Fitch rates State Street convertible AA-

Fitch Ratings assigned an AA- rating to the new convertible of State Street Corp.

State Street will use the proceeds, in conjunction with other sources of funds, to finance its pending acquisition of Deutsche Bank's global securities services business.

The acquisition, when consummated, will make State Street the largest global custodian, with assets under custody of about $8 trillion. The acquisition will also increase its U.S. pension business as well as its market penetration in the U.K. and Europe.

This structure will be treated by the Federal Reserve Bank as Tier I Capital, Fitch noted.

Moody's cuts Charter

Moody's Investors Service lowered the ratings for Charter Communications Inc. and subsidiaries, including the senior unsecured convertible notes to Ca from Caa2. The outlook remains negative.

The downgrade was attributed to the growing probability of expected credit losses in connection with an increasingly likely debt restructuring near- to intermediate-term.

Timing and the specific nature of circumstances that will ultimately precipitate such a restructuring remain somewhat less certain than Moody's expectation that it will be necessary.

Over the past several months, Charter's operating performance has been weak relative to even revised expectations, and has lagged that of its peer group in several regards but most notably in the areas of net subscriber losses and cash flow growth, Moody's said.

The rating revisions further reflect Moody's expectation that operational weakness may be more severe than anticipated, even after the multiple downward revisions by management and based in part on the recent termination of the company's chief financial officer and pending restructuring charges.

Perhaps most significantly, though, the reduced cash flow performance is expected to further weaken the company's liquidity.

Moody's notes its revised expectation that maximum permitted financial leverage maintenance covenants in Charter's four subsidiary bank credit agreements, which are scheduled to step-down this quarter and again later this year, may need to be modified and/or waived in 2003.

Finally, Moody's notes the diminished prospect of selling certain of the company's non-core assets, either partially or wholly, which were previously expected to provide a considerable boost to liquidity.

Revised ratings reflect a view of heightened risk from a financial as well as an operational or business perspective.

While Charter has long been one of the most highly leveraged cable companies, Moody's noted that several factors have mitigated this financial risk to date. Specifically, historically operating performance on whole has been strong and Paul Allen provided significant support.

Recent developments, however, have caused Moody's to re-evaluate this perspective in accordance with the anticipated restructuring, now believed to be necessary as Charter will no longer be able to grow into its balance sheet.

Moody's maintains that reasonably good asset value still exists for the consolidated entity, but now contends that value from these assets will be unable to service all current debt obligations, even if recent negative operating trends are reversed.

Moody's believes that rapidly growing term loan amortization payments and debt maturities scheduled for year-end 2003 (Avalon) and 2005 (converts) will be very difficult to meet without some form of restructuring and/or capital injection.

The outlook remains negative pending resolution of the KPMG re-audit and review of historical financial statements, the Department of Justice investigation into subscriber counts and labor capitalization practices, stabilization and/or reversal of negative performance trends, and successful completion of the operational restructuring.

Moody's noted, however, that given the wide range of prospective recovery assumptions in a default scenario for the Ca-rated senior unsecured debt, further downward rating revisions to those are much less likely than for other Charter ratings if its credit profile worsens further.

S&P keeps Omnicare on watch

Standard & Poor's said the ratings of Omnicare Inc. (corporate credit at BBB-) remain on negative watch following completion of the acquisition of NCS HealthCare Inc.

The continued watch reflects financing the acquisition and its possible effect on Omnicare's credit protection and cash flow measures.

The acquisition, valued at about $460 million, may weaken Omnicare's funds from operations to lease-adjusted debt to below 20%, a level considered weak for an investment-grade company.

Furthermore, the acquisition involves the risk that the company may not realize the benefits from the acquisition to the extent anticipated by management.

Moody's rates LabCorp

Moody's Investors Service assigned a Baa3 issuer rating to Laboratory Corp. of America Holdings as a first-time rating. The outlook is stable.

The rating reflects positive growth fundamentals, good free cash flow generation relative to anticipated debt levels and Moody's expectation that LabCorp will refrain from additional acquisitions as the September 2004 potential convertible put date approaches.

Also, the rating reflects intense competition in the clinical lab sector, integration risks associated with acquisitions and the potential for greater reimbursement pressure from both Medicare and managed care clients.

The outlook is stable, assuming that LabCorp will refrain from any sizable acquisitions over the next 18-24 months, Moody's said.

Also, the ratings and outlook assume that LabCorp will accumulate cash to prepare for the put on the convertible, which could be a liability of about $530 million payable in cash or stock.

