Moody's cuts Loral convertibles to C from Ca

Moody's Investors Service downgraded Loral Space & Communications Ltd., including cutting the $492 million 6% series C convertible preferred stock and the $297 million 6% series D convertible preferred stock were to C from Ca and the $350 million 9.5% senior notes due January 2006 to Ca from B3.

The downgrade reflects Moody's concerns regarding the liquidity of Loral Space & Communications, a pure holding company. In order to service its debt and preferred stock obligations, Loral is dependent upon dividends from its subsidiaries, primarily Loral Satellite Inc. and Loral SpaceCom Corp. However, those two entities are currently encumbered with significant amounts of secured debt, Moody's noted. These two credit facilities total $1.1 billion and require $620 million of principal amortization in 2002 with final maturities of November 2002 and August 2003. Loral is currently reviewing these credit facilities with its lead banks.

Loral could extend its ability to service the 9.5% senior notes by deferring or eliminating the dividends on its two convertibles, which total $12 million per quarter. However, Loral is also subject to potential additional cash claims from PanAmSat and ChinaSat, as well as $19 million in contingent liabilities, some or all of which may be non-cash, in connection with Globalstar service provider partnerships, which would consume some of the benefits of any preferred dividend elimination. Notwithstanding the ability of Loral to conserve cash to fund to fund the coupon payments on the 9.5% senior notes, given the company's current financial condition and recent operating results, Moody's doubts the company will be able to attract the resources necessary to repay these notes in full at their maturity date of Jan. 15, 2006.

The ratings assume that Loral is successful in amending its two credit facilities with reasonable terms, Moody's said. Loral is also in the process of offering to exchange the two existing senior notes of another subsidiary, Loral Cyberstar, for a new $675 million 10% senior note due July 2006. This note will be guaranteed by Loral S&C, which has put additional strain on the senior implied rating of the company.

Moody's confirms Cummins senior debt at Baa3, revises outlook to negative

Moody's Investors Service confirmed the ratings of Cummins Inc. but changed the outlook to negative from stable. The company's current ratings are: Baa3 for senior debt, Ba1 for trust preferred, and Prime-3 for commercial paper. The change in outlook reflects the severe erosion in demand for heavy-duty truck engines, Moody's said, along with weak requirements for medium-duty truck engines by Chrysler -one of Cummins' major customers - and the challenges that Cummins will face in strengthening debt protection measures in 2002.

At September 2001, Cummins had a total debt burden of about $1.5 billion and generated nine-month EBIT of only $55 million before restructuring charges. Fixed charge cover during this period was about 1.0 times versus 4.0 times for the same period in 2000, and 12-month debt to EBITDA was high at 4.8 times compared with about 3.0 times for 2000, Moody's said. Cummins' outlook for 2002 is for EBIT of $155 million to $165 million, and net income of $35 million to $45 million. If achieved, Moody's said the improvement would be driven by 5% to 10% growth in the profitable power generation business (nine-month EBIT of $69 million), flat revenues for the filtration operations (nine-month EBIT of $62 million), no growth in revenues of the engine business (nine-month EBIT loss of $76 million) and $75 million in net savings from restructuring initiatives undertaken during 2001.

This performance would result in 2002 interest coverage of approximately 2.0 times and debt-to-EBITDA in the area of 3.0 times, Moody's said, but added that the uncertainty surrounding the outlook for the strength of the U.S. and international economies, the unprecedented weakness in the U.S. heavy-duty truck market and the severe competitive challenges facing Chrysler will challenge Cummins ability to reach its earnings targets.

Moreover, even these measures would be only marginally supportive of the Baa3 rating level, Moody's said. In 2002, Cummins' financial flexibility will be supported by an unused $500 million credit facility. However, this facility matures in early 2003, and will need to be replaced in order to preserve adequate financial flexibility, Moody's said. In order to avoid further pressure on the rating, Cummins must show near-term progress in harvesting the anticipated cost savings, and laying the groundwork for steady improvement in its debt protection measures. It must also begin to make provision to replace its maturing credit facility, Moody's said.

Mooyd's puts Carnival on review for possible downgrade

Moody's Investors Service on Monday placed the A2 long-term and Prime-1 short-term debt ratings of Carnival Corp. under review for possible downgrade following the company's announcement that it had made a pre-conditional offer to acquire all of the outstanding shares of P&O Princess Cruises PLC in a hostile transaction valued at £3.2 billion (US$4.6 billion), excluding P&O's existing debt. Moody's review will focus on the impact of the ultimate transaction, if any, on the debt protection measures of Carnival, the synergies that the combination could achieve, as well as the current difficult cruise operating environment that is characterized by large capacity expansion and price weakness.

On review for possible downgrade are the A2 ratings for Carnival's senior unsecured notes, debentures and convertible notes, among other ratings.

Moody's noted that Carnival has a successful track record of acquiring and improving the operations of other cruise operators and that the proposed acquisition fits within the company's strategic objective to grow its core business, but added that cruise vacations have experienced price weakness since 2000 due to capacity expansion and a weakening economy. These conditions were substantially impacted by the event of Sept. 11, as cancellations exceeded bookings for a period of time. More recently demand has improved, but has been stimulated by discounting, and Moody's said it is concerned that the pricing environment may remain weak as capacity continues to be added over the next few years.

Moody's confirms USA Networks ratings on cable sale to Vivendi

Moody's Investors Service on Monday affirmed USA Networks Inc.'s $500 million guaranteed senior unsecured notes due 2005 and $600 million guaranteed senior unsecured revolving credit facility at Baa3, and the $38 million 7% convertible subordinated debenture of USA Networks/Savoy due 2003 at Ba2. The outlook is stable.

