Fitch rates Lockheed convert BBB+

Fitch Ratings assigned a BBB+ rating to Lockheed Martin Corp.'s proposed floating-rate convertible and confirmed its other ratings. The outlook remains stable.

The ratings reflect significant debt reduction in the first half of 2003 and a positive outlook in the majority of defense and government businesses. In addition to these factors, the ratings are based on the company's position as the leading U.S. defense contractor, large backlog and financial flexibility, Fitch said.

Also, Lockheed's exposure to rising pension costs is low relative to other industrial credits.

Concerns center on the continuing uncertainty about the F/A-22 program, potential reductions in tactical aircraft purchases by the U.S. Department of Defense, the weak commercial space market and spending levels and strategic direction at NASA.

Lockheed also announced a tender offer for up to $1.15 billion principal amount of debt. After the tender offer and the recent $551 million acquisition of ACS' federal government information technology business, Fitch estimates there will still be large cash balances.

The ratings incorporate expectations cash could be used for a variety of purposes, including additional debt reduction, share repurchases, or acquisitions, Fitch said.

S&P rates Lockheed convert BBB

Standard & Poor's assigned a BBB rating to Lockheed Martin Corp.'s proposed floating-rate convertible senior debentures and confirmed its other ratings. The outlook is stable.

Proceeds are likely to partly fund the planned redemption for cash of the $750 million 7.25% notes due May 15, 2006, and $400 million 8.375% debentures due June 15, 2024.

Ratings reflect its position as the largest defense contractor worldwide, very healthy backlogs supporting revenue growth and improved financial profile following substantial debt reduction, S&P said.

Funds from operations to debt has improved to a high-20% level and debt to capital is in the 45%-50% range. When sizable unfunded postretirement obligations of about $6.7 billion at Dec. 31 are included, credit protection measures weaken noticeably but a material portion of those liabilities is fully recoverable.

At June 30, Lockheed had $1.9 billion of cash and equivalents plus a $1.5 billion revolving credit facility maturing in November 2006 with no amounts outstanding. There is a comfortable cushion in financial covenants, while debt maturities for the next few years are moderate and contingent liabilities are modest, S&P added.

Moody's puts Loews on review for downgrade

Moody's Investors Service placed the ratings of Loews Corp. under review for possible downgrade, including the convertibles at Baa1.

The review was prompted by the announcement by CNA, an insurance company 90% controlled by Loews, that it would take a $308 million after-tax charge related to unfavorable prior year reserve development and that it planned to complete a comprehensive reserve review in third quarter.

Moody's noted that CNA represents about half of Loews' consolidated assets.

Loews has demonstrated support of CNA in the past, with equity injections of $1 billion in 2001 and $750 million in 2002. So, the development raises concerns that the value of its largest investment might be affected negatively and that it might be required to support CNA again.

Another factor in the review was the 24% decline in second quarter sales for Carolina Group, whose only asset is a 100% ownership in the stock of Lorillard, a cigarette company. Lorillard is the source of the majority of free cash flow available to service Loews' debt, Moody's noted.

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