Fitch affirms Williams senior notes at BBB

The Williams Cos. Inc.'s outstanding senior notes and debentures on Friday were affirmed at BBB by Fitch, among other ratings and unit ratings. Fitch said the rating outlook was stable. The action follows a review of Williams' recent announcement of a series of initiatives to enhance its balance sheet and liquidity profile, including a $1 billion mandatory convertible preferred in early 2002, a $1 billion capital spending reduction in 2002, potential non-core asset sales of $250 million to $750 million and the elimination of ratings triggers from various structured financings.

Fitch views these actions positively as they should improve Williams' credit fundamentals and access to liquidity in the more difficult and volatile capital market environment. However, it should be noted that Fitch would consider reviewing its current rating outlook and/or ratings for Williams if the company's plans to issue the mandatory convertible preferred in the near-term were to change or be delayed.

Fitch puts five energy firms on negative watch, including AES, Mirant, UtiliCorp

Because of recent negative events and adverse market sentiment affecting the energy sector, the market capitalization of the entire sector has been reduced, Fitch noted as it put five energy firms on negative watch. Among those were The AES Corp., Mirant and UtiliCorp., all with convertibles outstanding.

Access to funding sources in the bank and capital markets for near and intermediate term liquidity needs is less assured currently than in the past, Fitch said. The sector relies on large amounts of bank credit, and bank lenders may demand additional credit enhancements, such as collateral, that could place downward pressure on senior unsecured debt ratings. To the extent that these companies need to resort to asset sales to free up resources, asset valuations and the liquidity of asset dispositions will be reduced by a shortage of buyers who can readily finance an acquisition. Companies with high capital expenditures planned are likely to scale back or delay their projects, but may incur costs associated with the actions. Low equity prices for companies in the sector make the issuance of equity or hybrid securities problematic, although a few companies have demonstrated access to the equity market in the past week. Providing a negative backdrop for the sector is a weak macroeconomic environment and slower expected growth in demand for energy, Fitch said.

Each of the companies put on negative watch, Fitch said, derives a significant portion of its earnings and cash flow from the merchant energy business and/or has an aggressive capital expenditure program or pending acquisition; some face large debt maturities over the next six months. The companies also have relatively high debt leverage for their respective rating categories.

While Fitch does not see any of the companies listed as analogous in circumstances to Enron, the change that is under way in asset valuations and access to capital will place a burden on these entities. Financial management practices, including leverage and liquidity policies, will need to be reassessed given the expected operating environment, Fitch said.

Companies that are part of larger, integrated energy holding company groups with a diverse set of subsidiaries including more stable utility businesses are likely to have greater financial flexibility and suffer less reduction in the group's access to capital markets, Fitch said. Nonetheless, the rating agency added that companies in these groups may come under greater pressure to increase debt at some subsidiaries in order to provide support to the parent or indirectly via the parent to other affiliates.

Moody's downgrades Level 3

Moody's Investors Service downgraded Level 3 Communications, Inc., affecting $6.4 billion of debt. Ratings affected include Level 3's senior secured debt, lowered to Caa1 from B2, and its senior unsecured debt, lowered to Caa3 from Caa1, and its convertible subordinated debt, lowered to Ca from Caa2. The outlook remains negative.

Moody's said the downgrade reflects the "tempered growth of the company's fundamental business plan that has been compressed from its original scope by conditions largely outside of management's control. The dot-com meltdown has dashed the original expectations of the emerging telecommunications sector that considerable revenue growth would be generated from an exponential growth in internet-related traffic; instead, the financial collapse of the ISP and ASP sectors has straddled carriers, including Level 3 with a significant exposure to 'at-risk' customers."

Although Level 3 has shifted it sales focus to large data-centric end-users, its competitors have done the same, Moody's said.

Robust dark fiber revenues earlier in the year have dropped off markedly, reflecting the current excess of global capacity and the growth in service revenues from the shift in sales strategy has yet to compensate, the rating agency added.

Adjusted EBITDA declined 69% sequentially in the third quarter of 2001, Moody's noted, adding it sees no substantial rebound into next year.

"If the company is unable to revitalize cash revenues, we consider it likely that current bank covenants could be tripped in the intermediate term, unless waived," Moody's added.

