S&P rates new Lucent convertible at CCC+

Standard & Poor's assigned a CCC+ rating to the planned $1.5 billion convertible trust preferred securities of Lucent Technologies Inc., reflecting challenging market conditions as the company's core customer base continues to defer purchases of new communications equipment.

While Lucent has reduced its costs by billions of dollars annually, depressed revenues and a weaker-than-anticipated product mix have continued to impede its return to profitability. Lucent had $3.1 billion in cash at Dec. 31, 2001, and its revolving credit agreement was undrawn.

Lucent's financial flexibility is expected to remain adequate for its operational needs as it continues to adapt to challenging market conditions.

Fitch rates new Lucent convertible at B

Fitch Ratings assigned a B rating to Lucent Technologies Inc.'s proposed $1.5 billion cumulative convertible trust preferred securities and affirmed the BB senior secured credit facility, BB- senior unsecured debt and B convertible preferred stock. The outlook is negative.

The company continues to experience operating losses, requiring financing for its operating deficit and cash requirements for the restructuring programs. Given this limited financial flexibility, it is critical for Lucent to continue to be aggressive in reducing costs while realizing the cost savings from the previous restructuring programs and executing the planned financing transactions, in order to return to sustained profitability.

The negative rating outlook reflects the operational issues and the execution risks surrounding the company's second phase restructuring strategy which includes significant headcount reductions and major changes to its organizational structure. If Lucent's operating targets are not achieved in the near term further negative rating actions are likely.

S&P rates new Computer Associates convertible at BBB+

Standard & Poor's assigned a BBB+ rating to Computer Associates International Inc.'s $500 million convertible senior notes due 2007 and affirmed other ratings, reflecing a stable revenue base, favorable business prospects and strong operating results.

The ratings are tempered, however, by management's aggressive financial policy. Although the company has had an excellent track record for integrating software product acquisitions, the additional debt burden from acquisitions, coupled with restructuring charges, has weakened Computer Associates' financial position.

The recently revised outlook reflects concerns about the potential impact of preliminary inquiries of the company by the Securities & Exchange Commission and U.S. Attorney's office, which have also reduced the company's financial flexibility.

Moody's rates new Computer Associates convertible at Baa2

Moody's Investors Service rated Computer Associates International's proposed $500 million 5-year convertible senior unsecured note issuance at Baa2, noting that the March 1 downgrade of Computer Associates' senior unsecured long term rating to Baa2 from Baa1 and outlook revision to negative from stable reflect a reduction in cash flow in the current year, expected further erosion unless the company can grow bookings and control costs and the need to refinance debt maturities in the next twelve to fifteen months.

The negative outlook reflects not only the cash flow and refinancing concerns, but also the uncertainty surrounding the company's Feb. 22 confirmation that a preliminary inquiry by the SEC and U.S. Attorneys office is underway. The current rating level does not incorporate the impact if a formal investigation were to occur.

Moody's rates new Ohio Casualty convertible at Baa2

Moody's Investors Service assigned a Baa2 rating to the senior convertible notes due 2022 of Ohio Casualty Corp. The rating outlook is stable. Moody's noted Ohio Casualty's intention to repay all outstanding bank debt with a combination of proceeds from the offering, holding company liquidity and dividends from subsidiaries.

The company currently has $205 million of debt outstanding under its bank credit facility, which expires in October. Moody's noted that the credit facility agreement contains certain restrictive financial covenants, including a provision requiring that the insurance company subsidiaries of Ohio Casualty maintain a minimum statutory surplus of $750 million. As of Dec. 31, these subsidiaries reported statutory surplus of $767.5 million.

Moody's said Ohio Casualty's ratings reflect the group's established regional presence in the small business and personal lines insurance markets, a defensible position in the independent agency distribution system in the regions in which it operates, an overall sound investment profile and reduced investment risk, reasonable reserve valuations and overall sound risk-adjusted capitalization. Moody's noted that it expects that Ohio Casualty's future operating performance will improve significantly as a result of management's recent and continuing focus on expense management, re-underwriting and repricing.

Moody's cuts GATX senior debt to Baa2

Moody's Investors Service lowered the long-term and short-term ratings of GATX Financial Corp. senior secured debt to Baa2 from baa1 and unsecured debt to Baa3 from Baa2. Moody's said the downgrade reflects its opinion that GATX will continue to be challenged by its operating environment, and its view that the firm's capital structure is likely to tilt toward greater use of secured debt. The outlook for GATX's ratings is now stable.

