Moody's puts Calpine on review for possible downgrade

Moody's Investors Service placed its ratings for Calpine Corp. and its affiliates on review for possible downgrade because of increased concerns regarding Calpine's liquidity, modest near-term cash flow and reduced financial flexibility. On review are Calpine's senior unsecured Baa3 rating, convertible preferred Ba1 rating, among others.

Moody's expects that Calpine's operating profitability may moderate, in part due to projected warmer weather patterns and resulting lower power prices. The company has also lost financial flexibility because of the fall in its stock price. In addition, investor concern has increased throughout the entire energy sector. Although Calpine enjoyed access to the capital and credit markets in the past, it now finds itself facing skeptical investors and lenders, and Moody's believes the company's market access is materially reduced.

Against that background, and in the face of a significant debt load, modest near-term cash flow expectations and ongoing capex needs, Calpine is endeavoring to raise $1.5 billion in bank revolver and letter of credit facilities. The company will likely need to redeem $878 million in zero coupon convertible debt by April 30. Throughout this period, the company must continue funding its power plant construction program, largely through draws on its $3.5 billion ($2.5 billion already drawn) construction revolvers. Additionally, the company will require credit support for its marketing and trading operations. To the extent Calpine continues drawing on the secured project finance-style construction revolvers, the structural subordination of the senior notes will increase. Moreover, because Calpine may have greater difficulty eventually refinancing the secured project finance-style construction revolvers with corporate financing, the senior note holders may also remain structurally subordinated to the construction revolvers significantly longer than originally contemplated.

S&P keeps Hewlett-Packard on watch, negative

Standard & Poor's kept its ratings on Hewlett-Packard Co. and related entities remain on watch with negative implications, where they were placed on Sept. 4 following the announced definitive stock-for-stock merger agreement with Compaq Computer Corp. Also Thursday, S&P placed Compaq and related entities on watch with developing implications, indicating that ratings could be revised upward or downward. The change in Compaq's watch status reflects the increased uncertainty that Hewlett-Packard will obtain shareholder approval of the merger and challenging computer systems industry conditions, especially in the PC sector, S&P said.

If the merger is completed, Compaq's ratings would be reviewed for upgrade reflecting its acquisition by a stronger credit. The negative watch placement of Hewlett-Packard is based on the acquisition of a lower-rated company with a similar-size revenue base and S&P's concern about integration and business disruption risks inherent in a merger of this size in the highly competitive and rapidly evolving technology market. These factors are partially offset by Hewlett-Packard's strong financial profile.

If the merger is not completed, both Compaq and Hewlett-Packard ratings would be on watch, negative, S&P said. The rating agency said it then would meet with management of both companies to assess the companies' near-term profitability outlooks and longer-term strategic goals as independent companies.

Fitch rates Cinergy's new convertible at BBB+

Fitch rates Cinergy's expected offering of $275 million of convertible FELINE PRIDES (preferred redeemable increased dividend equity securities) at BBB+. As of Sept. 30, Cinergy's debt was 63% of total capitalization, up from 59% and 56% at the end of fiscal years 2000 and 1999, respectively, Fitch said. However, the issuance of the convertible slightly improves the company's balance sheet by reducing debt to total capitalization to 59.1%. To further reduce leverage, Cinergy plans to use proceeds from non-core asset sales to reduce debt and has re-instituted the issuance of new shares to meet obligations under its dividend reinvestment plan and various employee stock plans. If the debt reduction is successful, the outlook could return to stable, Fitch said.

Moody's revises J.P. Morgan outlook to stable from positive

Moody's Investors Service changed its outlook for the long-term ratings of J.P. Morgan Chase & Co. from positive to stable. J.P. Morgan has a senior long-term debt rating of Aa3 and J.P. Morgan Chase Bank has a long-term deposit rating of Aa2. The outlook change reflects Moody's opinion of the sharply reduced prospects for revenue synergies and market-share gains in the current investment banking and capital market environment. As a result, Moody's believes J.P. Morgan Chase's management is relying more heavily on cost cutting to generate benefits from the merger of Chase Manhattan and J.P. Morgan.

