Moody's cuts Fiat to junk

Moody's Investors Service downgraded Fiat to junk, affecting $15 billion of debt, including cutting its senior unsecured debt ratings to Ba1 from Baa3. The outlook is negative. The downgrade concludes a review begun on Nov. 8.

Moody's said the downgrade reflects Fiat's weak operating performance, especially at Fiat Auto, its high debt levels, and Moody's current expectation that Fiat's business and financial profile -even after exercising Fiat's option to dispose of the remaining share of 80% in Fiat Auto to General Motors (GM) --will most likely not be commensurate with an investment-grade rating.

On the positive side, Moody's rating action also recognizes Fiat's management commitment to implement its strategic plan as well as all the measures already taken to address Fiat Auto's operational weaknesses, Moody's said.

Moody's said it assumes the company will exit the automotive business of Fiat Auto by early 2004.

Moody's negative rating outlook reflects the execution risk associated with the strategic repositioning of Fiat Auto, the weak trading environment for Fiat Auto, as well as the targeted cash flow improvements for Fiat's remaining businesses over the next 12 to 18 months, Moody's said.

Moody's expects CNH and Iveco to form the core of Fiat's operations upon completion of the current disposal plan.

The largest unit, CNH, will generate at least one third of Fiat's total sales. However, CNH is currently facing severe operating financial challenges caused by the prolonged downturn and intensely competitive operating environment, especially in the North American farm equipment and construction equipment market, Moody's said.

Moody's is also continuing its review for possible downgrade of Case Corp. and Case Credit (senior debt at Ba2), which are wholly owned and guaranteed by CNH.

The Iveco truck business, which accounts for about €8 billion of sales, has a very competitive position within the European market and generates strong cash flow and returns on capital, the rating agency said. Moody's added that it expects that this business will become one of the more important sources of earnings and financial flexibility going forward. The rating agency also notes that expansion through acquisitions is a strategy that might be pursued to grow these operations.

S&P says Cablevision unchanged

Standard & Poor's said Cablevision Systems Corp.'s ratings are unchanged at a BB corporate credit rating with a stable outlook on news that it will sell NorthCoast Communications LLC's PCS licenses to Verizon Wireless.

While the transaction will provide Cablevision with approximately $635 million of proceeds in 2003 that will be used to pay down bank debt, uncertainty still exists as to the level of external funding that will be required beyond 2003 for the company's operating and capital requirements, as well as the source of that funding, S&P said.

This will be especially problematic to the company's financial profile if it is not able to materially expand operating cash flows from its cable television businesses in the 2003 to 2004 time frame.

The company has also diversified into several ventures beyond cable operations, including investing in a satellite to be launched in 2003, continued ownership of The Wiz consumer electronics stores, and interests in the Madison Square Garden sports and entertainment business.

Moreover, Cablevision faces some near-term contractual overhang issues from its partnership with Fox, S&P noted. Fox can put its interests in several ventures to Cablevision. These options commenced in December 2002 and expire in January 2003. Cablevision has the option to settle the obligation with the issuance of a three-year note to Fox. Such an election would place additional pressure on the company's overall financial profile.

Moody's raises Sinclair's liquidity

Moody's Investors Service upgraded Sinclair Broadcast Group's speculative-grade liquidity rating to SGL-1 from SGL-2.

Moody's said the upgrade reflects Sinclair's very good liquidity position.

The improvement is based on the combined benefits of increasing cash flow over the course of 2002 and less debt.

Moreover, the company is expected to continue to report positive free cash flow over the next 12 months and maintains substantial availability under its revolving credit facility of $225 million, Moody's added.

Moody's cuts Duke Energy

Moody's Investors Service downgraded Duke Energy, affecting $23 billion of debt. Ratings lowered include Duke Energy's senior secured first mortgage bonds, cut to A2 from Aa3, its senior unsecured bonds, cut to A3 from A1, Duke Capital's senior unsecured debt, cut to Baa2 from A3, PanEnergy Corp.'s debt, cut to Baa2 from A3, and Texas Eastern Gas Transmission's debt ratings, cut to Baa1 from A2. The outlook is negative. Duke Energy Field Services at Baa2 and Maritimes and Northeast at A1 were not on review. The downgrade ends a review begun on Sept. 20.

