Moody's affirms Vivendi

Moody's Investors Service confirmed Vivendi Universal's senior unsecured rating at B1 and senior implied rating at Ba3. The outlook is negative.

The Ba3 senior unsecured bond rating of its Houghton Mifflin subsidiary, which Vivendi has agreed to sell, remains under review for downgrade pending clarification of the post-sale capital structure.

Ratings recognize significant progress Vivendi has made in addressing its most imminent liquidity issues by finalizing new bank financings as well as locking in key disposals such as that of Houghton Mifflin and Vivendi Universal Publishing, Moody's said.

Moody's also acknowledged that funding for pre-emption of British Telecom's 26% stake in Cegetel SA, which cements ownership of an attractive asset with strong growth characteristics, has a significant equity component. Also that Vivendi is vigorously pursuing asset sales designed to cover debt maturities over the next 18 months.

However, the outlook reflects that the company remains fully dependent on the disposal of a number of asset sales to meet obligations in the second half of 2003 and beyond, with significant execution risk, Moody's said.

Any indications of material shortfalls relative to expected proceed levels that can not be mitigated in short order are likely to have negative ratings consequences.

S&P keeps AOL Time Warner on watch

Standard & Poor's said the BBB+ long-term corporate credit rating of AOL Time Warner Inc. remains on negative watch following AOL's warning that it expects 2003 EBITDA to decline 15% to 25% and advertising revenues to drop 40% to 50%.

AOL is developing new commerce strategies, expanding premium services, stepping up subscriber retention efforts and paring costs.

Even so, advertising generates very high margins, and the company will face challenges in rebuilding its advertising presence, S&P said.

Lagging financial performance of AOL places further pressure on credit measures that are weak for the current rating level.

AOL Time Warner has not announced its consolidated EBITDA guidance for 2003.

However, S&P expects overall EBITDA growth and free cash flow to be restrained in light of the high margins of lost online advertising.

Remaining issues include the $2.1 billion debt-financed cash payment required in the restructuring of Time Warner Entertainment Co. L.P. This outlay is expected to be recouped from proceeds of a contemplated 2003 initial public offering of the Time Warner cable unit.

If the IPO produces more than the expected $2.1 billion, especially in light of AOL's outlook, the rating may be affirmed, S&P said.

However, if market conditions do not support an IPO, or if other negative news emerges, the rating may be lowered.

Moody's cuts Sanmina-SCI convert

Moody's Investors Service rated Sanmina-SCI Corp.'s proposed $250 million guaranteed senior secured tranche B term loan due 2007 at Ba1 and $450 million guaranteed senior secured notes due 2009 at Ba2 ratings. The outlook remains negative.

Also, Moody's lowered the ratings on the three convertible issues to B1 from Ba3.

Ratings reflect erosion in operating performance, high debt leverage and limited visibility into key end markets.

The downgrade to the convertibles are partially attributable to the encumbrance of the collateral by the senior secured debt. Additionally, the guarantees pledged to the senior secured debt by domestic subsidiaries further subrogate the position of the convertibles.

The ratings could be lowered further if quarterly revenues decline significantly from the current run rate and the company is unable to maintain operating profitability, Moody's said.

Conversely, Moody's would be amenable to considering a stable outlook on the ratings as early as the first half of 2003 if margins gradually improve and the economic environment becomes more hospitable.

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