Moody's upgrades Pogo

Moody's Investors Service upgraded Pogo Producing. The outlook is stable. Ratings raised included Pogo's $200 million 8.25% senior subordinated notes due 2011, $100 million 8.75% senior subordinated notes due 2007, $150 million 10.375% senior subordinated notes due 2009 and $115 million 5.50% convertible subordinated notes due 2006 to Ba3 from B1.

The stable outlook is pending review of 2002 reserve and reserve replacement costs and avoidance of debt-laden acquisitions of scale, Moody's said.

Moody's said the upgrade reflects: productive reinvestment of strong cash flow and sustained diversified production gains; expected reduction in year-end 2002 leverage on proven developed reserves; visibility for 8% to 12% 2003 production gains and increasing visibility for 2004 on solid second-half 2002 drilling and development activity; lower unit operating and funding costs; expected falling leverage absent leveraged acquisitions; sound liquidity; solid cash-on-cash returns on 2001 3-year average reserve replacement costs; and historically conservative reserve bookings.

Moody's said it expects 2002 to be the eleventh year of reserve replacement with the drillbit and substantial 2002 conversion of proven undeveloped reserves to proven developed status.

Moody's puts Ohio Casualty on review

Moody's Investors Service put Ohio Casualty Corp. on review for possible downgrade including its senior unsecured debt at Baa2.

Moody's said the review was prompted by the company's third quarter charge for adverse loss development and larger than expected writedown of intangible assets. In addition, the company stated that it would be unable to meet the targets previously set forth in its Corporate Strategic Plan for 2002.

In its third quarter 2002 earnings release, Ohio Casualty announced a pre-tax charge of $62 million to strengthen reserves for prior accident years related to construction defect, commercial automobile and New Jersey private passenger automobile claims, Moody's noted. In addition, the company wrote down the value of agency-related intangible assets by $54 million, also pre-tax, contributing to a net loss of nearly $70 million for the quarter.

Moody's added that its confirmation of Ohio Casualty's ratings with a stable outlook in March 2002 contemplated an expectation of significant improvement in the company's operating result as a result of management's continuing focus on expense management, re-underwriting and repricing.

Moody's said its review process - which it expects to complete in the coming weeks - will also consider other issues that the rating agency has identified in its research on Ohio Casualty. These include the weakened capital position and increased operating leverage of Ohio Casualty's insurance subsidiaries - given a continued decline in their capital and surplus of $83 million from the prior quarter, to $680 million - and the impact of these developments on the company's financial flexibility.

Fitch confirms GM

Fitch Ratings confirms General Motors Corp.'s senior unsecured debt, General Motors Acceptance Corp.'s senior unsecured debt and GM's convertible senior debentures at A-. The outlook remains negative.

Fitch said the confirmation reflects the strong recent operating performance at General Motors North America, driven by a strong truck product lineup, improving market shares and a favorable product mix, all bolstered by strong industry volumes.

In combination with structural cost improvements, this has led to healthy cash generation and maintenance of strong liquidity, even after incremental pension contributions, Fitch said.

Offsetting factors include continued negative price retention and unrelenting transplant competition, the company's significant pension obligations, its obligations with regard to Fiat, continued heavy losses in Europe, a deferral of the Hughes resolution, and limited progress in its car lineup, Fitch said.

Market share gains at General Motors North America have been led by strong customer acceptance across a broad array of its truck products, as well as revitalized Cadillac brand, Fitch noted. GM continues to benefit from a shift in its product mix toward the higher-margin trucks, which now represent approximately 56% of its vehicle unit sales, up from 50% in 2001.

New product launches have generally been well executed and quality benchmarks continue to improve.

However, price competition through high incentive levels continue to produce negative price retention, and GM has yet to re-establish its competitiveness in cars, Fitch said. Despite clear progress in its cost programs, GM will remain pressured to achieve its stated margin goals in an environment of increasing transplant capacity and potential weakening of industry volumes. Cost issues remain, particularly in the area of health care and those resulting from the company's contract renegotiation with the UAW (the existing contract matures in September 2003).

