S&P cuts WorldCom senior to CCC

Standard & Poor's lowered WorldCom Inc.'s senior unsecured and long-term corporate credit ratings to CCC- from B+ following the company's announcement that it intends to restate financial statements for 2001 and the first quarter of 2002 due to the overstatement of EBITDA by about $3.8 billion.

The convertible preferred issues were lowered to C from CCC+.

All ratings remain on negative watch.

WorldCom had about $30 billion of total debt outstanding as of March 31. The downgrade reflects the high degree of uncertainty surrounding WorldCom's ability to ultimately pay its outstanding debt, S&P said.

Furthermore, the restatement and the expansion of the SEC investigation could adversely impact the current bank negotiations and the company's ability to retain customers.

These events increase the likelihood of a debt restructuring or bankruptcy filing near term.

Moody's cuts WorldCom senior to Ca

Moody's downgraded WorldCom Inc.'s senior unsecured ratings to Ca from B1 and convertible preferreds to C from Caa1. The outlook is negative.

The rating action was prompted by the company's announcement that it improperly booked $3.8 billion of expenses as capital expenditures for the past five fiscal quarters. Moody's expressed concern that the company may not be able to recover from the accounting fraud allegations and that the allegations make the successful renegotiation of bank facilities unlikely.

Also, the company is now unlikely to be able to draw down on a key source of liquidity, its $1.6 billion bank facility.

Even if debt is not accelerated, WorldCom's current cash position and cash generating capability would likely be inadequate to cover its debt maturities in early 2003. In addition, current customers may begin to migrate to other carriers.

The new rating level reflects Moody's view that recovery of WorldCom's debt will be significantly compromised. It is unclear at this juncture whether WorldCom's existing bank group will accelerate payment on the $2.6 billion outstanding.

WorldCom is likely to face a substantially limited ability to renegotiate its bank debt and receivable securitization facilities and must take corrective action to generate cash in order to address its upcoming debt maturities and reduce its debt burden.

Fitch downgrades WorldCom

Fitch Ratings downgraded WorldCom, Inc. and kept the company on Rating Watch Negative. Ratings lowered include WorldCom's senior unsecured debt, cut to CC from B and its preferred securities, cut to CC from CCC+. WorldCom's trust preferred securities remain at C.

Fitch said the CC category indicates a high default risk with some kind of default probable.

Fitch said the downgrade follows WorldCom's announcement of accounting irregularities that have led to an overstatement of reported EBITDA by almost $4 billion over the last five quarters (total reported EBITDA over the same time period was approximately $12.7 billion). The restatement will result in a reversal of reported net income into sizable operating losses.

WorldCom, already experiencing a challenging financial, competitive, and operating environment, is now facing insurmountable hurdles, Fitch said. A $30 billion debt burden and continuing financing needs place WorldCom at the mercy of its bankers.

While additional disclosures will elaborate on the extent of the accounting irregularities, potential covenant violations and a protracted legal and regulatory aftermath heighten an already tenuous financial condition, Fitch said.

Fitch said it believes WorldCom's financial condition, employee and capital expense reductions will accelerate the erosion of its business customer base, posing further challenges to stabilizing its operations.

Given its debt burden, the uncertainty over obtaining additional bank financing, and a total of $5.8 billion in debt maturities in 2003 and 2004, Fitch said it believes a debt restructuring is highly probable.

S&P cuts Adelphia to D on bankruptcy

Standard & Poor's lowered Adelphia Communications Corp.'s senior unsecured debt, subordinated debt and convertibles preferreds to D following the company's bankruptcy filing.

Moody's puts Omnicom on review for downgrade

Moody's placed Omnicom Group Inc.'s A3 senior unsecured ratings on review for downgrade.

The review was prompted by weakened and somewhat uncertain advertising market combined with the company's continuing use of cash and debt to finance acquisitions and stock repurchases, which have pressured debt and leverage levels.

Moody's said it is concerned that revenue pressures caused by the cyclical slowdown has resulted in a mixed if not less than robust general advertising climate, and that Omnicom is not compensating for the weakness sufficient to maintain credit strength and financial flexibility.

