Fitch ups Northrop convert to BB+

Fitch Ratings upgraded the ratings for Northrop Grumman Corp.'s senior unsecured debt and bank facility to BBB from BBB- and the convertible preferred to BB+ from BB.

Also, the outlook was revised to stable from positive.

The upgrade reflects substantial debt reduction in the first half of 2003, improved clarity of future cash deployment and strong financial performance so far in 2003. Fitch said the new rating is indicative of improved credit statistics and relative credit quality within the defense industry.

Liquidity at June 30 was $1.97 billion - $268 million of cash and $1.87 billion of availability under the $2.5 billion credit facility, offset by $170 million of short-term debt and current maturities.

The debt-to-EBITDAP ratio for the last 12 months ended June 30 was 3.0x, down from 5.3x at the end of 2002. Interest coverage was 4.7x, up from 4.3x in 2002. Fitch expects further improvement in 2003 as a result of additional debt reduction.

Northrop reduced debt by more than $3 billion, or 32%, in the first half of 2003. Through 2004 Fitch expects the primary uses of free cash flow to be debt reduction and share repurchases.

Cash from operations in the first half of 2003 was negative $375 million, with free cash flow at a negative $584 million. Fitch expects Northrop to have at least break-even free cash flow in the second half of the year.

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