GM's underfunded pension situation has materially worsened over the past year, likely capping three consecutive years of equity market declines, Fitch said. These obligations represent a significant claim on GM's cash flows for the foreseeable future and remain a primary factor in GM's rating. Fitch anticipates that over the next five years that GM will make contributions that will exceed $10 billion and that these contributions will begin in 2003 if not earlier (beyond the $2.2 billion already contributed).

However, it is important to note that over the intermediate term any increase in interest rates or any rebound in market returns to historic trend lines would serve to moderate the current negative trendline.

Fitch confirms Ford

Fitch Ratings confirmed Ford Motor Co.'s senior debt, Ford Motor Credit Co.'s senior debt and Hertz Corp.'s senior debt at BBB+ and Ford Motor Co.'s preferred stock at BBB-. The outlook is negative.

Fitch said the confirmation reflects Ford's success in maintaining a high level of liquidity, despite persistent market share losses, quality and execution issues over the past several years and severe price competition, all of which have dramatically impacted the company's margin performance.

Fitch also recognizes that Ford's liquidity position has been bolstered over recent years by significant improvement in working capital levels at a pace that is unsustainable, and, more recently by strong industry volumes and tax rebates.

However, Ford's liquidity cushion of approximately $26 billion, with a very extended debt maturity profile, provides the opportunity to establish and execute its revitalization plan, Fitch added.

Positives include recent moderate improvements in quality, an apparent stemming of market share loss, and renewed strength in products such as the Ford Explorer, Fitch said.

The negative outlook indicates concerns over the company's ability to restore sustainable profitability to its North American operations through execution of its revitalization plan in an environment of potentially declining industry volumes and unrelenting transplant competition, Fitch said. Other concerns include Ford's underfunded pension obligations and funding concentrations at Ford Motor Credit.

Ford's underfunded pension plan represents a meaningful claim on Ford's liquidity over the intermediate term, cash that could otherwise have been applied to re-investment or other uses, Fitch said. However, Ford's cash position of approximately $26 billion, and the flexibility Ford has as to the timing of required payments provide ample opportunity for the company to address the issue over the near term. Additionally, any increase in long-term interest rates, incremental contributions and/or a rebound in market returns over the intermediate term would serve to moderate the level of underfunding.

S&P takes actions on Loral

Standard & Poor's lowered Loral Space & Communications Ltd.'s corporate credit rating to SD (selective default) from CC and cut its series C and series D preferred stock to D from C. The ratings were removed from CreditWatch with negative implications.

S&P said the actions follow completion of the company's exchange offer on a portion of the preferred issues for $13.7 million cash and 45.8 million shares of common stock. The exchange represented a 93% discount off the preferred stock liquidation preference.

S&P viewed the exchange as coercive and tantamount to a default on the original terms of the preferred issues.

Following the selective default, S&P raised its corporate credit rating on Loral to CCC+ and assigned a CC rating to the preferred stock not tendered in the exchange.

Loral's CCC- senior unsecured debt rating CCC+ senior unsecured debt rating on wholly owned subsidiary Loral Orion Inc. were confirmed.

Loral modestly improved its balance sheet and increased its cash flow generating potential by completing the exchange offer, S&P noted. However, the company's liquidity remains strained.

Based on earlier company guidance, Loral should have roughly $100 million in cash and borrowing availability at year-end 2002, after accounting for cash used in the exchange offer, down from $180.7 million at June 30, 2002, S&P said.

The rating agency added that it is concerned that Loral could exhaust its remaining liquidity in 2003, given the potential for continued satellite leasing and manufacturing industry weakness.

S&P says Qwest unchanged

Standard & Poor's said its ratings on Qwest Communications International Inc. are unchanged including its corporate credit rating at B- with a developing outlook.

