Moody's rates Travelers convertibles at A2

Moody's Investors Service assigned an A2 rating to the junior subordinated debt underlying the mandatory convertible that Travelers Property Casualty Corp. will be issuing in conjunction with its initial public offering and spinoff from parent, Citigroup. The outlook for the ratings is stable.

Proceeds from the debt issuance and initial public offering are expected to be used to pay intercompany debt to Citigroup. Moody's expects financial leverage to increase modestly following these transactions, yet to remain in a range reasonable for the current ratings.

Travelers is an insurance holding company for subsidiaries that provide a broad range of insurance products and services for commercial markets, as well as personal lines homeowners and auto insurance. For the 12 months ending December 31, Travelers reported net income of $1.1 billion and stockholder equity of $10.7 billion.

Fitch rates Travelers convertible at A

Fitch Ratings assigned an A rating to Travelers Property Casualty Corp.'s proposed issuance of $850 million convertible junior subordinated notes due 2032. The outlook is stable. The rating reflects consistently strong profitability, excellent market positioning and business diversity as the nation's third largest commercial insurer and second largest independent agency-based personal lines writer. Furthermore, Travelers maintains strong capitalization on both an operating and financial leverage basis and relatively conservative reserving and catastrophe management philosophies.

Pro forma debt and preferred stock to capital is expected to increase moderately and remain within Fitch's guidelines for a two-notch differential between the insurer financial strength and senior debt ratings. Additionally, fixed charge coverage is expected to remain strong.

Travelers reported assets of $57.8 billion and capital of $10.7 billion at year-end 2001.

Fitch rates new Merrill convertible at AA

Fitch Ratings assigned a rating of AA to the $2 billion 0% convertible notes of Merrill Lynch & Co. Inc. Merrill Lynch's ratings are based on its global franchise in investment banking, private client and asset management. Its market risk appetite and capital leverage have been reduced over the last several years and liquidity profile improved. Merrill Lynch's long-term outlook remains negative resulting from overexpansion of global retail brokerage and asset management operations. Strategies currently focus on obtaining operating leverage through improved efficiency.

Fitch affirms Qwest at BBB

Fitch Ratings affirmed the BBB senior unsecured rating assigned to Qwest Communications International, Qwest Capital Funding and LCI International, following the company's disclosure that the Securities and Exchange Commission is conducting an informal inquiry into matters previously disclosed by the company. All ratings are on negative outlook. The areas of the SEC inquiry include revenue recognition and the accounting treatment of the sales of optical capacity assets, the sale of equipment to firms from which Qwest bought Internet services or to which Qwest contributed equity financing, including KMC and Calpoint, and Qwest Dex, particularly the production schedules and lives of some of its directories.

The financial effects of these activities in 2002 are not expected to be material to Qwest's operating results, Fitch said, adding that the primary concern with respect to Qwest's credit profile is its current liquidity position, as the company is expected to continue to generate investment grade credit protection measures. Fitch believes Qwest will have completed a major step in improving liquidity once its $1.5 billion long-term debt issuance at Qwest Corp. closes. Further, Fitch believes Qwest is making material progress with its banks in amending its bank facility. Rating actions would be considered if Qwest is unable to come to agreements with its lenders and/or unable to access the longer-term capital markets.

Qwest's bank facility expires May 4, 2002, but contains a one year term out option at the option of the company. The most significant performance covenant in the agreement requires a maximum debt-to-EBITDA ratio of 3.75 times, and Qwest is seeking minor revisions to this covenant to provide additional financial flexibility.

Qwest filed a registration statement with the Securities and Exchange Commission (SEC) on February 5, 2002 in connection with the possible issuance of equity-linked securities. Qwest also has board approval to securitize between $500 million and $1 billion in receivables. Longer-term actions Fitch is monitoring with respect to Qwest, center on its efforts to delever through the issuance of equity linked securities and the sales of noncore assets. Fitch would like to see progress on these actions in order for the company to improve its longer-term financial flexibility but also recognizes asset sales may take a longer period to accomplish.

