Moody's rates Halliburton convertible Baa2

Moody's Investors Service assigned a Baa2 rating to Halliburton Co.'s proposed convertible notes of up to $1.2 billion, but said its ratings remain under review for possible downgrade.

The review is in response to the company's announcement of a proposed global settlement agreement intended to resolve all present and future personal injury asbestos and silica claims, Moody's said.

Terms of the settlement require Halliburton to pay $2.775 billion in cash and to contribute 59.5 million shares of stock - about $1.4 billion current market value - plus up to $100 million of notes.

Several Halliburton subsidiaries, in particular DII Industries LLC and Kellogg Brown & Root, are defendants in a large number of asbestos-related lawsuits. The settlement would involve a legal restructuring of Halliburton, followed by prepackaged bankruptcy filings by DII and Kellogg Brown & Root.

Halliburton has that, as a result of an increase in the estimated number of claims, the cash required to fund the settlement may modestly exceed the previously announced $2.775 billion. In Moody's view, additional payments could have negative rating implications if they were to exceed $300 million.

Moody's noted that the proposed settlement does not include a bankruptcy filing of Halliburton and that the company expects to retain 100% ownership of all of its subsidiaries.

Halliburton plans to seek waivers from its banks to avoid a default under its existing credit facilities that would otherwise be triggered by the planned subsidiary bankruptcy filings.

Prior to the filings, Halliburton plans to enter into a senior unsecured bank term loan facility for up to $2.8 billion less any proceeds from the convertible bond offering, enter into a $1.4 billion senior secured letter of credit facility, amend its existing $350 million bank revolving credit facility and enter into an additional bank revolving credit facility in an amount up to $350 million.

Halliburton has structured the new credit facilities so that its unsecured bondholders will automatically share in the collateral on a pro rata basis if there is a borrowing under the revolving lines or a draw under an outstanding letter of credit.

Once the subsidiaries emerge from bankruptcy, the upstream guarantees would cease to be in effect and the collateral would be released. Based on a preliminary review of the proposed facilities, Moody's may rate the secured debt one notch above senior unsecured debt.

S&P rates Halliburton convertible BBB

Standard & Poor's assigned a BBB rating to Halliburton Co.'s proposed convertible notes and placed the rating on negative watch along with its other ratings.

The transaction is a partial funding on the roughly $2.8 billion cash portion of Halliburton's proposed settlement with asbestos claimants.

In addition, the indenture agreements of Halliburton's outstanding unsecured debt contain similar provisions. S&P has assigned ratings based on the understanding that senior unsecured debt will not be materially disadvantaged by the settlement financing.

The watch reflects uncertainty surrounding a definitive agreement with asbestos plaintiffs, adequate financial arrangements structured in a manner consistent with the investment-grade ratings, including maintaining liquidity, and the magnitude and timing of any insurance recovery, S&P said.

Moody's cuts IMC, rates convertible Caa1

Moody's Investors Service lowered the ratings of IMC Global Inc., including senior implied debt to B1, and assigned a Caa1 rating to its pending $125 million mandatory convertible.

The downgrade reflects high leverage with pro forma debt to last 12 months EBITDA of 6.3x, weak coverage of interest expense, weaker than expected domestic fertilizer demand, higher costs and substantial intermediate term debt obligations even after completion of the most recent financing, Moody's said.

It also reflects Moody's opinion that a protracted recovery in the global supply/demand balance and elevated manufacturing costs will limit IMC's ability to improve free cash flow, implying the potential for weak credit metrics over the intermediate-term.

The outlook is stable.

S&P ups Teva outlook

Standard & Poor's revised its outlook on Teva Pharmaceutical Industries Ltd. to positive from stable, reflecting strong sustained operating performance as well as increasing confidence in its ability to cope with financial uncertainties.

Teva's operating performance and credit protection measures are strong for the rating, considering the substantial potential effect of acquisitions and uncertainty regarding Copaxone, S&P said. EBITDA operating margins are roughly 25%, EBITDA interest coverage typically exceeds 10x and funds from operations to total debt is 26%.

At March 31, Teva had more than $1.1 billion in cash and short-term investments on hand. Free operating cash flow for the first quarter was $161 million. Teva does not face any significant near-term debt maturities.

However, the $550 million convertible senior notes due 2005 are putable to Teva on Oct. 15, 2003, and the $360 million convertible senior notes due 2021 are putable in August 2004.

