Moody's puts Nortel on review for downgrade

Moody's Investors Service placed the long term debt and preferred stock ratings of Nortel Networks Corp. on review for possible downgrade (senior debt, Ba3; preferred stock, B3) in response to its announcement of lower revenues, a headcount reduction and related facilities closures.

The layoffs are expected to result in more charges, but Nortel does not expect to tap its currently undrawn bank facilities as a result.

While recognizing Nortel's strong cost cutting efforts to date, the news is evidence that further cost cutting is necessary in an attempt to achieve a cost structure to return to profitability, Moody's said.

Moody's noted the recent $1.48 billion in convertibles and common stock substantially offset operating losses, while easing the need to issue new debt and make significant asset sales.

At the end of second quarter, Nortel's net debt was effectively zero, although Moody's expects the company to use cash near-term to execute its latest restructuring.

The review will focus on the ability of Nortel to successfully reduce its cost structure, contain cash outflows and market its product offerings to develop greater visibility in terms of future revenue levels.

S&P cuts Foster Wheeler

Standard & Poor's lowered the ratings of Foster Wheeler Ltd., including the 6.5% convertible subordinated notes due 2007 from B- to CCC+.

Also, S&P rated the new $71 million term loan A at BB-, new $149.9 million letter of credit facility maturing April 2005 at B+ and new $68 million revolving credit facility at B.

At June 28, total debt was about $1.1 billion.

The outlook is now negative.

Ratings reflect a very aggressive financial profile and limited liquidity, S&P said. Financial risk assessment reflects the heavy debt load, poor cash flow protection measures and limited financial flexibility.

Although successful resolution of the bank financings was factored into previous ratings, liquidity is still modest relative to the geographic and project scope of the company, the rating agency added.

S&P said it expects pro forma total debt to EBITDA to strengthen to about 5 times over the next 18 months, but debt leverage, even with potential asset sales, will be very aggressive and liquidity is expected to remain limited.

The main near-term source of liquidity is its $344 million cash and equivalents, but a substantial portion of the cash is needed for project funding and collateral to support letters of credit.

Also, S&P said it has heightened concerns that protracted lender negotiations, which had been in progress since January, may have eroded customer confidence, which could affect backlog and new awards for the next several quarters.

Should the company fail to improve liquidity through assets sales or new awards prove more challenging than expected, ratings could be lowered.

Moody's cuts Valero outlook

Moody's lowered Valero Energy Corp.'s rating outlook to negative from stable based on poor industry refining margins and higher than expected debt levels. Valero's convertible preferreds are rated Baa3.

Following the acquisition of Ultramar Diamond Shamrock Corp., Valero set a debt target of about $4.5 billion, to be achieved by the end of 2002.

At June 30, total debt was $5.2 billion, including the convertibles and considerable off-balance sheet financing.

Moody's said it believes Valero will have difficulty meeting the debt target near term unless there is a significant improvement in refining margins.

Moreover, poor industry conditions into 2003, coupled with high capital requirements to meet low-sulfur gasoline specifications, could result in debt above current levels, Moody's added.

Moody's also noted that if Valero were to experience an extended period of weak earnings and cash flow, it could pressure ability to comply with financial covenants in its bank credit agreements.

Moody's would downgrade Valero's ratings if average refining margins were to deteriorate further and/or debt were to rise.

S&P ups Radio One outlook

Standard & Poor's revised its outlook on Radio One Inc. to positive from stable. All ratings on the company were affirmed, including the convertible preferreds at CCC+.

The outlook revision was based on expectations that Radio One will continue to improve its financial profile following the $200 million common stock offering in April and subsequent bank facility repayment, S&P said.

Strong operating momentum could contribute to longer-term financial profile improvement. However, further potential debt-financed acquisitions could limit rating upside over the near term.

Despite a weak radio advertising environment, Radio One delivered above-average, double-digit same-station revenue and year-over-year EBITDA growth for the June quarter, S&P noted.

With the $200 million stock sale and debt repayment, EBITDA coverage of interest is about 2.2 times and debt divided by EBITDA is about 5.3x.

Capital spending needs are light and discretionary cash flow is healthy.

Under bank covenants, $150 million is available under the undrawn $250 million revolving credit facility.

Debt maturities, including about $53 million in required term loan amortization in each of 2003 and 2004, are moderate for the next five years.

The positive outlook indicates that modest improvement in key credit measures could warrant consideration of an upgrade, S&P said.

Moody's confirms Washington Mutual

Moody's confirmed the debt ratings of Washington Mutual Inc. (senior at A3), following the announcement to acquire the remaining assets of HomeSide Lending Inc. for about $1.3 billion in cash and assumption of $735 million in medium-term notes and certain other liabilities. The outlook is stable.

The affirmation of Washington Mutual's ratings was based on the view that the acquisition of HomeSide's primary asset, mortgage servicing rights, is consistent in protecting the value of its earlier purchase of HomeSide's proprietary loan servicing platform, Moody's said.

Because of the purchase, Washington Mutual's mortgage servicing rights will grow by about 10%.

Fitch affirms Washington Mutual

Fitch Ratings affirmed all outstanding ratings and the stable outlook of Washington Mutual Inc. (senior at A) following the announcement of the purchase of the remaining assets of HomeSide Lending Inc.

S&P comments on Washington Mutual

Standard & Poor's said Washington Mutual Inc.'s ratings (BBB+/stable/A-2) would have no impact from the announced plan to acquire Homeside Lending Inc.

S&P puts Ritek on watch

Standard & Poor's put Ritek Corp. on CreditWatch with negative implications.

Ratings affected include Ritek's $175 million convertible bonds due 2007 rated BB-.

S&P cuts Superior Telecom

Standard & Poor's downgraded Superior Telecom Inc. and assigned a negative outlook to the company. Ratings lowered include Superior's $500 million term loan A due 2004, $425 million term loan B due 2005 and $225 million revolver due 2004, all cut to CCC from B-, and its $200 million 8.5% convertible subordinated notes due 2014, cut to CC from CCC.

S&P said it lowered Superior Telecom because of the company's insufficient liquidity, which increases the likelihood of the company defaulting under a burdensome 2003 debt amortization schedule.

Although the company may be successful in its current negotiations to reschedule the debt amortization, S&P said it considers any restructuring of debt service to be a default and will consequently lower its ratings to D when negotiations are concluded. New ratings will be assigned subsequent to the restructuring.

Superior communication wire businesses have suffered as major telephone companies have reduced capital expenditures, S&P said. Major telephone companies are not expected to increase capital expenditures substantially prior to mid-2003 at the earliest. Weak underlying conditions over the past few years in the OEM, electrical wiring, and communications businesses have resulted in poor financial performance. The recession has been instrumental in the deterioration of Superior Telecom's OEM business, which is directly tied to various industrial markets such as automotive, appliance/tools, and industrial equipment.

Due to challenging markets that resulted in poorer financial performance, Superior Telecom recently negotiated financial covenant waivers, S&P noted. Also, in its quarterly filing the company stated that it might not be able to meet principal amortization requirements for 2003 and has therefore commenced negotiations with its lenders for an amendment to its credit agreement.

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