Fitch rates Mirant at BBB-

Fitch Ratings established a final rating of BBB- for Mirant Corp.'s new $370 million of 5.75% convertible senior notes due July 2007.

The notes rank equally with other senior notes of Mirant and are rated the same as Mirant's outstanding senior notes and senior convertible notes.

The outlook is negative.

Moody's puts Qwest on review for downgrade

Moody's placed the Ba2 senior unsecured long-term rating of Qwest Communications International and wholly guaranteed Qwest Capital Funding as well as the Baa3 senior unsecured long-term rating of regulated subsidiary Qwest Corp. on review for possible downgrade.

This rating action is based on Moody's concerns about the company's market access and its consequent reliance on asset sales and accounts receivable securitizations for liquidity, as well as the potential negative effects of the SEC investigation into the company's past accounting practices on revenues.

The review for downgrade will focus on Qwest's ability to sell DEX in the near-term for reasonable cash proceeds, the SEC investigation, ability to complete a proposed $300 million asset securitization program, operating performance and ability to repay or extend its $3.4 billion May 2003 bank facilities.

It is Moody's view that a successful sale of DEX would reduce the debt load at Qwest Capital Funding and would somewhat relieve refinancing pressure, but it would not alter QCC's performance challenges.

S&P cuts i2 Tech to CCC+

Standard & Poor's lowered i2 Technologies Inc.'s subordinated debt rating to CCC+ from B-, including the 5.25% convertible due 2006, and corporate credit rating to B from B+, reflecting an accelerated cash usage rate and expectation that the cost structure is unlikely to reach break-even levels for up to one year. The outlook remains negative.

The company expects to announce that license revenues fell sharply to about $25 million in the June 2002 quarter, from $106 million in the year-earlier period, due to the inability to execute deals with established customers in the current environment of constrained software spending.

The company continues to make a number of operating management changes, following the resignation of its CEO earlier this year.

I2 expects that total revenues in the June 2002 quarter, including recurring services and maintenance revenues, were about $120 million.

While recurring revenues cushion the license revenue decline somewhat, and the company announced plans to cut costs, i2 does not expect to reach break-even profitability levels for up to one year.

Cash-plus-investments usage accelerated to about $78 million in the June 2002 quarter, from $61 million in the March 2002 quarter.

Ratings continue to reflect ongoing operating losses due to weakened software applications spending, offset by liquidity.

While total cash and investments of $615 million exceeded lease-adjusted debt of about $540 million as of June 2002, cash usage rates may remain high over the near term.

Uncertain timing for renewed software application spending continues to challenge recovery. Failure to materially lower cash usage rates or restore profitability could result in lower ratings.

Fitch cuts Xerox notes, convertible

Fitch Ratings downgraded Xerox Corp. and subsidiary senior unsecured debt to BB- from BB, and the convertible trust preferreds to B from B+. The outlook remains negative.

The downgrade reflects structural subordination due to the security granted under Xerox's new $4.2 billion credit agreement dated as of June 21, as well as the level of increased senior secured debt in the capital structure.

With a $2.8 billion paydown of the $7 billion that would have expired in October 2002, Xerox has arranged a new 3-year credit facility expiring on April 30, 2005.

The covenants for the facility are more strict and diverse than previously but have not yet been reset due to the company's restatement of its historical financial statements for the 1997-2001 period.

The outlook reflect Xerox's weakened credit protection measures, significant debt maturities for the next three years and Xerox's impaired financial flexibility and reduced access to the capital markets.

The ratings also incorporate the competitive nature of the printing industry, the necessity for constant new product introductions and overall weak economic conditions.

As revenues are forecasted flat to down, it is crucial that Xerox continues executing its cost cutting programs beyond the already achieved $1.2 billion in order to return the core operations to consistent profitability levels.

Cash flow remains strained and will have to increase significantly in order to support its debt obligations and Fitch anticipates core credit protection measures will continue to be challenged.

Moody's cuts Prime Retail to C

Moody's downgraded Prime Retail Inc.'s Series B convertible preferred stock to C from Caa3 and the Series A senior preferred stock to Ca from Caa3.

The downgrade is due to substantial accrual of unpaid preferred stock dividends, the likely restructuring of the REIT's highly leveraged and complex capital structure, pressing liquidity challenges, as well as deteriorating operating performance of its portfolio of outlet centers.

