S&P cuts Brightpoint

Standard & Poor's lowered the rating of Brightpoint Inc., including the 0% convertible notes due 2018 to CCC+ from B-, reflecting recent losses and limited access to capital.

The outlook is negative and failure to restore profitability near term, or a material deterioration in liquidity and access to capital could lead to a downgrade, S&P said.

The company reported revenues fell 4% to $339 million in the June quarter from the year-earlier period, with a net loss of $5.2 million.

While profitability for 2002 is expected to benefit from restructuring and cost reduction actions, near term profitability is expected to remain weak.

Since December, the company has repurchased convertibles with a total accreted value of about $113 million. As of Sept. 27, outstanding notes had an accreted value of $18.6 million. As a result, Brightpoint has materially improved its capital structure and reduced risk of the convertible put option in March 2003, S&P said.

Brightpoint has limited availability under a $90 million revolver that matures in October 2004. While cash balances at June 30 were $81 million, Brightpoint recently used some $30 million to fund a portion of convertible repurchases and has borrowed $15 million under its credit facility.

At June 30, Brighpoint had short-term debt of $7.1 million and the remaining $18.6 million of convertibles can be put to Brightpoint for cash or stock in March 2003. There are no additional near-term debt maturities.

Moody's revises Cummins outlook

Moody's Investors Service confirmed the long-term rating of Cummins Inc, (senior debt at Ba1 and convertible trist preferreds at Ba2) but changed the outlook to negative from stable.

The change reflects risk that operators of heavy-duty trucks could defer purchases during the next 12 months due to the market uncertainty being created by the Oct. 1 initiation of more stringent EPA emissions regulations.

That would place additional pressure on Cummins' truck engine operations and further delay any expected improvement in operating performance and debt protection measures, Moody's said.

Decisions to defer purchases could also be encouraged by the uncertain outlook for the intermediate-term strength of the U.S. economy, and also by the large supply of low-mileage used trucks that are available in the North American market. Deferrals could extend through the next 12 to 18 months.

As a result of the severe, two-year long downturn in the U.S. truck sector Cummins' performance has weakened.

For the last 12 months at June, operating margins were only 1.6%, debt/EBITDA exceeded 5.0x , EBIT/interest was about 1.0x, adjusted debt exceeded $1.5 billion and cash flow after working capital, capex and dividends resulted in a cash burn of about $57 million, Moody's added.

Cummins' recent restructuring initiatives should help maintain a competitive position in truck engines and improve longer-term returns.

Liquidity is supported by a largely unutilized $500 million credit revolver, which matures in January 2003 and is expected to be renewed in a timely manner on satisfactory terms.

S&P notes Navistar warning

Standard & Poor's noted Navistar International Corp.'s (BB/negative) announcement of an expected loss of between 72-77c a share for fourth quarter from continuing operations and a recall of up to 90,000 trucks due to faulty brakes resulting in an expense of $51 million in the quarter.

The warning and charge will have no immediate effect on the credit rating or outlook, S&P said, noting the ratings reflect weak financial performance, caused by soft market conditions, and the expectation that performance will remain weak over the near term.

S&P notes Nabors warning

Standard & Poor's said its ratings and outlook on Nabors Industries Inc. (A-/stable) would remain unchanged, but noted the company's warning that third and fourth quarter earnings would be below consensus estimates due to a delay in the recovery in North American drilling markets.

Despite this setback, S&P still expects Nabors to generate free cash flow after maintenance capital expenditures and have adequate financial flexibility for the rating because of its large cash balances.

Furthermore, Nabors eventually will benefit from a cyclical recovery in its markets, which S&P believes is likely in 2003.

Moody's puts NDCHealth on review

Moody's placed the ratings of NDCHealth Corp., including the convertible notes at Ba3, on review for possible downgrade.

The review was prompted by increased financial leverage associated with the acquisition of TechRx and concern about reliance on a restrictive bank facility as its primary source of liquidity, plus a recent decline in free cash flow.

Moody's will assess the quality of committed sources of liquidity, including the potential to recast an existing committed unsecured bank credit facility with a new line that provides greater covenant flexibility.

Moody's noted the existing $150 million revolver due in May 2005 will expire May 1, 2003, if the $144 million of convertible notes are not refinanced before then.

About $91 million outstanding on the revolver and unsecured credit lines relates to borrowings in May 2002 to fund part of the TechRx acquisition as well as the acquisition of ScriptLINE assets from Arclight Systems.

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