S&P keeps AOL on negative watch

Standard & Poor's said the ratings of AOL Time Warner Inc., including the BBB+ corporate credit rating, remain on negative watch following its agreement to sell its CD and DVD manufacturing business to Cinram International Inc. for $1.05 billion in cash, which will be used to repay debt.

AOL Time Warner has executed a number of transactions which S&P now views as cumulatively likely to bring itscredit profile in line with the target credit measures earlier identified as appropriate for AOL Time Warner.

The Cinram transaction and previous deleveraging moves, together with the expectation of satisfactory earnings and cash flow performance, should enable AOL Time Warner to achieve gross debt to EBITDA of 2.75x in the coming 12 months.

To the extent that cash in excess of a $1 billion working capital cushion is expressly earmarked for 2003 and 2004 maturities, S&P will adjust its gross debt to EBITDA computation.

On completion of the Cinram transaction, S&P expects to affirm AOL Time Warner's ratings and remove them from watch. The outlook at that time will be negative, reflecting the risk that maintaining financial targets could be hindered either by operating performance or other unexpected developments.

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