Moody's puts Shaw on review for possible downgrade

Moody's Investors Service placed the ratings of The Shaw Group under review for possible downgrade, including the senior unsecured 0% convertible at Ba3.

The review was prompted by greater than anticipated earnings deterioration and cash flow burn over the last two quarters, which may not change materially over the next several quarters, lower liquidity to meet the May 2004 put on the convertible and the possibility of covenant issues as quarterly earnings contract.

The review will focus on Shaw's business outlook on a segment by segment basis, the likelihood of further margin contraction as the mix of business changes and the status of disputed contracts, Moody's said.

In addition, Moody's will evaluate the company's cash generation ability and cash available from non business sources to bolster overall liquidity available to meet the May 2004 on the convert.

The review will also evaluate the impact of the likely weaker than anticipated performance on the rolling four quarter calculations for covenant compliance under Shaw's bank agreement.

S&P confirms i2 ratings

Standard & Poor's removed i2 Technologies Inc. from watch and confirmed its ratings, including the convertible notes at CCC-, with a negative outlook following the re-audit of i2's financial statements for 2000 and 2001 and the completion of the audit of its 2002 financial statements and 2002 10-K filing.

The restatement increased revenue for 2002 but decreased and reversed revenue in 2001, 2000 and 1999. It had no impact on cash balances, which stood at $355 million at June. i2 remains under investigation by the SEC regarding the restatements.

i2 filed its delayed 10-K for 2002 on July 21, which had resulted in a violation of a covenant in the indenture governing the convertibles and remains in violation of the indenture for failing to file its March 10-Q on time. The company expects to file a delayed 10-Q in August.

However, the reporting violation does not have any financial impact unless and until bondholders give notice to the company. If bondholders give notice, i2 has 60 days to file its statements. On the failure to file the 10-K, bondholders did not give notice and the cure period was never started, but there is still risk associated with the late 10-Q.

The willingness of customers to close software deals with i2 has been impaired and makes forecasting sales levels difficult. The company is likely to face considerable challenges restoring sustainable profitability under current conditions, S&P said.

S&P rates Hon Hai convertible BBB

Standard & Poor's assigned a BBB rating to Hon Hai Precision Industry Co. Ltd.'s new $400 million zero-coupon convertible bond issue due 2008.

S&P said the rating reflects Hon Hai's low cost competitiveness, strong mechanical engineering expertise, consistently solid operating performance and satisfactory financial profile. These factors are mitigated by the company's high degree of customer concentration, exposure to rapid product cycles in volatile end markets and ongoing pressure on prices in a highly competitive industry.

The company's operating performance has been very strong over the past few years despite difficult market conditions. Sales increased 67% in fiscal 2002 ended Dec. 31, 2002 to NT$258 billion, and 57% in fiscal 2001.

For fiscal 2002, Hon Hai reported net income of NT$16.9 billion, up 29% year on year, and strong operating cash flow of NT$22.8 billion. The company's operating margin fell to 10% in 2002 from 12% in 2001, reflecting an increase in sales from lower-margin system assembly products and the rising purchasing power of its customers.

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