Expense management has helped to preserve the company's margins during this downturn, and management has moved rapidly to consolidate facilities and merge legal entities. Nevertheless, the revenue and earnings growth expected by the firm at the time of the merger has been pushed into the future, the rating agency said. Moody's expects J.P. Morgan Chase to continue to carry a larger portfolio of credit risk, and attendant funding challenges, than comparably rated investment banks. The risks of the firm's loan portfolio are mitigated by J.P. Morgan Chase's loan distribution discipline and by its deposit base, as well as by its earnings and tangible equity base. Moody's says that the diversification of J.P. Morgan Chase's business mix remains an important factor supporting the company's Aa3 rating. In addition, J.P. Morgan Chase's retail, processing and investment management businesses all help to cushion the volatility of earnings in its wholesale businesses. As a result, J.P. Morgan Chase's pre-provision income (excluding J.P. Morgan Partners and restructuring charges) exceeds $9 billion so far this year. Moody's ignores gains and losses from venture capital when considering debt service capacity.

Fitch affirms AIMCO's convertible preferreds at BB+

Fitch has affirmed its BB+ rating of around $1.1 billion of convertible preferred stock issued by Apartment Investment and Management Co., following the company's announcement that it will acquire Casden Properties in a $1.5 billion transaction. Fitch also affirmed its BBB- senior issuer rating assigned to AIMCO's principal operating subsidiary, AIMCO Properties LP The rating outlook is stable.

Fitch's primary rating concern centers on the increased leverage introduced by this transaction. Nevertheless, although AIMCO traditionally has had higher leverage than its peers, the company has shown it can manage this level of indebtedness. Further, Fitch anticipates that the combination of operating cash flow and projected asset sales of $350 to $400 million in 2002 are likely to reduce overall leverage and improve coverage from internally generated sources..

Moody's upgrades Global Marine long-term ratings to Baa1 from Baa2

Moody's Investors Service upgraded Global Marine Inc.'s long term debt ratings to Baa1 from Baa2 following the completion of its merger with Santa Fe International Corp. in a $6 billion stock-for-stock transaction. The rating actions were prompted by the new company's substantial market share, strong balance sheet, high quality rig fleet, and international diversification. The rating action also took into account business and financial risks, including speculative rig construction programs, management's ability to maintain conservative fiscal policies, and the opportunities expected to be created by the ongoing consolidation of the drilling sector. Global Marine Inc., is now a subsidiary of the new company, named GlobalSantaFe Corp., and its existing debt will not be guaranteed by GlobalSantaFe.

Rating upgraded include; Global Marine's senior unsecured debt to Baa1 from Baa2, senior unsecured shelf to (P)Baa1 from (P)Baa2, subordinated shelf to (P)Baa2 from (P)Baa3, and preferred shelf to (P)Baa3 from (P)Ba1. Global Marine's P-2 commercial paper and Baa1 bank revolving credit facility ratings have been withdrawn due to the cancellation of the CP program and revolving credit facility.

Moody's affirms Qwest long-term Baa1 rating, revises outlook to negative

Moody's Investors Service affirmed the long-term rating for Qwest Communications International at Baa1and its wholly owned regulated subsidiary Qwest Corporation at A2. The outlook on both ratings is changed from stable to negative. Since Qwest Communications International guarantees the debt of Qwest Capital Funding, Qwest Capital Funding's rating and outlook follow those of Qwest Communications International.

The negative outlook reflects the burden Qwest is facing from its recent spree of heavy capital spending and the diminished growth opportunities available to relieve that burden. Qwest has been particularly affected by the collapse of the wholesale capacity market and now has to focus its long haul efforts on more challenging corporate data and Internet services. This means that Qwest faces the likelihood of weak credit metrics relative to the Baa1 rating for a prolonged period, during which time an unanticipated negative event would likely put the company's long-term rating at risk. In addition to the company's performance shortfalls and increased debt levels, Moody's is also concerned with Qwest's increased role in KPNQwest. Moody's does recognize, though, that Qwest is unlikely to commit any material levels of capital into this investment until the company's domestic situation stabilizes.

Qwest has invested heavily in its long haul network as well as in upgrading the quality of its local network assets during the last several years. The purpose of this investment strategy was to favorably position Qwest to compete for Internet and data service business, which was expected to grow at a high rate for an extended period. That growth has not only slowed, but it is also not expected to rebound to the previously anticipated high levels. By investing heavily over the past several years, Qwest has added significant amounts of debt to its balance sheet. Even though Qwest is drastically cutting its capital spending budget for 2002 to reflect levels more in line with industry averages, operating cash flow has declined as well. While Qwest's credit metrics have been steadily declining during 2001, the company maintained some financial flexibility relative to its Baa1 rating. With total debt to EBITDA expected to range as high as 3.5x in 2002 and with little room to cut capital spending without damaging its overall competitive position, Qwest has little remaining financial flexibility at Baa1.

