Moody's puts DDi convertible on review for downgrade

Moody's Investors Service placed under review for possible downgrade the ratings of Dynamic Details Inc. and its parent, DDi Corp., including the B3 rating on DDi's $100 million 5.25% convertible subordinated debentures due 2008.

Dynamic Details' announcement of a prospective operating loss in first quarter after losses in third and fourth quarters prompted the review, Moody's said.

The review will take into account the company's operating plan for the remainder of 2002, an anticipated protracted recovery in the company's markets and the flexibility afforded under its bank facility.

Moody's is concerned the company's facilities closures may not be sufficient to adjust to reduced demand for its services from high tech and telecom OEMs. More expense cuts may be required, but Dynamic Details has expressed determination to scale its labor force and physical infrastructure to be positioned for a sharp rebound.

However, these sectors, particularly telecom where the company has sizable exposure, do not appear likely to be as resilient as the company suggests, Moody's said.

The review also will focus on the most recent amendment to Dynamic Details' bank facility and assess its ability to comply with the amended covenants, particularly in light of ongoing liquidity requirements. The company closed 2001 with cash, cash equivalents and marketable securities in excess of $45 million. The balance sheet is highly leveraged, and after adjusting for goodwill and other intangibles, consolidated tangible net worth is negative.

Fitch cuts Cox senior debt to BBB

Fitch Ratings downgraded Cox Communications' senior unsecured rating to BBB from BBB+ and subordinated rating to BBB- from BBB. The F2 commercial paper rating was affirmed. The outlook is stable.

The downgrade reflects the current debt-to-EBITDA leverage position of Cox, which has not improved at the rate expected. Although Fitch believes the company is meeting operational expectations as strong demand for its secondary services has produced solid EBITDA growth, it is anticipated that leverage will be about 3.5 times at year-end 2003.

Due to Cox's deleveraging with sales of its investment portfolio (Sprint PCS, AT&T and AT&T Wireless stock), debt is expected to decrease about 7% in 2002. Coupled with expected EBITDA growth in 2002 of 13%-14%, Cox's credit protection measures should improve to a level consistent with a BBB rating.

Although slightly less than 2001, Cox's projected capital spending of $2 billion in 2002 will not allow the company to generate free cash flow. This shortfall along with refinancing of maturing debt will be funded by the monetization of liquid marketable securities and debt.

Assigning partial equity treatment for its hybrid securities based on the individual characteristics of each security, leverage is expected to be in excess of 4 times at yearend 2002 and about 3.5 times at yearend 2003.

Operationally, Cox is performing well with 12% EBITDA growth at yearend 2001, which Fitch expects to continue in 2002, driven mainly from strong video revenue growth and continued demand for vertical services, as penetration levels remain relatively low and other new services increase demand.

Further, Cox is one of the leading providers of telephony, a service that is generating 30-40% EBITDA margins in mature markets.

Management has committed to a strong investment grade rating. Therefore, the rating assumes potential cable system acquisitions would be completed with an appropriate mix of debt and equity and/or liquidation of its remaining non-core assets, which mostly include its 25% stake in Discovery.

Fitch rates Cummins convertible at BB-

Fitch Ratings assigned a BB- rating to the mandatory convertible preferreds of Cummins Engine Co. Inc. and a BB+ rating to the senior unsecured debt. Fitch said the rating was initiated as a service to its users and was based primarily on public information. The outlook is negative, Fitch said.

The ratings reflect the company's steady and significant decline in market share and uncertainty as to its scale and capacity to commit the capital necessary to stay competitive over the long term.

Recent financing transactions have raised leverage and fixed charge obligations, and a reversal to previous levels is not expected near term. The company also faces pending maturities in 2003 that include a $125 million note and a $500 million bank agreement.

Refinancing will likely result in higher costs and more stringent credit terms, and the potential exists for the bank group to seek a secured position as part of any new agreement.

Weak operating profitability and numerous charges over the past several years have led to a deterioration in the company's balance sheet, despite relatively flat adjusted debt levels. Adjusted debt includes the convertible preferred, receivables securitization and off-balance sheet lease obligations. Adjusted debt-to-capital has increased from 55% in 1999 to 63% in 2001.

Cash generation has been weak over the past several years, and is unlikely to improve in the short term due to weakness across the company's end markets.

Maturities in 2003 include the company's $500 million unsecured bank agreement, which was fully available as of Dec. 31. But, Fitch noted, a recent sale/leaseback transaction and certain dealer financing programs that contain debt-rating triggers could force the company to draw on the revolver.

Cummins has more than sufficient capacity under the revolver to absorb the current level of potential trigger-related requirements, but weak operating performance and the maturities in 2003 are likely to result in any refinancing being available only at a higher price and under more stringent terms.

Under this scenario, it is likely the banks would seek a secured position, further impairing unsecured debtholders.

S&P puts Amgen on positive watch

Standard & Poor's put Amgen Inc. on CreditWatch with positive implications, including its $2.5 billion zero coupon Liquid Yield Option Notes due 2032 rated A.

S&P cuts Pinnacle Holdings to D

Standard & Poor's downgraded Pinnacle Holdings Inc.'s corporate credit rating to D from CC.

The action follows Pinnacle's announcement it missed the interest payment on its 5.5% convertible subordinated notes due March 15, 2002.

Pinnacle's C senior unsecured rating and CC secured bank loan rating on its subsidiary, Pinnacle Towers Inc., remain on CreditWatch with negative implications.

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