S&P cuts BAA convertibles

Standard & Poor's downgraded BAA plc's senior unsecured rating including cutting its £314 million 4.875% convertible bonds due 2004, £424 million 2.94% convertible callable bonds due 2008 and £200 million 7.875% bonds due 2007 to A+ from AA-. The long-term corporate credit rating was confirmed at AA-. The outlook is negative.

S&P said the downgrade is a result of structural subordination.

The rating action follows a comprehensive review of existing loan and bond documentation, S&P said.

There has been no general credit deterioration with regard to BAA but the rating changes reflect S&P's recognition that structural subordination applies to these issues in view of the reduced prospects for ultimate recovery of these bonds in the event of BAA's insolvency, S&P said.

Unlike the company's other debt, the convertible bonds do not benefit from upstream guarantees from BAA's various operating subsidiaries.

S&P says Continental unchanged

Standard & Poor's said Continental Airlines Inc.'s ratings are unchanged including its corporate credit rating at B+ with a negative outlook after the company reported a fourth-quarter 2002 net loss of $109 million, an improvement on the $149 million loss a year earlier, when travel was very depressed in the wake of the Sept. 11, 2001 terrorist attacks, and likely to be better than the losses reported by most other large U.S. airlines.

Still, the fourth-quarter results, and the full-year net loss of $451 million, indicate the continuing weak airline industry revenue conditions, which could worsen in any U.S. war with Iraq and/or renewed domestic terrorism, S&P said. Management projects a first-quarter and full-year 2003 loss, even without any such crisis.

Continental ended the year with $1.34 billion of cash, little changed from the level at Sept. 30, 2002. The company has no general bank facilities and few unencumbered assets. Current maturities of on-balance-sheet debt and capitalized leases total $468 million in 2003.

Management forecasts cash of about $1.1 billion at the end of the first quarter of 2003. This level of liquidity should be adequate if airline industry conditions do not weaken materially, but could prove inadequate in a renewed crisis, S&P said.

S&P rates Georgia-Pacific notes BB+

Standard & Poor's assigned a BB+ rating to Georgia-Pacific Corp.'s planned $500 million notes due 2010 and confirmed its existing ratings including its senior unsecured debt at BB+ and the senior unsecured debt of Fort James Corp., James River Corp. of Virginia, Great Northern Nekoosa Corp. and G-P Canada Finance Co. at BB+. The outlook is stable.

S&P said Georgia-Pacific's ratings reflect broad product diversity, with good market and cost positions in tissue, disposable tableware, and containerboard.

This is offset by more cyclical building products, pulp, and paper operations; aggressive debt leverage; and weak credit protection measures, S&P added.

In addition, the company's asbestos-related liabilities increase refinancing risk, S&P said.

Conditions in many of GP's markets have been negatively affected by the weak economy, and the company has generated nominal free operating cash flow since the primarily debt-financed acquisition of Fort James two years ago, S&P said. Wood products markets are oversupplied and have been hurt by the ongoing U.S. lumber trade dispute with Canada. In its substantial domestic tissue business, the company recently began to face price competition as well as higher wastepaper and energy costs.

To maintain a BB+ corporate credit rating, Georgia-Pacific will need to begin strengthening key credit measures in the near term. Georgia-Pacific needs to achieve and average over the course of an industry cycle: funds from operations to debt of 20% to 25% (currently below 15%), EBITDA interest coverage of about 4x (currently about 3x), and total debt to EBITDA of 2.5x to 3.0x (currently above 4x), S&P said.

S&P puts Protection One on watch

Standard & Poor's put Protection One Alarm Monitoring Inc. on CreditWatch with negative implications including its $166 million 13.625% senior subordinated discount notes due 2005, $350 million 8.125% senior subordinated notes due 2009 and $90 million 6.75% convertible senior notes due 2003 at CCC+ and its $250 million 7.375% senior notes due 2005 at B.

S&P said the action was taken because of concerns associated with the intention of 88% owner Westar Energy Inc. to dispose of Protection One and the potentially negative impact of recent directives by the Kansas Corporation Commission.

Westar Energy intends to dispose of its unregulated subsidiaries, including Protection One, S&P noted. In addition, Protection One's ability to access funds through its credit facility has become uncertain because of requirements placed on Westar Energy by the Kansas Corporation Commission.

Protection One relies on Westar Energy's financing arm, Westar Industries Inc., to provide funds through its senior credit facility, which is Protection One's primary source of liquidity. Over the past two years, attempts by Protection One to obtain external financing have been unsuccessful, S&P noted. The commission may also nullify Protection One's right to receive $17 million-$29 million owed this year under a tax-sharing agreement with Westar.

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