The review also will focus on the company's plans and the potential impact on liquidity of the put on its convertible notes in February and July of 2003, which can be satisfied in stock or cash.

Moody's cuts Fiat senior to Baa3

Moody's lowered Fiat SpA's senior unsecured ratings to Baa3 from Baa2. The outlook is negative.

The downgrade reflects Moody's expectation that the operating performance in Fiat's automotive business will remain under considerable pressure through 2003 and that debt protection measures for Fiat's industrial operations will remain weak.

In the face of this challenging environment, Fiat is implementing a significant debt-reduction program that Moody's believes will provide a critical enhancement to near-term financial flexibility.

These initiatives could result in a significant reduction in Fiat's industrial and financial services gross debt.

Fiat's debt reduction initiatives, in combination with its cash and securities, should afford the company adequate financial flexibility through early 2004.

At that point, Fiat will have the option to put the remaining 80% of Fiat Auto to General Motors.

Moody's said it believes that the exercise of this put option would be a critical feature of Fiat's longer-term operating and financial profile, and would provide significant support for sustaining the Baa3 rating.

Putting its automotive operations to GM would eliminate the most significant drag on Fiat's long-term operating performance, cash generation and return measures.

It could also result in a material inflow of additional cash, depending on the fair market value of Fiat Auto at the time of an exercise.

The Baa3 rating anticipates that Fiat's debt-reduction initiatives will be completed in a timely manner and that they will be structured in a fashion that is beneficial to creditors.

Moody's notes that the structural, legal, and covenant framework established for the mandatory convertible, the automotive finance joint venture, and the Italenergia transactions will be important factors in determining the ultimate degree of benefit that these three initiatives afford to Fiat's financial flexibility.

The negative outlook recognizes Moody's expectation that the company's operating performance and debt-protection measures will remain very weak for the current rating level through 2003, despite the significant benefits that will flow from the debt reduction plan, and any proforma adjustment for an exercise of the GM put.

In order to avoid pressure on the rating and limit the risk of a further downgrade, the company must make steady progress in completing the key components of its debt reduction program and maintain the recent pace of improvement in the operating performance of CNH.

If Fiat does not exercise the GM put, it will be critical for the company to achieve a significant and sustainable improvement in the auto group's operating performance, exceed targets of the debt reduction plan and pursue an alternative strategy for the merger or sale of its car operations to another manufacturer.

S&P lowers Pioneer-Standard

Standard & Poor's downgraded Pioneer-Standard Electronics Inc. The outlook is negative. Ratings lowered include Pioneer-Standard's $150 million 8.5% senior notes due 2006, cut to BB- from BB, and its $125 million convertible trust preferred securities, cut to B- from B.

S&P said the ratings reflect weakened profitability and debt protection measures despite significant debt reductions over the past year. Pioneer has about $179 million of long-term debt outstanding.

Although Pioneer has a good position in the North American region, the company faces significantly larger competitors in an increasingly global IT distribution industry, S&P noted. In addition, economic and IT spending weakness will continue to pressure near-term revenues and operating profitability.

The company reported revenues of $2.3 billion and a net loss of $7 million in fiscal 2002, ended March (including special charges of $12.4 million), down from revenues of $2.9 billion and net income of $34.6 million the prior year, S&P said.

Pioneer has responded to contracting revenues with cost cutting and restructuring actions, most recently in its Industrial Electronics segment, S&P said. In addition, contracting working capital levels generated free operating cash flow in excess of $200 million over the past 18 months, which was largely used to reduce debt.

Despite significant debt reductions, total debt to EBITDA in excess of 4 times remains weak for the rating level, S&P said. In addition, Pioneer's access to credit facilities is constrained by borrowing-base limitations.

S&P rates Chinatrust convertibles BBB

Standard & Poor's assigned a BBB rating to Chinatrust Financial Holding Co.'s $350 million zero-coupon convertible bonds due 2007.

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