S&P puts Adelphia on negative watch

Standard & Poor's put Adelphia Communications Corp. and related companies CreditWatch with negative implications.

S&P said it took the action because of the potential negative impact of bank debt that is co-borrowed by subsidiaries of Adelphia and entities managed by Adelphia but owned by the Rigas family.

These co-borrowings totaled about $2.3 billion at Dec. 31, 2001 and are not reflected in Adelphia's consolidated debt.

S&P said the managed entities own about 300,000 cable subscribers and other assets but added that "a reasonable valuation of these assets may well fall short of the associated incremental debt."

S&P said it will adjust Adelphia's balance sheet and cash flow to reflect the managed entities' associated debt, cash flow and asset value, with adjustments to the extent that the managed entities hold material amounts of Adelphia securities.

Moody's restarts Adelphia downgrade review

Moody's Investors Service said it restarted its review for downgrade on Adelphia Communications Corp., affecting $19 billion of debt and preferred securities. Ratings affected include Adelphia's senior secured bank debt at Ba2, its senior unsecured notes and the subordinated notes of FrontierVision at B2, its convertible subordinated notes at B3 and its convertible and exchangeable preferred stock at Caa1.

Moody's said it reopened the review because it is concerned that "perhaps too much credit" was given for equity issuances earlier this year when it completed the review for possible downgrade in January 2002.

The result could be excess debt leverage compared to earlier assumptions, Moody's said, specifically citing the $2.3 billion of off-balance sheet debt disclosed in Adelphia's earnings conference call that is held at affiliated partnerships which are owned by the Rigas family.

Moody's said it has been aware of the existence of these affiliated entities, the potential for conflicts of interest and the co-borrowing arrangements under which the obligations were ultimately drawn.

The rating agency added that "to a certain extent these considerations" have been included as negatives in its assessment of Adelphia's ratings for some time.

"What we were not fully aware of, however, was the absolute magnitude and recent spike in these off-balance sheet borrowings, and the fact that these proceeds were utilized (particularly at such a material level) to fund the Rigas family's tack-on equity and convertible subordinated note investments in the parent company, thereby diminishing somewhat the value of the 'true' equity contributions that ultimately led to the prior rating confirmations," Moody's said.

As a result, an estimated $0.9 to $1.3 billion of contingent liabilities were not captured, Moody's added.

Fitch cuts GATX senior debt to BBB-

Fitch Ratings lowered GATX Financial Corp.'s senior debt to BBB- from BBB+, including the 7.5% convertible notes due 2007, and commercial paper ratings to F3 from 'F2. The outlook is negative.

While recognizing GATX Financial's strengths as a solid originator of complex transactions within well-defined industry niches and asset remarketing acumen, Fitch's said the downgrade was driven by a combination of concerns relating to the company's liquidity and funding as well as capitalization and leverage.

Management has taken steps in 2002 to bolster available funding, including the $175 million of convertible notes by GATX Corp. and $364 million of secured debt. While the financial flexibility of GATX Financial is adequate, Fitch remains concerned that the balance sheet will become increasingly encumbered.

As such, unsecured bondholders may become increasingly disadvantaged.

GATX Financial has sufficient liquidity and committed funding sources, including bank credit facilities, to meet current year committed capital expenditures and debt maturities. However, based on the financing options currently available to the company, new business originations are likely to be well below the levels achieved in 2000 and 2001.

This could have an adverse impact on GATX Financial's franchise value as management may not be as opportunistic as its competitors in sourcing attractive business.

Fitch rates AmerUs convertible OCEANs at BBB

Fitch Ratings assigned a long-term issuer rating of BBB+ to AmerUs Group Co. and BBB to the optionally convertible equity-linked accreting notes (OCEANs). The outlook is stable.

The debt ratings are supported by leverage and fixed charge coverage ratios at AmerUs Group Co., which are considered acceptable for the rating category. Further, dividends available from the insurance operating subsidiaries provides interest coverage in excess of 3 times.