Moody's said that it believes that GATX has managed its businesses well in a difficult operating environment. Moody's said it carefully considered GATX's on-going financial flexibility and determined that while execution risk has increased, GATX should have access to the funding needed to pursue its business plan for the freseeable future.

Moody's noted that the firm did recently raise funds in the convertible debt market, which demonstrated GATX's access to one segment of the unsecured market and enhanced the company's liquidity position. Moody's also said that it believes the company does have some flexibility to control its business volumes to respond to continued weakness in its funding markets.

In coming to its rating conclusion, Moody's considered not only access to funds, but also the cost of funds and the relative position of creditors in GATX's capital structure. Moody's expects that GATX will increasingly turn to the secured debt markets for financing. Increasing amounts of secured debt in the capital structure would lead to greater structural subordination issues for GATX's unsecured creditors, and this was a key consideration in the rating conclusion.

The stable outlook is predicated on Moody's view that the company will be able to continue to execute its funding and business plans. The retention of this outlook will be dependent upon Moody's ongoing belief that this is the case.

Moody's cuts Toys R Us senior unsecured to Baa3

Moody's Investors Service downgraded the ratings of Toys R Us Inc., including senior unsecured debt to Baa3 from Baa2, reflecting a combination of factors that have increased the seasonality of its profit generation and the risk of a weak fourth quarter.

Factors include intensifying competition in toy retailing, the need to make systems and other infrastructure investment, ongoing losses at Toysrus.com and continuing difficulties at Kids R Us. While management's efforts to differentiate Toys R Us make sense, there is still not enough evidence to conclude that the new store formats will sufficiently shield the company from the negative impact of intense price competition from the largest discounters.

Toys R Us' credit measures, which were weak for its previous rating level given the company's risk profile, are therefore unlikely to show significant improvement over the intermediate term. The stable rating outlook reflects Moody's view that management's strategy to differentiate Toys R Us is being carefully executed and that the company has sufficient financial flexibility in its capital structure to provide cushion against the risks created by its reliance on the fourth quarter.

Moody's rates new WPP convertible at Baa1

Moody's Investors Service expects to assign a Baa1 rating to WPP's new £400 million of 2% convertible bonds due 2007, and confirmed the Young & Rubicam 3% convertible subordinated notes due 2005 at Baa1. The rating outlook is stable. The Baa1 senior debt rating continues to reflect Moody's expectation that WPP will retain its position as one of three world-leading advertising communications companies in a consolidating industry.

Moody's expects that WPP will continue to actively manage its cost base and maintain its track record of above market new business wins. Any further marked deterioration could cause a review of the continuing adequacy of rating outlook and ratings.

S&P affirms King Pharmaceuticals BB+ senior secured debt

Standard & Poor's assigned a BB+ senior secured debt rating to King Pharmaceuticals Inc.'s proposed $400 million senior secured bank revolving credit facility due 2007, and affirmed the BB+ corporate credit, senior secured and senior unsecured debt ratings.

The ratings are based on the continued success of company's lead product, the cardiovascular drug Altace, as well as on the company's increasing sales diversity, growing financial flexibilit and improved financial profile, offset by the risks inherent in a growth-by-acquisition business strategy.

In addition to the new, undrawn $400-million revolving-credit facility, the company has over $900 million in cash on hand. Thus, the company has considerable financial flexibility to continue to pursue its product acquisition strategy within its rating category. S&P does not expect King to significantly deviate from its current pace of acquisitions.

S&P said a simulated default scenario stressed operating cash flows and asset values in arriving at the rating. However, under a severe distress scenario, the performance and asset values could erode, potentially leading to bank lenders' ultimate recovery falling short of the total facility amount.

Moody's puts KEPCO on review for upgrade

Moody's Investors Service placed the Baa3 senior unsecured ratings of Korea Electric Power Corp. (KEPCO) under review for possible upgrade. This review reflects KEPCO's improved stability in its operating performance and financial position. At the same time, Moody's acknowledged that the power industry reforms may bring to KEPCO reduced business risk profile and improved financial position in the intermediate term.

S&P rates new WPP convertible A-

Standard & Poor's assigned an A- rating to WPP Group plc's new £400 million 2% convertible notes due 2007.

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