Moody's confirms Northrop

Moody's Investors Service confirmed the ratings of Northrop Grumman Corp., following the completion of the equity-financed acquisition of TRW for $6.65 billion. The outlook is stable.

Ratings reflect enhancement from TRW's defense businesses, prudent use of equity in the transaction, expected reduction of debt from selling the automotive business of TRW and benefits from higher U.S. defense spending.

However, ratings also reflect potential assimilation risk and expected pressure on 2003 cash flows due to the upcoming $1 billion tax payment related to the B-2 program as well as sizable goodwill on Northrop's balance sheet, Moody's said.

The outlook reflects a favorable outlook for profits and cash flows as a result of increasing U.S. defense spending and the expectation of a successful integration with TWR.

Moody's cautioned, however, that negative rating consequences would result if the sale of the automotive assets does not occur or if those proceeds are not used to reduce debt.

Fitch rates Aon at A-

Fitch Ratings assigned an A- senior debt rating to Aon Corp.'s $225 million 7.375% of 10-year senior, but put the rating on negative watch.

Over the past six weeks, Aon has raised some $1.125 billion in new capital, expected to be used to pay down commercial paper, refinance maturing debt in 2003, extend debt maturities and for other corporate purposes.

The fixed income ratings of Aon remain on negative watch, pending the development of Aon's ultimate capital structure.

Favorably, the capital structure is expected to transition to a longer-weighted duration and Aon will be less dependent on short-term debt.

A major uncertainty at this point involves the pension funding requirement and the ultimate impact on shareholders' equity relative to recent periods.

Moody's puts Omnicare on review

Moody's Investors Service placed the ratings of Omnicare Inc. under review for possible downgrade, including the 8.125% convertible at Ba2 and 5% convertible at Ba3, following developments that greatly increase the likelihood it will be acquiring NCS HealthCare Inc.

The potential downgrade reflects the significant increase in leverage which will likely occur as a result of the acquisition.

The review will focus on the structure of acquisition financing and the anticipated increase in leverage, integration plans and acquisition strategy going forward.

Moody's confirms United Rentals

Moody's Investors Service confirmed United Rentals Inc.'s ratings, including the convertible trust preferreds at B3, and assigned a B1 rating to its proposed new senior unsecured notes. The outlook remains stable.

The ratings continue to reflect substantial debt and leverage, exposure to highly cyclical markets, significant on-going capital spending requirements and intense competition.

Ratings are supported by a leading and growing market position, superior operating and fleet management and strong management team, Moody's said.

The outlook reflects an expectation of a flat to slightly down non-residential construction market in 2003 and a gradual pick-up in 2004. It also considers flexibility in further cutting down capex over the next 12-18 months without compromising operations and fleet quality.

However, to the extent that weakness in non-residential construction spending persists beyond expectations, the ratings and outlook would be under downward pressure, Moody's said.

Moody's confirms Sinclair

Moody's Investors Service confirmed the ratings of Sinclair Broadcast Group Inc., including the convertible preferreds at B3. A Ba2 rating was assigned to the new incremental term loan and a B2 rating to the company's add-on senior subordinated notes.

Ratings continue to reflect risks posed by high leverage and thin cash flow coverage of interest and dividends after capital expenditures, high planned capital investment, acquisition risk and other factors.

However, the ratings are supported by more-than-ample collateral coverage provided to creditors, margin levels that are at or above its peers and other factors, Moody's said.

Liquidity position is good, with positive free cash flow expected through the rating horizon and a $225 million revolving credit facility.

The rating outlook is stable but if the leverage trend were to reverse due to the pursuit of debt financed acquisitions without being offset by either asset sales or equity, a negative outlook or ratings downgrade would be warranted.

If the company continues to pursue asset sales that result in reduced leverage, a positive outlook may be warranted.

S&P upgrades Owens & Minor

Standard & Poor's upgraded Owens & Minor Inc. including raising its $225 million senior unsecured revolving credit facility due 2003 to BB+ from BB, $200 million 8.5% senior subordinated notes due 2011 to BB- from B+ and $120 million term convertible securities series A to B+ from B. The outlook was revised to stable from positive.

S&P said the upgrade reflects Owens & Minor's improved operating efficiency and continued debt reduction.

A new receivables system and increased internal credit requirements for customers have allowed for faster collections and the reduction of bad debt, S&P noted. Furthermore, ongoing process improvements at the warehouse level have continued to drive productivity and raise levels of customer satisfaction.

Nevertheless, strong pricing pressures limit improvement in profitability, S&P said. The company also faces risks presented by the considerable consolidation in the industry and the presence of well-entrenched manufacturer/distributors in the related pharmaceutical-supply business.

Still, Owens & Minor has been able to raise its return on capital to 16% from 12% three years ago, reduce lease-adjusted debt to capital to about 41% from 52% in 1999, and increase EBITDA coverage of interest to about 4.9x from 3.5x during the same period, S&P added.

S&P rates Macronix convertibles B

Standard & Poor's assigned a B rating to Macronix International Co. Ltd.'s $140 million 0.5% convertible bonds due Feb. 7, 2007. The outlook is stable.

S&P said Macronix's ratings reflect the company's niche market position in the mask ROM sector, offset by its reliance on a limited customer base, and by deteriorating operating profitability caused by depressed industry conditions and excessive inventory build-up.

The company's mask ROM products have been sold mainly to Nintendo Co. Ltd. for use in video game cartridges. Nintendo has been Macronix's largest customer over the past few years.

Since September 2001, Nintendo began to transfer its video game products from its Nintendo 64 game platform to its latest game platform, the GameCube, which utilizes a DVD ROM-based storage system instead of mask ROM-based cartridges. As a result, Macronix's revenue and earnings have been negatively affected.

Exacerbating the company's poor operating profitability is its excessive build-up of inventory due to deteriorating conditions in the semiconductor industry since 2001, S&P said. Macronix made an inventory write-off of more than NT$2.5 billion in 2001 and NT$3.1 billion in the first nine months of 2002.

Macronix's financial performance reflects the cyclical nature of the semiconductor industry, S&P added. The company reported total sales of NT$11.4 billion in the first three quarters of 2002, with a net loss of NT$9.3 billion due to a decline in revenue and average selling price, as well as inventory provision losses.

Macronix's cash protection metrics have deteriorated accordingly, with EBITDA interest coverage down to 1.6x for the first three quarters of 2002 from 10x in 2001, S&P said.

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