S&P's comments follows Qwest's announcement that it expects to report a goodwill impairment charge of approximately $24 billion as of Jan. 1, 2002, as part of its adoption of financial accounting standard requirements for goodwill impairment, and could potentially write off additional goodwill, based on business conditions in the telecommunications industry.

Qwest also indicated that it expects to record a total of $10.8 billion in write-offs related to its assessment of the recoverability of its traditional telephone network and global fiber optic broadband network and its evaluation of the carrying value of its inter-exchange carrier businesses' intangible assets related to customer lists and product technology.

Qwest's announced write-down of goodwill is in keeping with its previous disclosure that it was evaluating its goodwill for impairment under the statement of financial accounting standards (SFAS) 142, S&P said. The imposition of this accounting standard was therefore already factored into the rating.

The write-down of network and other assets reflects the adverse business trends that have affected the company's operations, and the attendant drop in value that has occurred. However, these business risks have already been factored into the current rating and outlook, S&P said.

Management has indicated that the incurrence of these write-downs does not trigger any violation of the public debt or bank loan covenants of Qwest or any of its subsidiaries. As such, the write-downs do not result in any change in Qwest's liquidity, S&P added.

Moody's cuts AES Gener to junk

Moody's Investors Service downgraded Gener SA to junk, affecting $200 million of debt, including cutting its senior unsecured notes to Ba2 from Baa2. The ratings remain on review for possible downgrade.

Moody's said the downgrade is in response to AES Gener's weak cash flow relative to cash-flow needs including debt service, failure to meet plans for restructuring of the company's asset base, and significant reliance on cash flows from subsidiaries located in non-investment grade countries.

The rating action and review reflect the company's inability to date to execute planned divestitures of Termoandes, Interandes, Itabo (Dominican Republic) and Chivor (Colombia), which has resulted in considerable financial pressure, Moody's said. Deteriorating financial performance at Termoandes and Interandes continue to be a cash drain on Gener. The oversupply of generation assets and the resulting low market prices where Termoandes operates are not expected to improve in the near future. Gener's Argentinian investments (which serve markets in investment grade rated Chile) are likely to continue experiencing weak operating results in the near term due to competitive pressures and poor market conditions within the region.

Recent renegotiations of two put options with ABN AMRO and BofA for $40 million and $82 million, respectively, helped reduce AES Gener's debt burden for the second half of 2002, Moody's said.

However, debt maturities in 2003 and 2004 continue to place considerable pressure on the company's operating results, Moody's said. Projected interest and debt obligations for 2003 are $140 million. Barring the successful divestiture of some company assets, the company might have difficulties in meeting its debt service obligations as soon as mid-2003.

Company officials have noted that negotiations are reportedly underway with several companies. However, it is not clear if the outcome of these discussions will produce asset sales at sufficient prices and timing to ease liquidity pressures on the company, the rating agency added.

S&P puts Navistar on watch

Standard & Poor's put Navistar International Corp. and Navistar Financial Corp. on CreditWatch with negative implications. Ratings affected include Navistar International's $100 million 7% senior notes due 2003 and $400 million 9.375% senior notes due 2006 at BB and $250 million 8% senior subordinated notes due 2008 at B+.

S&P said the watch listing is in response to its concerns that the loss or postponement of the Ford Motor Co. V6 diesel engine business, combined with heavy cash outlays associated with the recently announced $456 million restructuring charge and continued challenging end market conditions, could pressure the credit profile and cash flow.

Additionally, the company has approximately $200 million in manufacturing debt maturities it needs to refinance in the next 12 months, which heightens financial risk, S&P said.

In the past Navistar has tried to diversify to help reduce its exposure to the cyclical swings in the truck market, as evidenced by its role as a leading supplier of mid-range diesel engines to Ford, S&P noted. However, Navistar announced that Ford no longer considers the V6 diesel engine program viable and commencement of Navistar's production is very uncertain. Accordingly, Navistar is taking a $120 million to $130 million after-tax charge associated with assets directly related to the V6 program.