Moody's said it cut Duke Capital in response to lower actual and anticipated earnings and cash flow as a result of continued weakness in wholesale energy markets both in the U.S. and abroad.

This has resulted in a reduction in debt protection measures for bondholders, Moody's said.

In particular, Duke Capital has taken on substantial amounts of leverage in order to build out its merchant energy subsidiary, Duke Energy North America and now faces diminishing cash flow to service that debt.

Since Duke Capital's credit profile dominates the business and financial risks of its parent, Duke Energy, Moody's said it also lowered the parent's ratings.

The negative outlook reflects execution risk in Duke Capital's program to strengthen its balance sheet, Moody's added. To compensate for reduced cash flows, Duke has embarked upon a debt reduction program aided by capital expenditure reductions and asset sales. The revised capital expenditure program detailed in September totals $3.5 billion for 2003, all but $1.5-$2 billion of which is discretionary. Duke anticipates selling non-core assets of about $1 billion in 2003 to reduce its debt balance.

In addition, investigations by various government agencies into trading activities at Duke Energy North America continue despite recent retrenchment there, Moody's added.

S&P says Avaya unchanged

Standard & Poor's said Avaya Inc.'s ratings are unchanged at a corporate credit rating of BB- with a negative outlook after the company proposed an exchange offer for up to 70%, or $333 million, of its outstanding liquid yield option notes.

Although the offer is at 20% below accreted value, S&P said it does not view the exchange as coercive to investors because Avaya would likely have the financial capacity to meet the October 2004 put of the notes at the then-accreted value of about $500 million.

A successful completion of the proposed exchange would strengthen Avaya's financial position, potentially reducing debt outstanding by $333 million while reducing cash balances by no more than $100 million due to the terms of the offer and funding from Warburg Pincus Equity Partners. This benefit is offset by continued depressed profitability and weak credit protection metrics, S&P said.

Moody's puts Panhandle Eastern on uncertain review, keeps CMS unchanged

Moody's Investors Service put Panhandle Eastern Pipeline Co.'s ratings including its senior unsecured debt at Ba2 on review with direction uncertain, changed from review for downgrade. Moody's said CMS Energy Corp., including its senior unsecured debt at B3, is unchanged and remains on review for possible downgrade. Southern Union Co. was confirmed including its senior unsecured debt atBaa3.

The announcement follows news that CMS will sell Panhandle Eastern to Southern Union and American International Group, Inc.'s Highstar Capital, LP private equity fund.

Moody's said its review of Panhandle Eastern will focus on the probability of the transaction being consummated and the relative placement of Panhandle's securities in the combined corporate structure.

Panhandle is a natural gas transmission company that is expected to continue generating relatively stable cash flows, sufficient to cover its capital expenditure requirements, Moody's said. Any excess cash flow could be loaned or distributed to its shareholders in the form of dividends.

Moody's confirms Lehman, Merrill

Moody's Investors Service confirmed the ratings of U.S. securities firms including Lehman Brothers Holdings Inc. (senior unsecured debt at A2 with a positive outlook) and Merrill Lynch & Co., Inc. (senior unsecured debt at Aa3).

These actions follow the announcement of a settlement-in-principle of regulatory investigations into research practices and other conflicts of interest at the various firms. Moody's said the settlement reduces regulatory uncertainty. Also, each firm can absorb the fines, and their contributions to fund independent research, within the context of their respective core earnings.

S&P cuts Focal

Standard & Poor's downgraded Focal Communications Corp. including lowering its $270 million 12.125% senior discount notes due 2008 and $275 million 11.875% senior notes due 2010 to D from C and its $300 million senior secured bank facility due 2007 to D from CC.

S&P said the action followed Focal Communications' Chapter 11 bankruptcy filing.

