Fitch ups Nextel outlook

Fitch Ratings revised the outlook for Nextel Communications Inc. (senior unsecured debt at B+) to stable from negative.

The outlook reflects accelerated improvement in operating performance, significant debt reduction and strong cost containment despite a somewhat unfavorable climate within the wireless industry and weak economic environment, the rating agency said.

Fitch believes Nextel's operating performance, improvement to its capital structure and remaining liquidity offsets existing credit risk leaving a margin of safety consistent with a stable B+ rated credit.

Expectations are for Nextel to further strengthen credit protection measures in 2003 to 4.0x debt-to-EBITDA or less.

The improving cash flows should lead to at least a free cash flow neutral position for 2003. Nextel may also benefit from further potential debt reduction, Fitch said.

In regards to improvement with Nextel's capital structure, Nextel has retired $2.6 billion in face value of debt ($1.7 billion) and preferred securities ($900 million) using a combination of cash ($690 million) and equity (144 million shares), which has exceeded Fitch's expectations for debt reduction.

While Nextel has produced favorable operating results and balance-sheet improvements over the last three quarters, material credit risk remains, although reflective of a B rating level.

Other remaining potential challenges include competitive threats and fundamentals within the wireless industry.

S&P keeps Interpublic on watch

Standard & Poor's is keeping The Interpublic Group of Cos. Inc. ratings (senior at BBB and subordinated at BBB-) on negative watch.

Postponement of the company's 2002 third quarter earnings release has raised concerns about internal financial controls and ability to meet downwardly revised revenue and earnings expectations.

S&P is also concerned that the company's credibility with financial markets could be weakened.

Liquidity depends on borrowing availability of roughly $800 million under credit facilities - a $500 million revolver maturing in May 2003 with a one-year term out option and a $375 million credit facility due in 2005.

Key financial covenants in the revolver include minimum 3.5x interest coverage and 3.5x leverage. The term loan agreements also contain covenants for minimum levels for net worth, cash flow to borrowed funds and maximum levels of borrowed funds to net worth.

For the last 12 months ended June 30, EBITDA coverage of interest expense was about 6.4x, EBITDA plus rent expense coverage of interest plus rent was around 2.4x and total debt to EBITDA was about 3x.

Cash balances at June 30 were $537.3 million.

Interpublic's debt obligations do not contain ratings-based or stock price triggers that accelerate repayment, but the 0% convertible due 2021 is convertible if its credit rating is reduced below BB+. Also, the convertible is putable for cash on Dec. 14, 2003, at the accreted value of $587 million.

Assuming the credit facilities remain available and Interpublic generates positive discretionary cash flow next year, it should be able to meet this obligation, S&P said.

Moody's cuts Elan

Moody's Investors Service lowered the debt ratings of Elan Corp. plc, including senior debt to Caa2 from B2.

The current capital structure is unlikely to be sustainable, given the high debt level, upcoming debt maturities and future cash generation capability, Moody's said.

Also, Moody's noted heavy dependence on asset sales to meet upcoming debt maturities, uncertainty about the value of assets and consumption of cash in recent months for debt paydown and acquisition payments.

The outlook is negative.

Elan has a high debt level at $2.4 billion and significant upcoming debt maturities, including some $1 billion of convertibles that are putable in December 2003.

Moreover, Elan's already weak cash flow will be substantially reduced if management succeeds with its divestiture strategy.

As a result, negotiation of a comprehensive debt restructuring could, in Moody's view, become a meaningful option.

During the quarter ended Sept. 30, cash on hand decreased by $739 million, to $632 million. Elan has utilized cash at a faster pace than Moody's anticipated.

Moody's further notes the ongoing SEC investigation into Elan's accounting practices, initiated in February.

Fitch rates XL preferreds

Fitch Ratings assigned an A rating to XL Capital Ltd.'s offering of $250 million of 7.625% perpetual preferred stock. The senior debt and long-term issuer ratings of A+ were affirmed.

The rating reflects a history of favorable underwriting and earnings performance, strong interest coverage and operating cash flow and adequate capital position.

XL's financial leverage increased significantly in the last 12 months due to several new debt issues. Following the preferred offering, consolidated pro forma debt to total capital ratio will decrease to around 23% from over 25% at June 30.

Moody's confirms Aon

Moody's Investors Service confirmed the senior debt rating of Aon Corp. at Baa2 following the successful completion of its capital enhancement plans. The outlook is stable.

Aon's new $300 million convertible preferred securities are unrated by Moody's, however.

Proceeds from the convertible and a stock sale, about $900 million, were used to reduce outstanding commercial paper, with the remaining cash to be used to fund $300 million in debt maturing in 2003. These actions stabilized Aon's financial position.

The outlook reflects an expectation that margins and operating cash flows for brokerage operations and insurance underwriting will improve over the near to medium term and that the debt maturity profile is manageable.

S&P keeps Fleming on watch

Standard & Poor's said it is keeping Fleming Cos. Inc. ratings on negative watch, including the convertible at B, reflecting uncertainties related to the divestiture of its retail division.

A new concern is Fleming's announcement on Wednesday that it is the subject of an informal inquiry by the SEC into vendor trade practices, second quarter 2001 adjusted EPS data, accounting for sales in discontinued retail operations and comparable-store sales in discontinued retail operations.

Liquidity remains adequate with sufficient room under its $550 million revolving credit facility for further borrowings if needed. Fleming has no debt maturities until 2007.

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