S&P rates Juniper convertibles B+

Standard & Poor's assigned a B+ rating to the Juniper Networks Inc.'s new $350 million zero-coupon convertible senior notes due 2008 and confirmed its existing ratings including the corporate credit at B+. The outlook is stable.

S&P said Juniper's ratings reflect its good niche position as a supplier of high-performance data networking equipment and its substantial liquidity.

The company's brief track record, depressed revenues, narrow customer base, and the challenges of a rapidly evolving competitive industry offset the positive factors.

Juniper's service-provider customer base has been deferring capital expenditures, in light of ample capacity, while Juniper has only a small presence for the enterprise market, S&P noted. Weak industry conditions are likely to limit revenue growth and profitability potential over the intermediate term.

Still, the company's recently announced agreement with Lucent Technologies Inc. to jointly develop new products should bolster Juniper's presence in the carrier industry, seen as a key to the company's longer-term market position. Juniper Networks had earlier established relationships with Ericsson AB and Siemens AG to market its products.

Juniper Networks' reliance on third parties for its semiconductors and system assembly permits the company to focus its resources on product development. Cash balances should provide funds for R&D and administrative expenses, as well as working capital and strategic investments over the intermediate period, S&P said.

The stable outlook reflects that Juniper's good industry position and financial flexibility provide a good degree of downside ratings protection, S&P said. Challenging industry conditions are likely to limit upgrade potential over the intermediate term.

S&P says KeySpan unchanged

Standard & Poor's said KeySpan Corp.'s ratings are unchanged including its corporate credit at A with a negative outlook after the company announced it has filed a final prospectus for the sale of units of KeySpan Facilities Income Fund, which was created to acquire a 34% interest in KeySpan Energy Canada Partnership, a natural gas midstream business in Canada.

This transaction is a first step in the sale of this noncore business for KeySpan and further demonstrates its commitment to credit quality, S&P said. Current ratings incorporate KeySpan's continued commitment to monetize nonregulated assets (including the remainder of KeySpan Canada and its 56% interest in exploration and production entity The Houston Exploration Co.) and to reduce debt leverage.

S&P cuts Aristocrat to junk

Standard & Poor's downgraded Aristocrat Leisure Ltd. to junk including cutting its $130 million 5% convertible subordinated bonds due 2006 and A$200 million syndicated bank loan due 2005 to BB from BBB-. The outlook remains negative.

S&P said the downgrade follows Aristocrat's announcement that the performance of its Australian operations is being impacted by a tough operating environment, and that the company will incur further charges as it restructures its U.S. operations.

A drop off in tourism following the SARS outbreak, smoking restrictions in gaming venues and problem gambling minimization policies are resulting in reduced spending from Aristocrat's key customer base, S&P said.

The capital requirements associated with the company's U.S. expansion are unlikely to result in meaningful debt reduction over the medium term, S&P noted.

Aristocrat's liquidity has materially weakened through reduced free-operating cash flow. The company intends to syndicate an existing A$200 million revolving bank facility in fiscal 2003; however, significant one-off charges and a drop in underlying earnings leave the syndication dependent on banker support and market forces, S&P said. With a possibility of asset writedowns in fiscal 2003, if senior debt obligations rise above 15% of total assets, (11% at Dec. 31, 2002), the rating on the $130 million convertible subordinated bonds would most likely be rated one notch down from the corporate credit rating of the company.

S&P cuts Macronix

Standard & Poor's downgraded Macronix International Co. Ltd. including cutting its $140 million convertible bonds due 2007 to B- from B. The outlook is negative.

S&P said the action reflects the decline in Macronix's recent operating performance and S&P's expectations that the company's performance will not improve over the near term.

The company has been affected by weaker-than-expected demand from its main customer, as well as low product prices, S&P added.

Shipments of mask read-only memory declined by 45% quarter on quarter in the first quarter of 2003 and the utilization rate at its eight-inch wafer fab fell to 49% from 57% in the final quarter of 2002, S&P said. Macronix made a NT$3.21 billion net loss in the first quarter of 2003, compared with a loss of NT$2.7 billion in the corresponding period in 2002. Macronix expects to make a NT$7.8 billion loss in full year 2003.

The ratings could be lowered further if Macronix's business fails to improve significantly or if the company is unable to successfully extend core bank facilities and improve its debt maturity profile, S&P said. Its liquidity is adequate for 2003, but by 2004 the company could face refinancing pressure with put options on two large bond issues coming due.

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