While the company currently has the cash on hand to handle both possible puts, and free operating cash flows are expected to remain healthy in the intermediate term, possible significant future acquisitions may lessen that cushion, S&P said.

The upcoming put on the $550 million convertible this fall is an important near-term uncertainty. The resolution of the potential debt puts and continued strong operating performance could result in a ratings upgrade in the near term.

S&P ups International Game Technology

Standard & Poor's raised International Game Technology's senior unsecured debt ratings to BBB from BBB-, reflecting solid operating performance, modest debt leverage and that discretionary cash flow should provide a cushion to complete modest share repurchases and/or growth objectives. The outlook is stable.

Debt leverage, adjusted for operating leases, for the 12 months ended March 29 was 2.0x. In addition, the company maintains a significant excess cash balance, S&P said.

At March 29, IGT's cash balance was $958 million and it had $264 million availability under existing credit facilities, which in total allow borrowing up to $275 million.

Debt maturities are modest in fiscal 2003, but increase to $402 million in fiscal 2004. Given current cash balances, proceeds from its recent asset sales and forecasted discretionary cash flow, IGT is expected to have the capacity to retire this obligation without further accessing the capital markets.

Fitch cuts EDS senior to BBB

Fitch Ratings downgraded Electronic Data Systems Corp.'s senior unsecured rating to BBB from BBB+, noting the company's pending $500 million of 10-year senior unsecured notes and $600 million of convertible senior notes due 2023. The outlook is stable.

Proceeds from the new deals are expected to be used to repay some $250 million of commercial paper, refinance an $800 million put on existing convertible in October 2003 and satisfy a potential rating trigger event from a software subscription agreement for $224 million.

Fitch believes this will provide EDS the necessary capital to satisfy a number of short-term obligations.

The downgrades reflect an increasingly competitive landscape for information technology services relative to EDS' balance sheet strength and credit ratings, as operating performance in the intermediate term will be more volatile than historical patterns, Fitch said.

Also considered are lower financial flexibility, slightly higher long-term debt levels, anticipated additional write-downs of problem contracts in the second quarter of 2003, and the on-going Securities and Exchange Commission investigation.

The outlook reflects the additional capacity for operational shortfall within the current rating category as the possibility of further credit erosion exists for the next few quarters. However, Fitch does not believe leverage will go beyond 2x and interest coverage should remain within the 10x range.

Estimated leverage for the last 12 months ending March 31 was about 1.6x. With 80% equity credit given for the $1.6 billion of mandatory convertibles issued in 2001, leverage is estimated at 1.2x. Fitch believes further credit erosion could occur for the next few quarters as a result of cash flow pressures.

Liquidity at March 31 included $1.8 billion of cash and equivalents and $1.25 billion of unused committed lines of credit which serve as backup facilities for commercial paper borrowings. The company also has a $500 million accounts receivable securitization program.

Moody's rates new EDS convertible Baa3

Moody's Investors Service assigned a Baa3 rating to Electronic Data Systems Corp.'s proposed $500 million senior unsecured notes due 2013 and $600 senior unsecured convertible notes due 2023, and downgraded its senior unsecured debt to Baa3 from Baa2. The outlook is negative.

The downgrade incorporates the additional liquidity that the company will obtain from the proceeds of the offerings and reflects the company's lowered guidance for 2003 free cash flow and the magnitude of the company's projected cash charge for severance in excess of Moody's prior expectation.

The negative outlook reflects challenges that the company continues to face in stabilizing its cash flow generated from existing and new contracts, Moody's said.

Last week, EDS revised its operating cash flow projection to about $1.7 billion and its free cash flow to about $500 million from the original forecast given on Feb. 6 of $2.1 to $2.3 billion of operating cash flow and $700 to $900 million of free cash flow.

The magnitude of the severance charge concerning approximately 5% of the EMEA workforce was substantially higher than severance-related charges Moody's anticipated.

Moody's expects that EDS will need to repay $772 million of 0% convertible notes that become putable in October 2003. Also, it may need to cover about $200 million of commercial paper, and a software obligation of $220 million potentially due immediately under a rating trigger triggered by this downgrade.

Also, Moody's noted that EDS' accounts receivable securitization facility established in fourth quarter 2002 has an unwinding provision if the rating falls below Baa3.

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