The company has reached an agreement with its senior bank lenders and senior secured convertible noteholders, whereby the senior secured convertible notes will be exchanged into new common equity and $65 million of redeemable preferred equity, and the company will prepay $15 million under its senior secured bank credit facility, S&P noted.

Moody's confirms Conseco

Moody's Investors Service confirmed Conseco, Inc. including its senior unsecured debt at Ca. The outlook is developing.

The confirmation follows Conseco's Chapter 11 bankruptcy filing.

Moody's said no adjustments to Conseco's ratings are necessary as Moody's ratings already reflected the agency's belief that Conseco would likely have to file for bankruptcy.

The rating agency added that the value received by banks and debt holders will depend heavily on the specifics of the capital structure of the company when it emerges from bankruptcy.

Moody's said it expects that bondholders will emerge from restructuring with a majority ownership of Conseco. In order to allow Conseco to operate more freely subsequent to a restructuring, it is likely that the company will have moderate post-restructuring leverage. The current bank lenders will likely hold the majority of debt post-restructuring given their senior position within the capital structure.

The value received by creditors will depend upon three major factors. First, it will depend on the successful disposition of Conseco Finance Corp., which has reached an agreement in principal to be acquired by CFN Investment Holdings LLC. Second, the company must stabilize its operating insurance subsidiaries with respect to sales of new business and surrender and lapse activity. Lastly, the present harsh and volatile capital market conditions create additional uncertainty that could further constrain the operating earnings of Conseco, Moody's said.

S&P confirms CMS, puts Panhandle on positive watch

Standard & Poor's confirmed CMS Energy Co. including its senior unsecured debt at B+ and Consumers Energy Co.'s senior secured debt at BBB- and senior unsecured debt at B+ and maintained its negative outlook. S&P also placed CMS Panhandle Pipeline Cos. on CreditWatch with positive implications including its $100 million 7.2% debentures due 2024, $100 million 7.875% notes due 2004, $100 million 7.95% debentures due 2023, $200 million 6.5% senior notes due 2009, $300 million 6.125% senior notes due 2004 and $300 million 7% senior notes due 2029 at BB.

S&P said the action follows the announcement that Southern Union Panhandle, a newly formed unit of Southern Union Co. and AIG Highstar Capital LP, will purchase CMS Panhandle Pipeline Cos.

S&P said the positive watch for CMS Panhandle reflects its potential higher credit ratings dependent on the ultimate financing strategy for Southern Union Panhandle.

The confirmation for CMS Energy and Consumers Energy reflects the company's dramatically improved liquidity position due to the sale of its CMS Panhandle Pipeline unit for nearly $1.8 billion, including the assumption of about $1.2 billion of debt, S&P said.

The Panhandle Pipeline sale will enable the company to adequately meet about $1.3 billion of debt and bank facility maturities in 2003.

The sale is consistent with the company's intent to improve its liquidity position and deleverage its balance sheet by selling assets to bolster its financial profile, S&P added. CMS Energy should be able to continue its financial improvement due to the recently announced sale of its natural gas trading book, as well as through additional planned asset sales. Once completed, the ultimate effect could be a stabilization in the company's credit profile.

S&P cuts XM Satellite, still on watch

Standard & Poor's downgraded XM Satellite Radio Holdings Inc. and kept it on CreditWatch with negative implications. Ratings affected include XM Satellite Radio Holdings' $125 million 7.75% convertible subordinated notes due 2006, cut to C from CCC-, and XM Satellite Radio Inc.'s $325 million 14% senior secured notes due 2010, cut to CCC- from CCC+.

S&P said the action is in response to XM Satellite Radio's proposed exchange offer for its $325 million 14% senior secured notes due 2010.

S&P said it views the terms and nature of the exchange offer to be tantamount to a default. Although the exchange offer will not alter the principal value of the notes or the interest rate, it will require noteholders to defer cash interest payments for a period of time, which is considered a material concession. In addition, if the offer is not accepted by the holders of at least 90% of notes, then XM will likely be precluded from completing two other financing agreements that are critical to its ability to continue as a going concern.

If the exchange offer is completed, the issue rating on the senior secured notes will be lowered to D, S&P said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.