 months ending February 2003. Obligations over the next 12 months include about $320 million of cash interest expense, $60 million of 6% dealer remarketable securities due October 2003 and $30 million of mandatory principal payments.

Rite Aid also must maintain several hundred million dollars of financial flexibility for inventory.

Given these obligations, Rite Aid will need to use its revolving credit facility throughout the year for seasonal and permanent working capital needs, Moody's said.

At Aug. 31, Rite Aid had $378 million of availability under its $500 million revolver.

In addition, pro forma for repaying $152 million of convertible subordinated notes in September, it had $119 million of cash.

While Moody's believes liquidity is adequate near-term and that Rite Aid should remain in compliance with financial covenants in fiscal 2004, longer term the company needs to improve debt protection measures to ensure continued access to its revolver.

Fitch revises TXU unit watch

Fitch Ratings revised the watch status on the TXU Europe Ltd. senior unsecured debt, at C, to evolving from negative.

This follows the announcement that TXE has agreed to sell a package of assets, comprising the majority of its cash-generating U.K. business, to Powergen UK plc for GBP 1.37 billion in cash, plus the assumption of a related receivables securitization program.

The sale follows a precipitous decline in credit quality, Fitch said.

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