Fitch lowers Grupo Iusacell's notes to D

Fitch Ratings downgraded the senior unsecured debt of Grupo Iusacell, S.A. de C.V.'s (Holding company) and the senior unsecured debt of Grupo Iusacell Celular, S.A. to D from C, including $350 million 14.25% senior notes of holding company debt due 2006 and $150 million 10% senior notes of operating company debt due 2004.

The downgrade reflects the inability of Iusacell to cure the missed interest payments on its senior notes due 2006 within the 30-day grace period allowed under the senior note indentures. On June 1, 2003, Iusacell failed to make semiannual interest payments of $25 million on its senior notes due 2006. A default on the senior notes due 2006 effectively triggers an event of default to the company's secured syndicated loan and senior notes due 2004. The ratings that have been assigned indicate that potential recovery for bondholders is estimated to be below 50% of principal, Fitch explained.

Fitch upgrades Unova to B- with stable outlook

Fitch Ratings has upgraded Unova Inc.'s senior unsecured rating to B- from CCC. The rating outlook is Stable.

The change in the rating reflects Unova's strengthening its balance sheet by reducing debt levels through a pension reversion, asset sales, reduction of net working assets, and a series of patent settlements, Fitch said. Also, a high level of liquidity and improved operating performance support the rating.

In January 2003, Unova paid off its term loan and currently has $200 million of public debt and $8 million of industrial revenue bond. Net debt fell to $20.9 million at March 31 from $46.4 million at Dec. 31, 2002, $177.8 million at Dec. 31, 2001, and $342.0 million at Dec. 31, 2000. At March 31, the company had $188 million in cash. During the same period, Unova's EBITDA turned positive and free cash flow was $86.5 million in 2002, up from $41.1 million in 2001 and negative $32.4 million in 2000.

Fitch said consolidated results have been stabilized, due to positive trends at its ADS business. Intermec sales, excluding IP transactions, grew at a double-digit rate during the past three consecutive quarters, aided by growing share and growth in its end markets. Concerns include continuous weakness in the overall operating performance due to weak IAS business and unstable cash flow from operations. In addition, the growing AIDC market may attract more competition, however, given the number of patents and reasonably high switching costs, the threat should not be material in the near term. UNA has successfully reduced costs and brought down Intermec's sales breakeven point to $145 million per quarter from a previous $220 million. The operating margin in this segment has improved to 5.5% during the first quarter of 2003. Excluding intellectual property settlements, Intermec's operating margin in 2002 was about 2.4%.

Backlog at Dec. 31, 2002 was $299 million, down from $386 million and $581 million at December 31, 2001 and 2000, respectively. The majority of the backlog is concentrated in the IAS segment, Fitch said. Continuous weakness in the automotive and aerospace industries has negatively impacted the IAS business and weakness in this segment has limited Unova's overall improvement. Unova has consolidated three divisions into one operating entity called Unova Manufacturing Technologies during the fourth quarter of 2002. In conjunction with the consolidation, Unova has identified more fixed assets to be sold. The transaction is expected to be completed during the third quarter, generating additional cash.

Unova had a cash position of close to $190 million at March 31, 2003. Fitch expects the company to maintain relatively high cash level over the near term, with $100 million in notes maturing in 2005. Unova does not anticipate any large capital spending nor acquisition activities in the near term, and cash on hand provides ample liquidity in the near term, Fitch said. Over the long term, Unova will need to demonstrate sustainable improvement to restore meaningful improvement in margins and free cash flow to enhance financial flexibility.

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