Moody's puts U.S. Bancorp on review for upgrade

Moody's Investors Service placed under review for possible upgrade the long-term ratings of U.S. Bancorp senior debt at A1, including the 0% convertible notes due 2021, and of its rated subsidiaries.

The rating agency said that the review will focus primarily on the company's prospects for attaining the longer-term earnings and profitability benefits envisioned in the merger with Firstar. Trends in asset quality, which was adversely impacted in 2001 by both the cooling economy and an aggressive repositioning of certain segments of the loan portfolio, also will be scrutinized.

S&P rates DDi convertible at B-

Standard & Poor's assigned a B- rating to DDi Corp.'s 6.25% convertible subordinated note due 2007 and affirmed other ratings. The outlook is negative.

Some $12.5 million from the sale of the note issue will be placed in an interest reserve account to cover two years of interest payments on the notes, as required by the senior credit facility, S&P noted.

Difficult industry conditions could pressure credit measures and ratings over the near term, said S&P credit analyst Andrew Watt.

DDi's profitability levels are likely to remain at depressed levels over the near term, despite management's capacity reduction and rationalization efforts. Cash flow protection measures are likely to remain pressured. Still, DDi's operations are likely to consume only marginal free cash flow. Financial flexibility is adequate for the rating.

S&P sees no impact from SEC inquiry of Qwest

Standard & Poor's said the change in status of the SEC's inquiry into Qwest Communications International Inc.'s (BBB/Negative/A-3) accounting practices from informal to formal, will have no effect on the company's credit rating or outlook.

Although it is a negative event given the more serious level of investigation, the issues raised are similar to those under the informal inquiry.

A primary concern regarding the continued negative news is the further erosion of investor confidence, which could affect Qwest's capital market access. Refinancing risk is a concern beyond 2002 because the company's bank credit facility matures in May 2003, in addition to about $1 billion of bonds.

S&P believes the SEC investigation could linger for a few quarters, during which time other events will become known and have an even more important bearing on credit quality. These include operating performance and the pace and size of potential deleveraging initiatives.

The company's shelf registration is being reviewed by a separate agency within the SEC, and it is not clear if it will be linked to the broader investigation or when it will go effective. Equity-linked securities can't be issued until the shelf goes effective, which is an option the company is considering to deleverage its balance sheet.

S&P rates AOL's new notes at BBB+

Standard & Poor's assigned a BBB+ rating to AOL Time Warner Inc.'s $6 billion of new notes and said the outlook is stable.

The company had about $30 billion of debt and debt-like preferred as of Dec. 31, 2001, including the recent AOL Europe transaction. Proforma total debt to EBITDA for year-end 2002 should be roughly in line with S&P's target of 3.0 times for the company at the current rating, barring further debt incurrence beyond the AOL Europe buyout, said S&P credit analyst Heather Goodchild.

However, leverage could rise above the appropriate level if recent discussions regarding the Time Warner Entertainment/Advance Newhouse cable joint venture lead to an AOL Time Warner buyout.

S&P said leverage also could increase if the AT&T stake in Time Warner Entertainment Co. L.P. is registered because of the $1.4 billion minority portion of TWE's debt-like Series A capital and related dividend obligation.

In addition, the company's revised earnings expectations, share repurchases and the use of debt in the AOL Europe buyout have curtailed debt capacity within the current rating.

A Time Warner Entertainment or Advance Newhouse buyout or a partial TWE buyout could lead to a revision of the outlook.

Share repurchases could also prompt an outlook revision.

S&P noted that, although early signs of a recovery are emerging, improvement in cash flow and credit measures still could be hampered by the economy or by slower than expected subscription growth.

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