The company is transforming itself through the sale of its cable network and studios businesses to Vivendi Universal SA in exchange for cash and securities, and retaining its home shopping, Internet and transactional businesses, to be renamed USA Interactive. The disposed businesses had accounted for about 40% of revenues and 60% of operating cash flow. While the transaction will leave USA Interactive with a strong net cash position, liquidity and solid operating performance of several core businesses, including Home Shopping Network, Ticketmaster and Hotel Reservations, Moody's expects that the company will continue to transform itself through cash investments that will eventually absorb a substantial amount of this liquidity in businesses that have are more developmental and higher risk in nature. Furthermore, USA Interactive loses the relatively predictable performance of the cable networks.

The rating is supported by a strong management team, the strong operating performance of core interactive businesses, a well-capitalized and liquid balance sheet, and demonstrated financial discipline, Moody's said. The rating is constrained by Moody's expectation that management will continue to transform the business through actively acquiring developing businesses that expand and complement its home shopping, interactive, and Internet businesses.

As stated before, Moody's said, the ratings have always reflected USA's credit profile on a stand-alone basis. However, Moody's said it recognizes that in the past USA's largest equity investors, Vivendi and Liberty, had invoked their anti-dilution rights to the benefit of bond holders by infusing additional equity capital to support acquisitions. Additional outside investment from either of these parties in unlikely going forward, Moody's added.

Moody's affirms Vivendi senior debt at Baa2, revises outlook to negative

Moody's Investors Service on Monday affirmed the long-term senior debt ratings of Vivendi Universal SA at Baa2, following the announcements that Vivendi will acquire full control of the entertainment assets of USA Networks in a deal with a headline purchase price of about $10.3 billion and that the company, in a separate transaction, will invest $1.5 billion in EchoStar Communications Corp. The rating outlook is changed to negative.

The affirmation of Vivendi Universal's Baa2 ratings is based on the sound strategic rationale, in Moody's opinion, of the deals announced, the limited proportional share of new debt financing in the transactions and the use of Vivendi Universal's treasury stock as an acquisition currency. It further acknowledges Vivendi Universal's recent lock-up of the value of 130 million BSkyB shares at 700 pence and the company's stated intention to reduce its debt substantially over the next twelve months, which should be aided by the availability of its remaining stake in BSkyB for disposal over time. Nevertheless, Moody's noted that Vivendi Universal debt has edged up during 2001 and that the absolute amount of debt and debt-like obligations incurred with the USA Entertainment transaction remains substantial at $2.4 billion, excluding certain contingent liabilities, relative to the expected cash flow accretion of up to $600 million expected for 2002. In addition, certain disposals, including that of the company's professional publishing activities announced in connection with the $2.2 billion acquisition of educational publisher Houghton Mifflin are still pending. A negative outlook therefore is based on a degree of execution risk surrounding Vivendi Universal's ability to take de-levering steps as intended. It also reflects challenges to the company's ambition to grow earnings and cash flows at the pace expected given the backdrop of an uncertain macroeconomic environment and a particularly difficult operating environment for the world music markets. Moody's will closely monitor the company's debt reduction efforts and successful execution could have more positive rating implications over time. The Baa2 rating continues to be based on the expectation that the long-delayed disposal of the Seagram drinks businesses will be concluded shortly on substantially the terms originally envisaged, Moody's said.

The EchoStar investment, which is subject to regulatory approval, complements the USA transaction by providing Vivendi Universal with improved distribution for its content through privileged access to some 15 million homes in the US if EchoStar's acquisition of DirecTV is successfully completed - 6.4 million if the DirecTV deal fails. Importantly, EchoStar has agreed to deploy Canal+ Technologies' Media Highway operating system in its PVR boxes from October 2002 onwards. The investment is expected to have certain protections that are designed to protect Vivendi Universal for up to 85% - 75% if the DirecTV deal fails - of its initial investment for a period of 2.5 years after the completion, or termination, of EchoStar's DirecTV deal, prior to which the deal is locked up. Moody's notes that Vivendi Universal's investment in EchoStar is in line with Vivendi Universal's stated strategy to develop its US distribution capabilities through ventures and alliances rather than through outright asset purchases.

Fitch puts Carnival on negative watch

Fitch put Carnival Corp.'s senior notes, currently A, on Rating Watch Negative.

Fitch said its rating action follows the company's $6 billion unsolicited bid for P&O Princess Cruises.

Carnival's credit profile would deteriorate if the companies combine, Fitch said. In particular, net debt of $1.5 billion at Aug. 31, 2001 would increase to $4.9 billion following the merger while EBITDA (earnings before interest, taxation, depreciation and amortization) would only rise to $1.9 billion from $1.4 billion. As a result, pro forma leverage as measured by net debt/EBITDA would be 2.5 times compared to 1 time.

With the planned shipbuilding programs - 21 ships are expected to be delivered over the next three years - and expected weaker financial results compared to 2000 leverage would increase further, Fitch said.

S&P puts Carnival on negative watch

Standard & Poor's put Carnival Corp. on CreditWatch with negative implications. Ratings affected include the senior unsecured debt at A.

The action follows Carnival's unsolicited offer for P&O Princess Cruises PLC.

S&P said it put Carnival on CreditWatch because of the the potential for a material increase in Carnival's balance-sheet debt leverage if the transaction is consummated.

Based on Carnival's results for the 12 months to Aug. 31, 2001, pro forma net debt to EBITDA would be in the 2.5 times range, rising to more than three times as ship deliveries are funded over the course of fiscal 2002, S&P said.

But the rating agency also noted: "Strategically, the combination of Carnival and P&O would further enhance Carnival's leadership position in the global cruise industry with a strong presence in most major markets."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.