Moody's cuts Dynegy

Moody's Investors Service downgraded Dynegy Inc. and its subsidiaries including cutting Dynegy Holdings Inc.'s senior unsecured debt to Caa2 from B3 and subordinated trust preferred securities to Ca from Caa2, Illinova Corp.'s senior unsecured debt to Caa2 from B3, Illinois Power's senior secured debt to B3 from B1, senior unsecured debt to Caa1 from B2 and preferred stock at Ca from Caa2 and Roseton-Danskammer's passthrough certificates to Caa2 from B3. A total of $4.9 billion of debt is affected. The outlook is negative.

Moody's said the action is in response to ongoing concerns about the level of cashflow that the restructured company will be able to generate relative to its high financial leverage, which will likely result in minimal amounts of free cashflow available for further debt reduction, and continuing uncertainty related to the ultimate resolution of the company's debt obligations coming due over the next several years, including $1.6 billion of bank credit facilities in the second quarter of 2003.

The negative outlook reflects a continuing lack of investor and counterparty confidence that has limited access to public debt markets and negatively impacted the company's remaining businesses; uncertainty surrounding the FERC and SEC investigations and; uncertainty relating to ongoing re-audits and reviews of the company's financial statements from 1999 through 2001.

Dynegy's total on and off balance sheet debt currently stands at $9.3 billion and consists of $6.2 billion at Dynegy Holdings Inc. (including outstanding L/C's), $100 million at Illinova, $2.0 billion at Illinois Power (including $540 million of transition funding notes), $360 million of DGC leases, and approximately $600 million of unconsolidated subsidiary debt, Moody's noted. These amounts do not include $1.5 billion of CVX preferred securities that are scheduled to mature in November 2003 and it remains unclear how this maturity will be dealt with.

Given the insufficient level of operating cashflow and the lack of significant additional assets available for sale, debt protection measures are likely to remain very weak, Moody's said.

Fitch cuts Calpine

Fitch Ratings downgraded Calpine Corp.'s senior unsecured debt to B+ from BB, including the 4% convertible bond due 2006 and the convertible trust preferreds to B- from B.

The outlook is stable, with the expectation that Calpine will be able to restructure or extend its various secured bank debt maturities totaling $5.5 billion through November 2004.

The downgrade follows Calpine's recently reported financial results and Fitch's revised view of power market prices across various U.S. regional markets.

The ratings now reflect Calpine's high debt leverage and the expectation that leverage and credit measures will remain under pressure due to continued weakness in the U.S. wholesale power market.

Ratings also reflect a lower assessment of the value of assets available to unsecured creditors, Fitch said.

These concerns are offset in part by sound operating fundamentals and the core competencies of Calpine's power generating activities.

Calpine bolstered near-term liquidity position in 2002 through asset sales and the issuance of $734 million of new common equity in April.

Moreover, the terms of the $1 billion revolver enable Calpine to extend $600 million of letters of credit for an additional 364 days thus providing some liquidity cushion in a downside scenario.

While these factors bode well for near-term liquidity, there is little opportunity to reduce leverage or materially improve credit measures near-term, Fitch added.

Moody's notes C&W triggers

Moody's Investors Service said its downgrade of Cable & Wireless plc rating factored in the ratings trigger noted by C&W.

At present, Moody's said it would not expect to take further rating action specifically related to the trigger as the rating agency is not aware of any other material cost, liability or contingent liability that C&W has not made public.

On Friday, Moody's downgraded Cable & Wireless plc ratings with a negative outlook.

As a consequence, C&W will now have to either procure a guarantee in the sum of £1.5 billion from an A-rated bank or place the sum of £1.5 billion into escrow.

Moody's noted that C&W expects its Cable & Wireless Global business will become free cash flow positive by fourth quarter of its 2003/04 financial year. The negative outlook reflects the potential for further rating deterioration if this does not occur.

S&P cuts Res-Care

Standard & Poor's lowered Res-Care Inc.'s ratings, including the 6% convertible due 2004 to CCC+ from BB-. The outlook is negative.

Although Res-Care has expanded its core operations and garnered top standing in its market, revenue pressures from overburdened government budgets, along with rising insurance and litigation expenses as well as sustained high debt levels, have gradually eroded financial performance, S&P said.

The negative outlook reflects concern about external pressures on cash flow.

Even though Res-Care had a well-supported liquidity position as of Sept. 30, external pressures could hinder efforts to manage the late-2004 maturities of its bank line, which provides important insurance-related credit support, and the $90 million convertible.

Maintenance of liquidity position is essential to the rating.

At Sept. 30, Res-Care had nearly $60 million in cash and short-term investments. S&P expects this amount to rise materially during 2003.

Because maintenance capital requirements are modest and Res-Care faces no debt maturities until 2004, these liquidity sources, together with operating cash flow, should prove adequate in the near term.

However, if Res-Care is unable to reverse operating margin erosion and if it has to rely on cash balances to fund operations or growth, it could have difficulty meeting debt maturities in 2004, S&P said.

Ratings could be lowered if external pressures on cash flow do not abate and if operating margins do not improve.

S&P cuts Navistar

Standard & Poor's lowered Navistar International Corp.'s and Navistar Financial Corp. ratings, including the 4.75% convertible due 2009 to B from B+. The outlook is stable.

The downgrade reflects concerns regarding the magnitude of restructuring costs and necessary pension fund contributions, plus the setback of a recent engine supply contract cancellation, S&P said.

Moreover, S&P expects weak truck demand to persist for longer than previously assumed, putting pressure on financial performance and liquidity.

Although cash balances are currently sufficient to support near-term requirements amid the current weak market conditions, a prolonged downturn beyond 2003 would further constrain financial flexibility. Other than at Navistar Financial the company does not have a bank credit facility.

The company plans to refinance some $200 million in debt that mature during 2003. The finance company's revolving retail facility and its bank credit facility mature in 2005 and 2006, respectfully.

Thus, Navistar Financial is heavily dependant on the ABS market for its ongoing funding.

Fitch cuts Navistar

Fitch Ratings downgraded Navistar International Corp. and Navistar Financial Corp. senior unsecured debt to BB from BB+ and senior subordinated debt to B+ from BB-. The outlook remains negative for both.

Intermediate to longer term, Fitch expects Navistar is well positioned to recover smartly from the eventual cyclical recovery in the industry.

Overall, Navistar's competitive position remains well intact through this extended downturn and Navistar stands poised to recover strongly longer term with the eventual return to more normalized industry volumes.

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