Moody's cuts Avaya senior debt to Ba3

Moody's Investors Service lowered the rating on senior unsecured debt and issuer rating of Avaya Inc. to Ba3 from Baa3. The outlook is negative. The downgrades reflect the deterioration in operating outlook for Avaya's end markets, cash costs of the next phase of restructuring and the uncertain timing of a rebound in its business prospects, Moody's said, noting Avaya's new forecast that results for the second quarter may lag previous expectations.

The news that Warburg Pincus has converted its preferred stock into Avaya shares does not provide any cash or near term liquidity support, but it does clarify the uncertainty regarding the potential conversion. Warburg has also acquired new common shares of Avaya for cash proceeds of $100 million, which will be used to reduce debt, and the company is seeking to place another $100 million of common equity with other investors. While these events ease some of the balance sheet stress at Avaya, they do not address the weak operating outlook.

Avaya is exploring alternatives for its connectivity business including possibly selling the unit. Given the current weak operating performance and outlook for the business, assessing valuation of the operation is difficult. Successful completion of the sale combined with improved performance and visibility for the core businesses of Avaya could lead Moody's to revise the outlook to stable.

However, further weakening of the markets and/or Avaya's relative performance could result in further ratings downgrades. The operating outlook remains dependent on the communications spending plans of Avaya's core enterprise customer base, the ability to successfully complete the next phase of cost reductions and the market acceptance of Avaya's substantial roll out of new products.

S&P rates Ohio Casualty convertible at BB

Standard & Poor's assigned a BB senior debt rating to Ohio Casualty Corp.'s $125 million convertible notes due in 2022 based on the company's regional business position, good capitalization, and improved investment strategy. S&P also revised the outlook to stable from negative.

Over the past year, Ohio Casualty has made steady progress toward the implementation of its strategic plan and its goal to improve operating performance. Positive restructuring actions, which should support operating improvements over the next two years, include significant rate increases, the elimination of its mono-line workers' compensation business and unprofitable agents, the cancellation of managing general agent contracts, and the exit from the New Jersey private passenger auto business through a transaction completed at the end of 2001.

Management has also been proactive in reducing its investment portfolio risk by significantly reducing its equity holdings and re-investing proceeds in fixed-rate securities. The holding company's financial flexibility has been limited by marginal interest coverage over the last three years, as well as restrictive covenants on the group's $205 million outstanding bank facility, which is due in October 2002. Although Ohio Casualty is currently in compliance with its debt covenants, Standard & Poor's believes the group's convertible note issue will significantly improve financial flexibility by affording the holding company greater breathing room to enact its strategic plan.

The outlook reflects Ohio Casualty's improved strategic focus with the entrance of a new management team in 2001. It also reflects re-underwriting actions that are gradually improving operating performance. Partially offsetting these factors are challenges related to the group's restructuring as well as three consecutive years of poor operating performance and low interest coverage at the holding-company level.

S&P downgrades Avaya

Standard & Poor's downgraded Avaya Inc. The outlook remains negative.

Ratings lowered include Avaya's corporate credit rating, cut to BB+ from BBB- and its convertible LYONs due 2021, cut to BB- from BB+.

S&P downgrades Broadwing

Standard & Poor's downgraded Broadwing Inc. The outlook is stable.

Ratings affected include Broadwing's $50 million 7.25% secured notes due 2023, lowered to BB from BB+, its $135 million 6.75% cumulative convertible preferred stock, lowered to B from B+, its $900 million five-year revolving credit facility, $750 million five-year term loan A and $450 million term loan B, all jointly issued with IXC Communications Services Inc. and all lowered to BB from BB+, its $200 million senior secured tranche C revolving credit facility due 2007, lowered to BB from BB+, and its $400 million 6.75% convertible subordinated notes due 2009, lowered to B+ from BB-; Broadwing Communications Inc.'s $300 million 12.5% junior exchangeable preferred stock, lowered to B from B+ and its $450 million 9% senior subordinated notes due 2008, lowered to B+ from BB-; and Cincinnati Bell Telephone Co.'s $120 million 7.2% medium-term notes due 2023, 4.375% debentures due 2002 and $150 million 6.3% guaranteed debenture due 2028, all lowered to BB from BB+.

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