Moody's does recognize the positive steps taken by the company to reduce capital spending and take expenses out of the cost structure. Moody's also views positively Qwest's efforts to base its near-term growth opportunities on more easily quantifiable recurring revenues. In this regard, Moody's believes Qwest's core operations are healthy and should offer reasonable growth rates even in a challenging economic environment. Core operations refer to services related to the company's more than 18 million local access lines, wireless operations, directory services, and basic commercial data and Internet offerings.

Fitch revises Qwest outlook to negative

Fitch changed the rating outlook on Qwest Communications International's applies to Qwest's senior unsecured rating of BBB+ to negative from stable, as well as other ratings and units of Qwest. The outlook reflects Fitch's expectation for Qwest to operate with higher leverage over the course of the next year than previously anticipated. Fitch expects Qwest's debt-to-EBITDA of about 3.5 times at the end of 2002 versus the 3.2 times at Sept. 30. Moreover, leverage at yearend 2002 is moderately higher than required for a BBB+ credit with Qwest's mix of telecom businesses, Fitch said.

Pressure on the balance sheet arising from capital spending is expected to be alleviated in 2002 through an approximate 50% reduction in spending. Qwest is expected to reach a net free cash flow positive position in the second quarter of 2002 and remain in that position for the duration of the year as its capital spending will be front end loaded, Ftich said. To resolve the outlook, Fitch will continue to monitor Qwest's operating performance in the currently weak environment for telecom services, as well as evaluate measures Qwest may undertake to strengthen its balance sheet, such as the sale of noncore assets and/or through the issuance of equity-like securities.

Moody's downgrades IT Group, assigns negative outlook

Moody's Investors Service downgraded The IT Group, Inc., including lowering to Caa1 from B1 its $496 million guaranteed and secured senior credit facility, to Caa3 from B3 its $225 million of 11.25% guaranteed senior subordinated notes due 2009 and OHM Corp.'s $40.3 million of 8% convertible subordinated debentures due 2006 and to Ca from Caa1 IT's $51.4 million issue of 7% cumulative convertible exchangeable preferred stock. The outlook is negative.

Moody's said the downgrade reflects "the deterioration in operating profits and cash generation linked to delayed commercial project revenue and a weak economy; a buildup in working capital and lower than expected returns on recent acquisitions."

The action also reflects IT Group's "recent inability to reduce its significant leverage through asset sales or funds from operations; its limited liquidity and lack of financial flexibility aggravated by considerable fixed charges including interest, debt amortizations and lease payments."

The negative outlook is in response to concern about the impact of the recession on the company's commercial segment and the impact of poor project management on cash and earnings, Moody's said.

Planned asset sales and current cash generation may not help deleverage so a financial restructuring may result, the rating agency added.

Fitch downgrades Kamps

Fitch downgraded Kamps AG, lowering senior unsecured rating and its €250 million eurobond due 2005 to BB- from BB+. The outlook is stable.

Fitch said the action follows Kamps' announcement of two new debt transactions for up to €700mln to meet its cash outflow commitments due during 2003. While they will not increase net debt, the offerings will increase secured debt, resulting in less protection for unsecured creditors, Fitch said.

Fitch is also concerned about Kamps' inability to attract new unsecured funding and the emergence of the need to meet the March 17, 2003 put option on the €660mln zero coupon convertible bonds.

S&P downgrades Kamps

Standard & Poor's downgraded Kamps AG, cutting its €660 million LYONS and its €250 million 8% notes due 2005 to BB from BB+. It also rated the company's new notes at BB.

S&P assigns B- rating to new Wind River convertible

Standard & Poor's has assigned a B- rating to Wind River Systems Inc.'s new $125 million convertible subordinated debt issue due 2006. At the same time, S&P affirmed the company's B+ corporate credit rating. The outlook is stable. The ratings on Wind River reflect the company's growing market position as an independent developer of embedded-systems software and its technology competence, offset by a limited product portfolio and an acquisitive growth strategy.

S&P cuts Usinternetworking convertibles to D

Standard & Poor's downgraded USinternetworking Inc.'s convertible subordinated notes due 2004 to D from CC.

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