S&P rates new Tyco convert at BBB-

Standard & Poor's assigned a BBB- senior unsecured debt rating to Tyco International Group S.A.'s $3.25 billion convertible senior debentures, Series A due 2018 and Series B due 2023.

The ratings were placed on negative watch along with the existing ratings on Tyco International Ltd. and subsidiaries, which have been on watch since Feb. 4, 2002.

If the financing is executed as proposed and certain conditions are met, S&P expects to remove the watch and affirm all ratings with a stable outlook.

The conditions include the new $1.5 billion senior unsecured revolving credit facility with financial covenants set at a level that provides sufficient financial flexibility.

S&P also commented that Tyco's recent 8-K report outlining the results of Phase Two of its internal accounting investigation and its annual report filed on Form 10-K, which included an unqualified opinion from its external auditors, are expected to ease investor concerns and facilitate refinancing.

Also encouraging are new management's actions to strengthen corporate governance and internal controls.

However, S&P said that if the financing is not executed as proposed or the other conditions not met, ratings will be lowered.

Moreover, if the intercompany company debt is not guaranteed, the senior unsecured rating on holding company debt would be lowered to one notch below the corporate credit rating if the corporate credit rating remains investment-grade and two notches below the corporate credit rating if the corporate credit rating is below investment-grade.

S&P's primary concern remains Tyco's substantial debt maturities in calendar 2003. Maturing debt totals $11.3 billion, compared to estimated current cash balances of $6.0 billion and management's free cash flow estimate of $2.5 billion to $3.0 billion.

Considering management's projection of current-year acquisitions and spending associated with past acquisitions totaling $1.1 billion, a gap of $3.4 billion to $3.9 billion will need to be financed.

The proposed note issue and new credit facility, which could be augmented with asset sale proceeds, should provide sufficient flexibility to refinance upcoming maturities. Still, S&P noted there are numerous other concerns.

Among issues of concern, S&P noted, is that almost $600 million of accounts receivable financing could be terminated if either S&P or Moody's lowers Tyco's ratings from current levels.

Moody's rates PacifiCare convert at B3

Moody's Investors Service upgraded PacifiCare Health System's debt ratings and assigned a B3 rating to the company's subordinated convertible notes issued in November.

The outlook is stable.

The upgrade is based on the improved performance of subsidiaries that has resulted in stronger dividends to the parent and improved capital adequacy, as well as the beneficial impact of the convertible on liquidity.

The B1 senior implied rating reflects the improvement in financial condition, but also a high dependence on Medicare revenues, ongoing exposure to conversion of capitated contracts, continued losses at its Texas subsidiary.

The outlook assumes that, net of capital infusions from the parent, dividends from regulated subsidiaries and cash flow of non-regulated subsidiaries will be maintained at the current level, and that PacifiCare will be able to stem and reverse losses in Texas, Moody's said.

The outlook further assumes that capital adequacy will remain within current levels and that any necessary capital infusions and/or potential litigation settlements will not dramatically impair recent improvements in liquidity.

S&P rates new Clear Channel notes BBB-

Standard & Poor's assigned a BBB- rating to Clear Channel Communications Inc.'s proposed $500 million of five-year and 10-year notes.

Also, S&P confirmed its BBB- corporate credit rating, BBB- senior unsecured debt and BB+ subordinated debt. The outlook is negative.

The company faces some $1.5 billion in debt maturities in 2003, including the potential put on its 0% convertibles in February 2003 and the maturity of its 2.625% notes in April and 7.25% notes in September.

The outlook anticipates that Clear Channel will remained committed to debt reduction by refraining from share repurchases and debt-financed acquisitions and limiting discretionary outlays to increase discretionary cash flow and reduce debt, S&P said.

Financial profile stability, adequate liquidity for the rating level, and a strong margin of bank covenant compliance are important for maintaining ratings. Further material progress will be key to revising an outlook to stable.

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