S&P puts Xerox on negative watch

Standard & Poor's placed the BB corporate credit rating for Xerox Corp. on watch with negative implications, reflecting concerns about delays in Xerox's renegotiation of its $7 billion revolving credit agreement due October 2002. Although Xerox said it has made "significant progress" in discussions with the banks, S&P noted that if the revolver is not renegotiated a default or bankruptcy filing by Xerox is possible.

The current ratings assume the successful completion of the bank facility renegotiation; however, the existing agreement now matures in approximately six months. Xerox has about $16 billion in debt outstanding.

Xerox has made progress in executing its turnaround program, said S&P analyst Martha Toll-Reed, noting such measures as asset sales totaling more than $2 billion, significant cost reduction and cash conservation and moving most of its equipment financing business to third parties.

However, the S&P analyst said economic weakness and lower capital spending levels have reduced Xerox's prospects for significant improvement in operating earnings and debt protection measures in the near term.

In addition, Xerox recently concluded a settlement with the SEC related to accounting practices that had been under investigation since June 2000. While Xerox's restatement of financials will not have any impact on the cash that Xerox has received from leases, the restatements involve a range of earnings restatement and disclosure practices that go significantly beyond the acceleration of leasing revenues.

Moody's confirms Cendant at Baa1

Moody's Investors Service confirmed the ratings of Cendant, including the Baa1 convertible notes, on news of its $675 million acquisition of NRT Inc.

The rating reflects the increased scale that the acquisition gives Cendant in the real estate business as well as the expectation that the deal will be financed with common stock and cash, resulting in improved debt protection measures.

Cendant's rating outlook is negative, reflecting the near term refinancing risk associated with the $1.0 billion convertible securities that could be put back to the company in May 2002, the recent pace and number of acquisitions, and the still uncertain operating environment for some of the company's travel businesses.

If credit measures do not improve further, or if the pace of acquisition activity continues, and the company's business or financial risk profile increases, ratings could be pressured.

The rating agency said confirmation of PHH's ratings incorporate its assessment of the relatively stable credit profile of the three parts of its business, including the strong growth in the mortgage origination activity as well as the very close business, financial, and management links between PHH and Cendant.

PHH's rating outlook is also negative.

S&P puts Briggs & Stratton on negative watch

Standard & Poor's placed Briggs & Stratton Corp.'s BBB- corporate credit and senior unsecured debt ratings, which includes the 5% convertibles due 2006, as well as the A-3 short-term corporate credit rating, on CreditWatch with negative implications.

The watch reflects operating performance and credit protection measures that are below S&P's expectations. Briggs & Stratton had about $635 million of debt outstanding as of March 31.

Even though the company has recently reduced costs and working capital requirements, S&P remains concerned with Briggs & Stratton's ability to improve its financial profile to a level commensurate with an investment-grade rating, said S&P credit analyst Jean Stout.

Briggs & Stratton's year-to-date fiscal 2002 financial performance has been impacted by an unfavorable product-mix shift to lower horsepower and lower priced engines.

S&P puts FPL on negative watch

Standard & Poor's put its ratings on utility holding company FPL Group Inc. (A) and subsidiaries on watch with negative implications following the company announced purchase of an 88% interest in the 1,161 MW Seabrook nuclear power plant.

The acquisition is negative because it increases the risk profile of the group and its subsidiaries, and will initially increase the company's debt leverage, said S&P credit analyst Jodi Hecht.

This is the first nuclear plant in FPL's portfolio of nonnregulated generating assets.

The plant's proposed financing will initially raise the company's leverage because the equity component will be phased in over the next one to two years. In addition, the company recently issued $575 million of equity securities which helps mitigate the effect of increased debt from the purchase.

S&P ups Lockheed to BBB from BBB-

Standard & Poor's raised its long-term corporate credit and senior unsecured debt ratings on Lockheed Martin Corp. to BBB from BBB-, citing improvement in financial flexibility. The outlook is stable.

The upgrade reflects substantial debt reduction in the past year, said S&P credit analyst Martin Knoblowitz.

At Dec. 31, debt of $7.5 billion was down from $9.9 billion a year earlier and debt to total capital was a manageable 56%.

However, despite a very strong business position, internal cash generation continues to reflect the effects of problem contracts running to completion. Cash flow protection measures are improving, but funds from operations to total debt, an important credit ratio, is expected to be in the mid-20% area in 2002, weak for current credit ratings.

S&P rates Capital One convertibles BB+

Standard & Poor's assigned a BB+ rating to Capital One Financial Corp.'s new issue of $650 million 6.25% Upper DECS senior notes due 2005.

S&P downgrades Hudson's Bay

Standard & Poor's downgraded Hudson's Bay Co. The outlook is now stable.

Ratings affected include Hudson's Bay's C$150 million 6.25% debentures due 2003, C$150 million 6.35% debentures due 2003, C$125 million 7.1% debentures due 2004, C$160 million 7.4% debentures due 2006 and C$100 million 7.38% medium-term unsecured notes due 2005, all cut to BB+ from BBB-, and its C$150 million 7.5% subordinated convertible debentures due 2008, cut to BB from BB+.

S&P lowers Personnel Group

Standard & Poor's downgraded Personnel Group of America Inc., removed it from CreditWatch with negative implications and assigned a negative outlook.

Ratings affected include Personnel Group's $115 million 5.75% convertible subordinated notes due 2004, cut to CCC- from CCC+, and its $125 million revolving credit facility bank due 2002, cut to CCC+ from B.

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