Moody's cuts Colt Telecom to B3 from B1

Moody's lowered the senior ratings of Colt Telecom Group plc to B3 from B1. The outlook is negative and likely to remain negative until market conditions begin to show improvement.

The downgrade reflects slower than anticipated growth trends that are not anticipated to improve near term and concerns about longer-term ability to grow cash flows in line with debt service obligations.

Nonetheless, Moody's noted that Colt has adequate cash on hand in the medium term to supplement cash interest expense and fund capital expenditure.

The ratings continue to be supported by a strong liquidity position and balance sheet as well as the continued support from equity holders who injected almost £500 in late 2001. The ratings also take into consideration the relatively low cost of debt, with cash interest expense less than 5.5% per annum.

Nonetheless, Moody's believes Colt's ability to grow cash flow to a level sufficient to adequately cover ongoing maintenance, capital expenditures and service debt is increasingly uncertain given recent operating trends and the challenging operating environment for alternative telecom operators in Europe, more broadly.

The negative outlook reflects concerns about persistent weakness in core markets that adversely impacts revenues and cash flows.

S&P puts WorldCom on negative watch

Standard & Poor's placed the BBB+ long-term and A-2 short-term corporate credit ratings of WorldCom Inc. on CreditWatch with negative implications due to heightened concerns about the long-distance industry and the company's ability to delever its balance sheet near term.

Clinton, Miss.-based WorldCom had about $30 billion total debt at Dec. 31.

Revenue growth in the long-distance voice and data business is anticipated to continue to be depressed in 2002 due to the economy and wireless/E-mail substitution, said S&P credit analyst Rosemarie Kalinowski. In addition, competition from the regional bell operating companies will increase.

Longer term, the competitive market position of pure long-distance carriers is uncertain, as is the potential for consolidation with diversified telecommunications service providers, S&P said.

S&P said that in 2001 WorldCom's net debt to EBITDA on a non-lease-adjusted basis was high at about 2.9 times. On a lease-adjusted basis and including the accounts receivable securitization program, the ratio would be more than 3 times.

Moody's cuts UPS outlook to negative

Moody's Investors Service confirmed its Aaa rating of United Parcel Service Inc., which includes the 1.75% convertible notes due 2007, but changed the outlook to negative due to weakening operating margins and a higher financial risk profile as core expansion programs and new business initiatives boost debt levels.

As a result, debt protection measurements have eroded and because of UPS's aggressive use of funds for capital expenditures, acquisitions and share repurchases could remain below historical credit metrics even if economic conditions continue to recover.

Nevertheless, Moody's noted that UPS has a dominant position in its core package delivery business, strong cash flow and high levels of liquidity and balance sheet flexibility.

Application of cash flow to debt reduction could return debt coverage metrics to levels seen in the recent past although business model risks would remain. Continued increases in spending and growth in debt levels in relation to cash flow would place the rating under further pressure.

S&P cuts Mutual Risk to CC

Standard & Poor's downgraded Bermuda-based Mutual Risk Management Ltd., including cutting its $324 million zero-coupon convertible subordinated debentures due 2015 to C from B-, reflecting a highly vulnerable status of nonpayment for existing debt. The rating remains on watch with negative implications.

The Bermuda Monetary Authority has appointed a review team to monitor Mutual Risk's business on an ongoing basis because the company is in default under the terms of its convertible exchangeable debentures and its bank credit facilities.

Management is trying to negotiate a restructuring plan with existing creditors, but it the company cannot restructure its debt or reach some accommodation, it may be forced to liquidate.

Moreover, S&P said it is not clear whether further sales of assets will yield sufficient proceeds to satisfy indebtedness.

It is also highly likely that Legion Indemnity Co., Mutual Risk's CCC-rated U.S. insurance subsidiary, will fall under regulatory control soon, S&P said. Legion Indemnity Co. had a policyholder surplus of $35.3 million as of year-end 2001, and has participated in a pooling agreement with affiliates, Legion Insurance Co. and Villanova Insurance Co. since 1996.

S&P affirms BBB- rating for Fubon convertible

Standard & Poor's affirmed the BBB- rating on Taiwan-based Fubon Financial Holding Co. Ltd.'s $430 million 0% convertible bonds due July 2004 following the deal closing.

The bonds constitute direct, unconditional, unsecured and unsubordinated obligations of Fubon FHC.

Moodys cuts Sholodge

Moody's Investors Service downgraded Sholodge, Inc. and assigned a negative outlook. Ratings affected include Sholodge's $20 million 9.55% senior subordinated notes series A due 2006 and $20 million 9.75% senior subordinated notes series B due 2007, both cut to Caa3 from Caa2, and its $25 million 7.5% convertible subordinated debentures due 2004, cut to Ca from Caa3.

Moody's said it cut Sholodge's ratings because of its marginal fixed charge coverage, uncertainty about its financial and business strategy going forward and an expanded share buyback program.

The negative outlook reflects concerns about Sholodge's to service debt over the intermediate term, Moody's said. Although ShoLodge was able to successfully extend the maturity of its $30 million bank credit facility to September 2004 from August 2002, it continues to generate significant operating cash deficits and report marginal profitability. EBITDA/cash interest for the period ended Dec. 31, 2001 was slightly over 1.0 time, Moody's said.

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