S&P ups Quest Diagnostics

Standard & Poor's raised the ratings of Quest Diagnostics Inc., including the 1.75% convertible due 2021 to BBB from BBB-, on its improving financial profile. The outlook is positive.

The upgrade reflects a strengthened financial profile aided by the rapid repayment of acquisition related debt from internally generated cash. S&P also said Quest's ability to integrate Unilab and increase operating margins was crucial to improved profitability and credit protection measures.

Financially, Quest's moderate use of debt to fuel growth and strong cash generation, provided for the rapid repayment of $475 million in acquisition debt within nine months of issuance, S&P noted.

Total debt to EBITDA was 1.5x at the end of 2002, down from 2.0x in 2001. This provided the financial capacity for the Unilab acquisition and maintain credit measures.

At March 31, the company had $50 million in cash and access to a $325 unsecured credit facility, as well as a $250 million receivables credit facility, both of which were undrawn, with no substantial debt payments until 2006, although there is a possible put in November of 2004 on the convertible.

Quest generated free cash flow of almost $400 million in 2002 and operating cash flow is expected to exceed $550 million during 2003. Capital expenditures should increase moderately to about $190 million.

Moody's cuts PPL ratings

Moody's Investors Service downgraded the long-term ratings of PPL Corp. and subsidiaries, including the 7.75% mandatory to Baa3 from Baa2.

The outlook is stable, which anticipates the conversion of $575 million of the mandatories to stock in 2004.

The downgrade reflects high financial leverage, modest exposure to merchant generation risk, continued weakness in the wholesale power market and concerns regarding cash flow from non-regulated domestic operations as well as free cash flow from regulated delivery business abroad.

PPL Corp.'s rating and outlook reflects plans for improving its balance sheet and cash flow, including the proposed issuance of $400 million of common stock in 2003 to retire debt.

The outlook also incorporates PPL's stated intention that it is not pursuing any further investments abroad and is in the process of completing its remaining new power plant development by early 2004 with no plans for further development.

Fitch cuts PMI outlook to negative

Fitch Ratings affirmed The PMI Group Inc.'s ratings, including the 2.5% convertible due 2021 at AA-, as well as the ratings of PMI Mortgage Insurance Co., but changed the outlook on the debt ratings to negative from stable.

The outlook change is primarily indicative of a trend toward an expanded debt leverage appetite, coupled with Fitch's revised guidelines on the notching between insurer financial strength and debt ratings.

Also considered was the continuation, and even growth, of PMI's expansion into new business lines and the execution and deal risk associated with this behavior. However, the rating actions do not take into consideration any unannounced merger or related transactions, Fitch said.

Although PMI derives revenues from subsidiaries other than PMI Mortgage and businesses other than U.S. mortgage insurance, the ratings are based predominantly on the financial position of PMI Mortgage.

At year-end 2002, PMI reported $3.5 billion of GAAP assets and $2.2 billion of GAAP shareholder equity. For the same period, PMI Mortgage reported $2.9 billion of statutory assets and $2.4 billion of statutory surplus.

S&P rates new Apogent notes BB+

Standard & Poor's assigned a BB+ subordinated debt rating to Apogent Technologies Inc.'s $250 million of senior subordinated notes due 2013, and affirmed its other ratings, including the 2.25% convertibles at BBB-.

The ratings reflect a leading position in several business segments, offset by a sizable debt burden of $746 million.

Pro forma for the 15% stock buyback, financed with debt, S&P estimates lease-adjusted total debt to capital will rise to about 60% from 44%.

Liquidity remains adequate to meet both foreseeable cash needs and a more modest pace of acquisitions, S&P said. The company has about $485 million available under its credit facility with modest debt maturities of about $25 million in the next year and another $28 million in the following two years.

However, the company faces a likely cash need of $300 million in 2004, 2006, 2011 and 2016 for the put on the convertibles.

Moody's puts NiSource on review for downgrade

Moody's Investors Service placed under review for possible downgrade the ratings of NiSource Inc. and subsidiaries, due to still high financial leverage.

Moody's noted that over the past year NiSource has reduced a significant amount of debt and improved its coverages but initiatives to de-leverage its balance sheet may not be sufficient to retain a financial position commensurate with investment grade ratings.

This review follows an assessment of initiatives, which include roughly $580 million of asset sales in 2002, a $735 million equity offering last fall and overhead reductions. In addition, Moody's considered possible outcomes from the proposed sale of Columbia Energy Resources.

The review will focus on debt reduction, the impact on cash flow resulting from initiatives and any other action that the management may take to strengthen the credit profile.

Fitch rates Comcast notes BBB

Fitch Ratings assigned a BBB rating to Comcast Corp's $1 billion 5.3% senior unsecured notes due 2014. The outlook is stable.

The ratings incorporate a proven operating track record.

Due to its large scale and well clustered cable systems, Comcast should benefit from bargaining leverage to obtain lower programming rates as well as increased advertising demand.

Comcast has proven its ability to integrate systems and while the ATT Broadband properties are clearly the largest acquisition to date, Fitch believes it is ahead of schedule in its integration efforts.

Another important consideration is the execution of the deleveraging plans in which Comcast notably has reduced debt by close to $2 billion in first quarter.

Successful execution of the company's plans should reduce debt to about $25-$26 billion, and assuming continued solid operating performance, leverage at yearend 2003 should be below 4x and interest coverage in excess of 3x.

It should be noted that Comcast has already significantly reduced bank facilities from $8 billion from $17 billion over the past year.

Overall, liquidity remains strong and is supported by over $5 billion of availability on their lines as well as over $1 billion of cash. The company's has nominal 2003 maturities and some $1.2 billion in 2004.

S&P rates new PPR convert BBB-

Standard & Poor's assigned a BBB- senior unsecured debt rating to the proposed €850 million to €1.1 billion five-year convertible bond of France-based Pinault Printemps Redoute SA.

At the same time, S&P affirmed its other ratings.

The outlook is stable.

The ratings are underpinned by the leading positions of its core nonfood retail and luxury goods operations and successful decentralized management structure.

Despite the substantial divestments completed recently, PPR is unlikely to achieve in the near term a financial profile commensurate with a higher rating, S&P said, due to the planned cash outlay of at least €4 billion in 2003 and 2004 for the buyout of the minority shareholders of Gucci.

In the second half of 2002, PPR divested the Guilbert mail order business, and the Facet and Finaref consumer finance operations. Thus far in 2003, it sold the rest of Guilbert and the Pinault Bois et Materiaux builders' merchant business and is likely to sell, at some point, the Rexel electrical components distribution business.

With the convertible bond, PPR will refinance the recently repaid €880 million convertible bond, and have sufficient liquidity to fund the buyout of Gucci's minority shareholders, S&P said.

In order to sustain its current ratings, however, the group is expected to maintain coverage of net debt by funds from operations at about 15%-20%, and EBITDA and rent coverage at 4x-5x on a lease-adjusted basis.

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