Reflecting liquidity constraints, Prime Retail has not paid dividends on the preferred stock since the beginning of 2000 and it is unlikely to be in a position to pay dividends for the foreseeable future.

Prime Retail also faces substantial refinancing needs throughout the remainder of 2002 and in 2003, when over $500 million in property-level debt comes due.

Covenant compliance challenges with regards to an $18 milliontax exempt bond and $111 million bridge facility create additional potential for default and refinancing challenges.

The REIT has been selling assets to reduce its indebtedness; however these assets have been among the better performing properties in the portfolio, with higher average occupancy levels and productivity.

Prime Retail will likely address its refinancing and strategic needs by restructuring its portfolio of outlet centers and capital structure.

Moody's believes that is unlikely to result in a meaningful recovery for the most junior stakeholders, including convertible preferred holders with $235 million including accrued dividends, which ranks junior to the senior preferreds with $73 million including accrued dividends.

The seniority in the priority of claims and a higher probability of a material recovery value for the senior preferreds accounts for the rating differential between the two series of preferreds.

The rating outlook for the senior preferreds is negative, given the multiple challenges faced by Prime Retail.

S&P rates Alpharma notes B

Standard & Poor's assigned a B rating to the $200 million senior subordinated notes due 2009 of Alpharma Operating Corp., which were sold in December. Also, S&P affirmed Alpharma's other ratings, including 5.75% convertible subordinated notes due 2005 and 3% convertible subordinated notes due 2006 at B.

The ratings reflect an established position in the human and animal-health pharmaceutical industries and geographic and product diversity, offset by aggressive financial leverage related to acquisition activity.

Difficult conditions in the generic drug and animal-health businesses have led to a deterioration of Alpharma's performance over the past three quarters.

Specifically, the generic drug business was hurt by two product recalls and resultant slowdown at its Baltimore facility, as well as by mandated price decreases that went into effect in some major European markets.

The deterioration in financial performance also comes at a time when the company is more highly levered, having completed the $660 million debt-funded purchase of Faulding in December.

Although Alpharma has successfully delivered after each past acquisition and has retired over $245 million of debt in the past two quarters, EBITDA interest coverage of 1.9 times is weak for its rating category.

However, given adjustments for one-time charges and writeoffs, the company remained in compliance with its bank covenants as of March 31 and currently has $285 million available under its credit facility.

Prolonged weakness in the generic drug or animal-health business could result in a ratings downgrade.

Fitch rates Commerce at A-

Fitch Ratings assigned an A- long-term issuer rating to Commerce Bancorp Inc., and rated the Commerce Capital Trust II convertible trust preferreds at BBB+. The outlook is stable.

Commerce is a rapidly expanding regional banking company based in Cherry Hill, N.J., that has doubled in size since 1999 almost entirely through organic growth.

At March 31, Commerce had about $12.5 billion in assets and $11.3 billion in deposits.

Deposit growth rates have been close to 30% on average for the past 5 years, from both market expansion and through greater penetration in existing markets. Ratings reflect the success of the strategy, which has provided both a strong core funding base and liquidity position, as well as consistent operating performance.

The company's deposit focus and its ability to grow deposits, especially transactional type accounts, has given it a funding base comprised primarily of low cost core deposits.

The majority of these funds are invested in high quality securities, illustrated by the low loan to deposit ratio of 43%.

As such, the company has a very liquid balance sheet and a cost of funds that is below 1.7%.

Despite a highly liquid balance sheet, the company has a relatively strong net interest margin, which is driven by its low cost of funds. The strong NIM combined with low credit costs and a growing level of fee income have contributed to solid performance.

Commerce's history of low credit losses is also somewhat attributable to its deposit growth strategy.

Since performance hinges largely on cost of funds, Commerce can focus on originating high quality credit and does not need to take on undue credit risk to reach for asset yields. Nevertheless, it is worth noting that loan growth has been strong in its own right averaging about 27% for the past 5 years.

Ratings also consider that rapid growth pressures capital ratios, but concerns are tempered by the fact that balance sheet growth is deposit liability driven rather than asset driven.

Also, while Commerce has a relatively limited degree of credit risk, it does take on a level of interest rate risk that would be considered at the high end of peers.

That said, the core nature of its deposit base, as well as the significant cashflows generated largely from new deposits mitigates some interest rate sensitivity.

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