Fitch cuts Interpublic Group

Fitch Ratings downgraded ratings for The Interpublic Group of Cos. Inc., senior unsecured debt to BBB from BBB+ and convertible subordinated notes to BBB- from BBB. Also, the outlook was changed to stable from negative.

About $3 billion of debt is affected.

Persistent weakness in advertising markets has resulted in lower than expected operating results for IPG, with key measures of debt/EBITDA and adjusted debt to EBITDAR below levels consistent with the BBB+ senior rating.

Debt/EBITDA is now expected to operate in a range between 2.5 and 3.0 times and adjusted debt/EBITDAR in a range between 4.0x and 4.5x, Fitch said.

Interpublic has made progress in improving its operating cost structure, with a headcount reduction of over 10% but benefits to EBITDA in 2002 have been more than offset by the declines in revenue.

Given the current outlook for earnings and EBITDA, the company has also focused on conserving capital through reductions in capital expenditures, which are declining from $268 million in 2001 to around $225 million 2002.

The outlook reflects an expectation that credit metrics will remain adequate for the current rating even with further weakening of advertising markets, Fitch added.

S&P notes Level 3 new bank pact

Standard & Poor's said the recent amendment of Level 3 Communications Inc.'s (CCC/negative) bank agreement has no impact on the credit rating or outlook.

The financial flexibility afforded by the removal and modification of certain covenants and allowance to pursue acquisitions under the amendments is more than offset by the negative impact on liquidity of the reduction in available bank credit to $150 million from $650 million.

Given poor fundamentals of the long-haul data business and substantial leverage, this reduction in liquidity further erodes Level 3's already limited margin of safety against execution risks, S&P said.

Moody's puts HealthSouth on review for downgrade

Moody's placed the ratings of HealthSouth Corp. (Ba1 senior unsecured), including the 3.25% convertible subordinated debentures due 2003 at Ba2, under review for possible downgrade.

The review was prompted by the company's announcement of significant Medicare reimbursement changes in its outpatient rehabilitation business as well as its board-approved plan to perform a tax-free separation of its outpatient surgery center business.

Moody's noted the potential cash flow impact from both of these new developments provides significant concern. However, details surrounding the transaction are uncertain at this time.

S&P puts HealthSouth on negative watch

Standard & Poor's placed HealthSouth Corp.'s ratings (BBB- senior unsecured), including the 3.25% convertible subordinated debentures due 2003 at BB+, on negative watch.

HealthSouth has about $3.3 billion of debt outstanding.

The watch reflects the announcement that unforeseen changes in Medicare reimbursement rules could adversely impact EBITDA by $175 million and reduce cash flow. Furthermore, the proposed separation of its surgery center division could reduce revenue streams and contribute to a more risky business profile.

A potential reduction in cash flow raises concern regarding the company's ability to maintain its current level of credit protection.

S&P cuts Qwest ratings

Standard & Poor's lowered Qwest Communications International Inc. senior unsecured debt to CCC+ from B, along with other ratings and units' ratings. The CreditWatch was also revised to negative from developing.

As of June 30, Qwest had about $26 billion of consolidated debt outstanding.

The downgrade was based on weakened operations resulting from lower than expected performance in telephone operations in second quarter, after which Qwest revised its operating cash flow guidance for 2002 down by $1 billion to between $5.4 billion and $5.6 billion.

It was the second revision of guidance from initial guidance of between $7.1 billon and $7.3 billion in December.

Given current expectations, the company anticipates being out of compliance with the third quarter 4.25 times debt-to-EBITDA test under the bank facility at Qwest Capital Funding Inc., absent receipt of amendments or waivers.

Qwest is in negotiations with its banks to amend financial covenants and maturity of the bank facility. Also, Qwest has said it is seeking a senior secured bank facility of $500 million or more at its directories subsidiary, which is contingent on amendments for the existing credit facility, to increase liquidity.

In addition, changes to the facility are subject to 100% agreement by the bank syndicate.

Although the recently announced agreement for the two-stage sale of the directories business for $7.05 billion is a positive development, the negative watch reflects significant concern about future operating performance, as well as the potential for restructuring public debt, S&P said.

Qwest's inability to obtain amendments or waivers to its bank facility before the end of September could lead to a further downgrade.

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