Moody's cuts Schlumberger outlook to negative

Moody's Investors Service confirmed the ratings of Schlumberger Ltd., including the convertibles at A1, but changed the outlook to negative from stable in response to its agreement to sell the majority of its SchlumbergerSema businesses to Atos Origin for €400 million in cash and 19.3 million shares of Atos Origin common stock.

Schlumberger intends to reduce its ownership in Atos Origin to 19% or less through the sale of stock shortly after closing, Moody's noted.

The negative outlook reflects concerns that the sale price is considerably below the acquisition cost, uncertainty as to the total proceeds Schlumberger will realize from the sale, heavy reliance on divestitures to meet debt targets and continued weakness in the seismic drilling.

Confirmation of the ratings reflect the benefit of the sale, as it represents businesses that have generated weak returns and that have not contributed materially to operating cash flow, and plans to apply all cash proceeds to debt reduction.

The financial performance of Schlumberger has been dominated by its oilfield services segment, which continues to account for over 90% of its earnings.

Ratings are further supported by Schlumberger's position as the world's largest oilfield services company, conservative financial policies and considerable financial flexibility, among other factors, Moody's said.

In order to maintain its current ratings, Schlumberger will need to demonstrate ability to execute a growth strategy that maximizes returns from core businesses while investing in new areas that will enhance profitability.

Schlumberger's current deleveraging plan is heavily reliant on divestitures that are subject to execution risk. The A1 rating could come under pressure if management does not achieve its net debt targets by the end of 2003 (net balance-sheet debt of under $4 billion).

S&P cuts Temple-Inland outlook to negative

Standard & Poor's revised the outlook for Temple-Inland Inc. to negative from stable, plus lowered the short-term corporate credit and commercial paper ratings to A-3 from A-2 while the long-term ratings were confirmed.

The actions were prompted by concerns that corrugated container demand and pricing are likely to recover only gradually from the weak levels of the past two years, S&P said.

In addition, although Temple-Inland should benefit from a recent spike in wood products pricing, overcapacity and the ongoing trade dispute between the U.S. and Canada are continuing concerns.

As a result, the company could have more difficulty than originally expected in reducing debt related to the May 2002 acquisition of Gaylord Container Corp. and achieving cash flow to debt ratios appropriate for the existing long-term ratings.

Total debt is about $2 billion, down from about $2.4 billion immediately after the Gaylord acquisition, but debt to capital in the mid-40% area remains above management's 35% to 40% target and is still somewhat aggressive for the ratings.

Operating cash flow and available liquidity are sufficient to meet all expected cash outlays, with more than $700 million of unused borrowing capacity under various credit facilities at June 30, S&P said.

Moody's cuts Amerisource convertible to B1

Moody's lowered the rating on the Amerisource Health Corp. 5% convertible subordinated notes due 2007 to B1 from Ba3, but said the other ratings of AmerisourceBergen Corp. and the positive outlook remain unchanged.

The adjustment reflects the structural subordination of these notes relative to other senior debt obligations of AmerisourceBergen, Moody's said.

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