Additional support is provided by the underlying strength of AmerUs Group Co.'s insurance subsidiaries, which show diversified product offerings, multiple sources of quality distribution, and product development expertise.

These strengths are balanced against highly competitive markets for insurance products, sensitivity to interest rate risk in its annuity products, and integration risks associated with the Indianapolis Life acquisition.

Pro forma debt-to-capital at year-end 2001 was 17.5%, which assumes some proceeds from the OCEANs issuance are used to pay down outstanding bank debt. OCEANs were given 65% equity credit.

AmerUs Group Co.'s fixed charge coverage was approximately 7.0 times in 2001, but the run rate fixed charge coverage might be slightly better as the company effectively changes OCEANs for bank debt. This level of fixed charge coverage is considered strong, and remains an important component in AmerUs Group Co.'s debt ratings.

Moody's puts Cummins on review for downgrade

Moody's placed the debt ratings of Cummins Inc. under review for possible downgrade, including the Ba1 rated convertible trust preferreds.

The review will focus on Cummins' ability to establish an effective operating model for the heavy-duty truck engine business that can generate acceptable returns despite continued weakness in the highly cyclical and competitive North American market.

Also, the review will assess how well the company's remaining operating segments, power generation and filtration, will support an improvement in operating performance and credit metrics in this challenging economy.

Moody's said it recognizes that Cummins has made significant progress in reducing costs, realizing efficiencies from Six Sigma implementation and attaining benefits via the long-term supply agreements with several major truck manufacturers.

The rating agency also acknowledged the positive trends taking place in the power generation and filtration segments. However, while showing signs of improvement, the heavy-duty truck engine market remains very weak and the timing and magnitude of a recovery is uncertain.

For 2001, Cummins' credit metrics continued a year-over-year decline as EBIT/Interest, excluding restructuring charges, dropped to 1.09 times from 2.90 times and debt/EBITDA rose to 3.94 times from 2.45 times. Debt/capitalization (including the preferred securities) increased to 54.7% from 47.2% at year-end 2000. Cash flow measures were also significantly weaker, particularly after capital expenditures and dividends.

Fitch revises Duke Realty outlook to stable

Fitch Ratings has affirmed the BBB+ senior unsecured rating of Duke Realty and the BBB convertible preferred stock rating. The outlook was revised to stable from positive to reflect a more constrained operating environment.

The ratings assign considerable benefit to Duke's solid balance sheet management and credit statistics, which provide financial cushion to weather near-term operating challenges in a recessionary environment. The ratings continue to reflect positively Duke's good asset quality, experienced management team, reduced development exposure and good diversification measures.

Strengths are offset by regional concentrations in Midwest markets characterized by low barrier to entry. Weak tenant demand relative to new supply has pressured occupancy levels for both Duke's same-store and recently completed properties. Lease-up risks will remain a near-term credit concern, although Duke has responded positively to demand weakness with a significant reduction in recent development starts and a shift towards merchant, build-to-suit, and fee development.

Duke's ratio of debt plus preferred stock to undepreciated book capital was 47% at yearend 2001, down from 49% a year prior, and is considered solid for its rating category. Duke also maintains a well-laddered debt maturity schedule and ample capacity under its bank facility, which further positions the company for potential acquisition and development opportunities.

S&P rates proposed Fubon convertibles BBB-

Standard & Poor's assigned a BBB- rating to Fubon Financial Holding Co. Ltd.'s proposed offering of $375 million convertible bonds due June 2004. The outlook is stable.

Within the group, S&P said Fubon Insurance is the strongest business, with a leading position in Taiwan's general insurance market, strong capitalization and a consistently good operating performance.

However this strength is counterbalanced by the comparative volatility of Fubon Securities' earnings streams and the fact that the respective market positions of Fubon Commercial Bank and Fubon Life Assurance reflect their short operational histories, both companies having been established only in the early 1990s, S&P said.

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