Moody's rates Quest Diagnostics new convertible at Ba1

Moody's Investors Service on Monday assigned a Ba1 rating to Quest Diagnostics Inc.'s $225 million convertible debentures. Moody's also confirmed its Ba1 ratings for Quest Diagnostics' $500 million bank credit facilities due 2006, $275 million 6.75% senior notes due 2006 and $275 million 7.50% senior notes due 2011. Moody's said the outlook for the ratings is positive.

The positive outlook for the ratings considers that free cash flow generated by the company could be used to fuel growth to meet stockholder expectations for the company, as opposed to further debt reduction, Moody's said. Prior to considering any upward rating action, Moody's said it would review the sustainability of improved cash flow to debt metrics and the extent to which management's acquisition strategy will impact these positive trends. Moreover, despite a more favorable reimbursement environment, there remains the potential for renewed pricing pressure in the healthcare industry. The outlook for government reimbursement programs has become more uncertain, especially as the government focuses on defense spending. Also, as the economy slips further into recession, the recent favorable managed care pricing trends may not be sustainable.

S&P rates Quest Diagnostics new convertible at BBB-

Standard & Poor's on Monday assigned a BBB- senior unsecured debt rating to Quest Diagnostics Inc.'s $225 million contingent convertible debentures due 2021. At the same time, Standard & Poor's affirmed its ratings on the company, and said the outlook is positive.

The investment-grade ratings continue to reflect Quest's leading position in the U.S. market for diagnostic testing services and its moderate debt burden, S&P said. Also, S&P said that continued improvement in the company's capital structure, combined with successful execution of the company's technology strategy, could lead to a higher rating in the next few years.

Moody's cuts ITC^Deltacom convertibles to C

Moody's Investors Service downgraded ITC^Deltacom, Inc., affecting $845 million of debt securities. Ratings reduced include ITC^DeltaCom's senior notes, lowered to Ca from B2, its $100 million 4.5% convertible subordinated notes due 2006, lowered to C from B3, and Interstate Fibernet Inc.'s $160 million guaranteed senior secured credit facility rating, lowered to Caa2 from Ba3. The outlook remains negative.

Moody's said it took the action because ITC^DeltaCom's performance to date has fallen short of Moody's previous expectations. The rating agency is also concerned about the company's ability to "finance its operations over the intermediate term given its current liquidity constraints and our belief that a prolonged deterioration in the economic environment will further impact its operations."

While ITC^Deltcom has generated positive EBITDA. over the past several quarters EBITDA has remained "relatively flat for the company's broadband business and declining for its retail operations," Moody's added.

Fitch revises Best Buy outlook from stable to positive.

Fitch on Monday affirmed its BBB rating on Best Buy Co. Inc.'s bank credit facility and senior unsecured convertible debentures, but changed the rating outlook to stable from positive. The BBB rating reflects the company's leading position as the largest consumer electronics retailer in the U.S. and solid operating and financial profile, Fitch said. However, Fitch added, the change in the outlook reflects a more cautious retail outlook and ongoing risks associated with integrating the Musicland and Future Shops acquisitions over the next year.

Going forward, Best Buy's focus will be on integrating and re-merchandising the Musicland and Future Shops stores, with Canada being a new market for the company, Fitch said, while growing its domestic Best Buy stores by approximately 60 per year. While there is product overlap between the Best Buy and Musicland stores, the key challenge will be to increase customer counts in the Musicland mall-based stores while expanding the merchandise mix beyond their traditional music offerings, Fitch said, adding that inventory management will be a key component to the success of the integration.

S&P puts CommScope convertibles B+- rating on watch, positive

Standard & Poor's on Monday placed its BB corporate credit and B+ convertible subordinated note ratings for CommScope Inc. on watch with positive implications. At the same time, S&P withdrew its BB+ bank loan rating on the company's proposed $360 million senior secured credit facility. The watch listing is based on better credit measures resulting from CommScope's decision to restructure the previously announced joint venture arrangements to acquire an interest in the fiber optic cable business of Lucent Technologies Inc. Hickory, N.C.-based CommScope is the leading manufacturer of coaxial cables for the cable television industry. The previous transaction weakened credit measures and was in large part debt-financed. In addition, S&P believed that the operational challenges associated with operating Lucent's fiber optic cable business in an uncertain demand environment would increase CommScope's near-term risk profile.

Under the new terms, CommScope will issue shares of its common stock to Lucent valued at about $203 million, and will purchase an approximate 18% ownership interest in the fiber optic cable venture, which includes transmission fiber and cable manufacturing facilities. CommScope will also purchase an interest-bearing note of the venture for $30 million to finance a portion of the initial working capital needs until permanent financing of the venture is secured. Proceeds of the stock issuance to Lucent will fund both the acquisition of the interest in the venture and the purchase of the note. S&P said it would meet with CommScope management to assess the financial policy, growth strategies, and operating performance in a more difficult economic environment, and the effect of the current agreement on CommScope's risk profile.

S&P rates PartnerRe convertibles A-

Standard & Poor's rated PartnerRe Ltd.'s new offerings of $175 million mandatory convertible preferred shares and $200 million of trust preferred schares at A-.

S&P said the two securities are both treated as equity for capital modeling purposes. The provisions of the convertible preferred issue allow it to receive equity credit in calculations of financial leverage. The trust-preferred issue will receive hybrid treatment, with the portion contributing to preferred leverage above 15% recharacterized as debt.

The rating agency said that pro forma the new capital returns the company's capital adequacy ratio to the AA rating range, with pro forma debt to capital of 13% and debt plus preferred leverage of 28%. Nonstandard notching between the holding company and operating company reflects that debt leverage remains within AA tolerance levels.

S&P added: "The proceeds will replenish reductions in capital related to the Sept. 11, 2001, U.S. terrorist loss events, and to support additional growth."

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