S&P cuts Sanmina-SCI to B+

Standard & Poor's lowered Sanmina-SCI Corp.'s ratings, including the convertibles to B+ from BB-, based on a decline in operating performance leading to weaker credit measures that are likely to remain pressured near term.

The outlook is negative.

Sanmina-SCI had $2.6 billion of debt outstanding as of June 30.

Credit measures are considerably weaker than anticipated, primarily due to a more severe and prolonged downturn than had been expected.

Yet, S&P recognizes that restructuring actions, which have reduced headcount and manufacturing capacity by more than 25% since early 2002, should aid operating performance near-to-intermediate term.

Operating margins for the first six months of 2002 were depressed at about 3.5%, which is below the 5%-8% norm for top-tier EMS providers.

EBITDA interest coverage is weak, with cash coverage of interest likely to be just above 3x for 2002.

Adequate cash flow of $400 million of cash flow from operations in the first half of 2002 has somewhat offset weaker credit metrics.

Although the company has a good cash balance of about $1.1 billion, liquidity is adequate with some $250 million of debt maturing in late 2002.

An additional concern is that financial covenants, under the $350 million portion of its credit facility, become considerably more difficult to achieve in the coming quarters, potentially restraining borrowing capacity.

Ratings could be lowered near term unless credit measures recover through material debt reduction and meaningful sequential improvement in operating performance.

S&P cuts Fondiaria-SAI

Standard & Poor's said it downgraded SAI-Società Assicuratrice Industriale SpA and its subsidiary SIAT-Societa Italiana Assicurazioni e Riassicurazioni SpA and removed it from CreditWatch with negative implications. S&P also cut La Fondiaria Assicurazioni SpA and its subsidiary Milano Assicurazioni SpA including Fondiaria Nederland BV and removed it from CreditWatch with developing implications. The outlook on all ratings is negative. Ratings lowered include SAInternational SA's €465 million 1.5% exchangeable bonds due 2004, cut to BB+ from BBB+, and Fondiaria Nederland's exchangeable bonds, cut to BB+ from BBB-.

S&P said the action follows SAI's acquisition of 19.8% of Fondiaria's capital, thereby raising SAI's total shareholding in Fondiaria to 28.8% for €1.075 billion consideration.

Fondiaria is now expected to be incorporated in SAI by the end of this year, according to an agreement reached between the two companies on May 31, 2002, S&P added.

The rating agency said it believes the pro forma capitalization of the future Fondiaria-SAI group to be vulnerable in the absence of appropriate measures to restore it back to what is expected at a triple-B level.

In addition, the lack of appropriate funding in the form of capital for an acquisition of this size and price has raised concerns over the financial strategy of SAI's management and principal owners, S&P said.

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