Moody's downgrades United Air Lines

Moody's Investors Service downgraded United Air Lines, Inc., affecting $13.8 billion of debt. The outlook is negative. Ratings affected include United's senior implied, cut to B3 from B1, its senior unsecured debt, cut to Caa1 from B2, UAL Corp.'s preferred and trust preferred stock, cut to Caa3 from Caa1, and UAL's convertible preferred stock and its cumulative preferred stock, cut to Ca from Caa2.

Moody's said the downgrade reflects its view that the outlook for United's cash flow has deteriorated and that "large cash losses from operations of the last several months have sharply eroded United's financial profile."

A high cost base will limit recovery of adequate levels of cash flow, Moody's said.

Although United currently has adequate liquidity, it also has one of the highest levels of cash burn in the industry, "leaving it more vulnerable to a prolonged period of business weakness," Moody's said.

"These concerns are balanced against the company's business franchise, and the potential benefits of restructuring and cash conservation initiatives including deferral of capital expenditures. The current ratings anticipate a measurable recovery in operating cash flow over the next year or the ratings could be further pressured."

Moody's confirms CNF convertibles preferreds at Ba1

Moody's Investors Service on Friday confirmed the ratings of CNF Inc. - senior unsecured at Baa3 and the convertible preferred stock at Ba1, among others - following the company's decision to shut down the airline operations within its Emery unit. The confirmation is based on Moody's expectation of sufficient liquidity at CNF to manage the cash costs associated with the shut down, as well as avoiding the high capital commitment to restart the airline. Moody's also expects the cash flow from CNF's remaining units to be sufficient to meet its financial and investment obligations over the medium term without increasing debt levels. The rating outlook remains negative over concerns of the impact of the down economy on CNF's trucking and logistics units and the actual amount of cash required for the airline shutdown.

Moody's revises Young outlook to negative from developing

Moody's Investors Service revised its outlook on Young Broadcasting to negative from developing, affecting $1.8 billion of debt including Young's $800 million bank credit facilities rated Ba3, $250 million senior unsecured notes rated B2 and $750 million senior subordinated notes rated B3.

Moody's said the revision was prompted by NBC's announcement that it will acquire Granite Broadcasting's KNTV station to reach the San Francisco market, ending negotiations over a potential sale of Young's KRON station in San Francisco to NBC or an extension of KRON's affiliation agreement with the network.

On Nov. 6, Moody's cut Young's ratings and changed the outlook to developing.

"The negative outlook incorporates the challenges Young is expected to face as a result of KRON's switch to independence from network affiliation including achieving adequate ratings performance without the benefit of network programming, acquiring desirable syndicated programming, and managing the costs of promoting the change and expanding the company's news coverage in a competitive market," Moody's said.

Moody's cuts Cablevision, others with ties to Argentina

Moody's Investors Service on Friday downgraded ratings for several issuers following the downgrade of Argentina's foreign currency ceiling to Ca from Caa3, including CableVision S.A.'s senior implied rating to Ca from Caa3, among others.

S&P affirms Anthem, assigns BB+ rating to mandatory convertibles

Standard & Poor's on Friday affirmed its A ratings on Anthem Insurance Cos. Inc. and related entities. The outlook is positive. At the same time, S&P assigned its BB+ rating on the $230 million equity security units issue of Anthem Inc. S&P said the convertibles are considered a hybrid equity and after three years will be considered debt.

The ratings actions reflect extremely strong operating performance and very strong capitalization, S&P. Although these measures exceed the range applicable to the current ratings, the ratings also take into account 2002 challenges the industry is expected to face to maintain medical loss ratios at prior year levels and the prospect that Anthem will make additional acquisitions in the medium term. The outlook reflects Anthem's excellent earnings trend and very strong capitalization. S&P projects Anthem's EBIT earnings will be about $560 million for 2001, and increase 15% in 2002. Anthem's capital adequacy ratio is expected to remain between 160%-170% through 2002.

S&P rates new Korea Telecom convertibles BBB+

Standard & Poor's assigned a BBB+ ratings to Korea Telecom Corp.'s new issue of convertible notes due 2007.

S&P rates Mosel Vitelic exchangeables B-

Standard & Poor's assigned a rating of B- to Mosel Vitelic Inc. $150 million of exchangeable bonds due 2005.

S&P rates Heart-Argyle convertible preferreds at BB

Standard & Poor's assigned a BB rating to Hearst-Argyle Capital Trust I's $200 million of convertible preferred stock guaranteed by Hearst-Argyle Television Inc.

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