The longer-term impact of this event on Navistar's engine strategy is unclear, as the V6 program had been viewed as a significant factor in its engine growth strategy, S&P said.

Elements of the $456 million restructuring charge include costs associated with the closing of the Chatham, Ont., heavy-duty truck facility, and the ceasing of operations at its body plant located in Springfield, Ohio; asset write-downs related to the company's V6 diesel engine program with Ford; and costs related to exiting the Brazilian domestic truck market. Cash outlays associated with this charge are significant and come at a time when cash generation is weak as a result of soft market conditions, S&P said.

Navistar continues to experience very challenging end market conditions. The company's key end markets, heavy-duty and medium-duty trucks, are expected to continue to experience very weak demand over the near term, reflecting the reluctance by trucking customers to place orders for new trucks during the current soft economic conditions in the U.S., S&P added.

S&P cuts NDCHealth, rates loan BB-, notes B

Standard & Poor's downgraded NDCHealth Corp. and assigned a BB- rating to its planned $125 million term loan due 2008 and a $75 million revolving credit facility due 2007 and a B rating to its proposed $175 million senior subordinated notes due 2012. Ratings lowered include the corporate credit rating, cut to BB- from BB and its $143.75 million 5% convertible subordinated notes due 2003, cut to B from B+. The outlook is stable.

Proceeds from the notes and the term loan, totaling $300 million, would be used to redeem $144 million in outstanding convertible notes due November 2003, to repay $91 million of the company's existing revolving credit facility, and to bolster cash balances. The new $75 million revolving credit facility would be unused and available.

By May 2003, NDCHealth is expected to acquire the remaining interest in TechRx Inc., a provider of software that automates the prescription-fulfillment process. The price, expected to be $100 million-$200 million, can be paid in cash or equity, or a combination of both at the company's option, S&P noted.

NDCHealth has historically maintained EBITDA interest coverage exceeding 5 times and total debt to EBITDA of less than 2.5x on average, S&P said. Assuming funding of a mid-range purchase price primarily with debt and cash on hand, increasing leverage, debt-protection measures are expected to fall outside these parameters.

Despite expectations for acquisition-based and internal sales growth, profitability gains could be muted and capital spending could increase over the near term, while the company integrates new products, challenging free cash flow, S&P said. While NDCHealth has generated about $30 million in free cash flow in each of the past two fiscal years, which ended in May, free cash flow in the August 2002 quarter was negative. Still, ratings continue to reflect a good niche market position and recurring revenue streams, as well as expectations that the company's cash-flow generation capability will improve, despite near-term challenges. These are offset by a narrow business profile and moderate financial flexibility.

S&P lowers Ohio Casualty outlook

Standard & Poor's lowered its outlook on Ohio Casualty Corp. to negative from stable. Ratings affected include its counterparty credit rating at BB.

S&P said the revision follows Ohio Casualty's recent announcement of its third quarter 2002 earnings, in which the group posted a net loss of $69.9 million.

The main factors driving this loss were pretax reserve charges of $62.2 million for construction-defect claims as well as a pretax impairment write-down of its agent intangible asset of $54 million. As a result, Ohio Casualty's operating results fell substantially below S&P's expectations for the first nine months of the year, with the group posting a $30 million net loss and 114.6% statutory combined ratio for the period.

In addition, the group's operating capital adequacy is expected to fall below S&P's initial expectation of 125%-135% at year-end 2002 given the fall in the group's statutory surplus as of Sept. 30, 2002.

Over the last two years, Ohio Casualty has undergone significant restructuring to address its poor operating performance, S&P said. Although S&P added that it believes the group's strategic focus has improved significantly since the entrance of a new management team in early 2001, it said that over the medium-term, the group will remain challenged by its high expense structure, lingering (though decreasing) exposure to the New Jersey personal lines market, and the potential for further adverse reserve development.

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