S&P raises Lennar to investment grade

Standard & Poor's upgraded Lennar Corp. to investment grade including raising its corporate credit rating and $2.185 billion of senior debt to BBB- from BB+ and $254.19 million of subordinated debt to BB+ from BB-. The outlook is stable.

S&P said the ratings and outlook acknowledge Lennar's solid market position, highly profitable operations, successful track record of integrating acquisitions, and sound financial risk profile.

These credit strengths, coupled with management's discipline with regard to debt leverage, should enable Lennar to perform solidly even if housing demand does soften, S&P said. The company, which maintains operations in 16 states, has been in business for more than 48 years and has a long track record of operating successfully through a number of housing cycles.

Lennar's market position has been bolstered in recent years by its aggressive expansion efforts, which included the acquisition of nine builders in 2002 for an aggregate $600 million. Lennar continues to successfully integrate these franchises without leveraging its balance sheet, S&P noted.

The company's financial position is appropriate for the raised rating. Leverage at fiscal year ended November 2002 was 42% debt-to-book capitalization or 28%, net of a sizable level ($731 million) of cash and equivalents, S&P said. The company does have off-balance sheet land financing joint ventures, with an estimated $1.2 billion in total capitalization, which is just less than half the size of Lennar's current on-balance sheet inventory position. However, because the leverage for these ventures is comparable to that of Lennar, even full consolidation results in only a modest increase in leverage to a still acceptable 49% debt-to-book capitalization or 38% net of cash.

S&P confirms AES ratings

Standard & Poor's confirmed the ratings of The AES Corp., including senior unsecured and subordinated debt at B- and the convertible preferreds at CCC+.

The action follows AES' announcement it will take $2.7 billion of charges in fourth quarter associated with asset and goodwill impairments related to investments in the U.K., Brazil and projects under construction that will be sold or terminated.

While the magnitude of the charges are large, S&P said it had projected no cash flows from these assets in coming years and attributed no value to these assets as collateral for the senior secured exchange notes and bank facility.

In determining AES' rating and outlook, S&P estimates FFO/interest coverage in 2003 of between 1.5x and 1.7x and FFO/debt of 14% to15%. Assuming capex of $200 million, S&P estimates free cash flow, excluding any proceeds from asset sales, of $50 million to $150 million.

Faced with over $2 billion in maturities from December 2002 through October 2003, and with no real access to capital, AES executed a combined bank/bond refinancing in December that effectively pushed back all of its maturities.

The outlook is negative, reflecting the need for asset sales and stabilized operating cash flow in order to meet maturities in 2004 and regain access to the capital markets, S&P said.

Any significant negative deviation from S&P's projected cash flows or delay in executing asset sales and paying down debt will likely lead to a downgrade.

S&P says Elan unchanged

Standard & Poor's said Elan Corp. plc's ratings are unchanged including its corporate credit rating at B- with a negative outlook after the company said it would sell the U.S. and Puerto Rican rights of sleep medication Sonata and muscle relaxant Skelaxin to King Pharmaceuticals Inc.

The transaction, expected to close in the first quarter of 2003, will total $850 million. Elan is currently trying to raise $1.5 billion in cash through a restructuring program to satisfy significant debt maturities between 2003 and 2005, S&P noted. The company has raised more than $600 million from asset divestitures in the past two quarters, and it should net roughly $625 million from the current transaction (after making product rights payments of $225 million on Sonata to Pharma Marketing Ltd.).

Nevertheless, Elan has approximately $792 million in LYONs securities that can be put to the company at the end of 2003 and $840 million coming due in 2004 and 2005. The company has more than $1 billion cash on hand, but the success of its ongoing restructuring program and the strength of its cash flows from operations remain highly uncertain, S&P said.

S&P says King unchanged

Standard & Poor's said King Pharmaceuticals Inc.'s ratings are unchanged including its corporate credit rating at BB+ with a stable outlook in response to the company's plan to acquire U.S. and Puerto Rican rights to sleep drug Sonata and muscle relaxant Skelaxin from Elan Corp. plc.

The total of the transaction, expected to close in the first quarter of 2003, is $850 million. King Pharmaceuticals will fund the purchase with on-hand cash and use of an undrawn $400 million senior secured credit facility.

The company continues to maintain a significant amount of financial flexibility, S&P noted. It had $900 million of cash on hand as of Sept. 30, 2002. It also has $600 million still available under a universal shelf filed in 2001 and free operating cash flows that amounted to $276 million for the nine months ended Sept. 30, 2002. King faces no significant near-term debt maturities.

The acquisition will further diversify the company's drug portfolio (Sonata and Skelaxin collectively generated $238 million in sales in 2002), and it significantly increases King's self-marketing capability, S&P said.

Fitch confirms, withdraws New World Infrastructure rating

Fitch Ratings confirmed New World Infrastructure Ltd.'s senior unsecured foreign-currency rating at BB-, removed it from Rating Watch Evolving and withdrew the rating.

Fitch said its action follows the completion of New World Group's restructuring.

The company intends to redeem the approximately HK$1.3 billion outstanding 1% convertible bonds due 2003 ahead of schedule and to repay the $45 million rate notes due 2003 on their maturity in February. Most other outstanding borrowings were repaid during the restructuring.

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