S&P puts PerkinElmer on watch

Standard & Poor's put PerkinElmer Inc. on CreditWatch with negative implications. Ratings affected include PerkinElmer's $100 million revolving credit facility due 2002, $250 million 364-day revolving credit facility, $115 million 6.8% notes due 2005 and $400 million zero-coupon convertible debentures due 2020, all at BBB-.

S&P said the action follows PerkinElmer's announcement that it will retain its Fluid Sciences business and, as a result, will not be able to materially reduce debt and improve credit measures over the near term.

It had been expected that proceeds from the sale of its Fluids Sciences business would be used to materially lower debt and enhance credit measures that are weak for the rating, S&P said. However, the company does plan to meet significant near-term maturities with a pending refinancing.

S&P said it will assess prospects for PerkinElmer's deleveraging of its financial profile and the impact of proposed refinancing actions that extend coming maturities, to determine the effect on the credit profile and resolve the CreditWatch.

The rating agency also noted PerkinElmer faces substantial near-term maturities of about $389 million, due to provisions associated with its convertible bond issue that allow the bonds to be put back to the company in August 2003. Management has received a commitment for a senior secured credit facility of up to $445 million, contingent on issuance of $225 million of new subordinated debt securities. The company intends to use these funds to meet the near-term maturities.

Moody's puts Navistar on review

Moody's Investors Service put Navistar International Corp. and Navistar Financial Corp. on review for possible downgrade, affecting $1.16 billion of debt including Navistar International's senior unsecured debt at Ba1 and subordinated debt at Ba2 and Navistar Finance's senior unsecured debt and medium-term notes at Ba1 and subordinated debt at Ba2.

Moody's said the review is in response to the prolonged downturn in Navistar's truck and engine operations, the cash outflow associated with the company's just-announced restructuring program, and the decision by Ford Motor Co. to not utilize Navistar's V6 diesel engine that was designed to Ford's specifications - Navistar had devoted considerable capital to a facility that was expected to produce these engines under an exclusive, long-term supply agreement.

Moody's said its review will examine the degree to which Navistar's already weak debt protection measures will be further eroded by this more challenging operating environment; the time frame over which the restructuring program, in combination with a newly signed contract with the UAW, will lower Navistar's breakeven point, improve longer-term operating efficiency, and support a recovery in earnings and cash generation; the company's plan to refinance approximately $200 million in manufacturing-company debt that matures in early 2003; Navistar's ability to minimize the rate of cash burn and to preserve an adequate cash/liquidity cushion for its manufacturing operations through 2003; and Navistar Financial's ability to preserve its current level of access to various committed borrowing facilities including the ABS market.

Fitch downgrades Continental

Fitch Ratings downgraded Continental Airlines, Inc. including cutting its senior unsecured debt to CCC+ from B- and its TIDES preferred equity securities to CCC- from CCC. The outlook remains negative.

Fitch said the downgrade reflects the continuing impact of a weak domestic airline revenue environment on Continental's cash flow generation capacity and a deteriorating liquidity outlook.

Although Continental's operating results have consistently beaten those of its major network carrier competitors and should continue to do so (largely as a result of both a revenue premium and a better operating cost structure), the airline is facing several quarters of weak operating cash flow and high fixed financing obligations (interest, aircraft and facilities rents, scheduled debt amortization payments and pension contributions), Fitch said.

Barring a rebound in U.S. air travel demand in 2003 (particularly high-yield business traffic), Continental is likely to see a reduction in its cash balances, Fitch added.

Continental reported a total of $1.3 billion in cash and short-term investments on its balance sheet as of Sept. 30. This level has been sustained as a result of several securities issuances and the sale of a portion of its ExpressJet operation since Sept. 11, 2001. The company has projected a year-ending cash balance of approximately $1.0 billion, assuming no further financing activity in the fourth quarter. In addition to cash on hand, the airline holds 53% of the outstanding shares of its publicly traded Continental Express regional airline affiliate (ExpressJet Holdings, Inc.). If this stake were to be monetized, it could generate $300 to $400 million in cash proceeds at current market levels, Fitch noted. Continental has stated that it does not intend to remain an owner of the shares over the long term. However, Continental management noted in its Oct. 17 earnings call that it has no intention of selling the remaining ExpressJet shares at the depressed market prices that currently prevail.

Moody's lowers International Power outlook

Moody's Investors Service lowered its outlook on International Power plc to stable from positive and confirmed its ratings including its senior unsecured debt at Ba3.

Moody's said the revision is due to the loss in value of International Power's tolling contract with TXU Europe for the Rugeley power plant, due to the deterioration in credit quality of TXU Europe.

Moody's noted that it had previously considered the revenues from the Rugeley contract to be amongst the highest quality available to International Power.

Whilst many uncertainties remain as to the action the Rugeley project finance lenders might take, and any recoveries from TXU Europe should the contract be terminated, Moody's said it believes that the contract may now no longer have ongoing value for International Power.

Moody's believes International Power's initial loss is likely to be limited to its equity investment of £56 million. International Power's corporate facilities do not cross-default to its project financings, and Moody's understands that International Power is unlikely to inject additional capital to support the project financing under these circumstances. However, Moody's notes that the company may eventually have additional exposure through a £70 million letter of credit that it has posted to install flue gas desulfurization equipment to Rugeley.

Moody's assigns Fleming SGL-2 liquidity rating

Moody's Investors Service assigned an SGL-2 speculative-grade liquidity rating to Fleming Cos., Inc.

Moody's said the rating considers its belief that operating cash flow will exceed cash interest expense and planned capital expenditures over the next 12 months, regardless of successful divestiture of the retail division or possible loss of additional Kmart distribution business.

Liquidity following the pending asset sales will not materially change given the requirement that virtually all net proceeds be used to pay down bank debt, Moody's noted. The rating agency expects that drawings under the revolving credit facility will increase from third quarter 2002 levels only for short-term working capital needs.

Moody's expects Fleming to maintain access to the revolving credit facility over the next 12 months because it has cushion to meet bank credit agreement covenants, the 2007 and 2012 indentures carve out additional revolving borrowings from their fixed charge incurrence tests, and the credit agreement exempts further Kmart deterioration as a breach of the material adverse change clause.

Moody's cuts some Vivendi, Houghton Mifflin ratings

Moody's Investors Service downgraded Vivendi Universal's senior implied rating to Ba3 from Ba2 and, as a consequence, the senior unsecured bond rating of its Houghton Mifflin subsidiary to Ba3 from Ba2. Vivendi Universal's senior unsecured rating remains at B1. All ratings are still on review for downgrade.

Moody's said its action follows Vivendi Universal's rejection of Vodafone Group plc's offer to buy Vivendi Universal's stake in French mobile phone operator Cegetel SA as it stands.

Moody's said Vivendi Universal's unwillingness for the time being to utilize this major de-leveraging opportunity (for €6.8 billion) removes a significant mitigant of its current liquidity and refinancing risk profile as the company remains dependent on the timely disposal of a number of small to medium-sized asset sales to meet its debt repayment obligations and to fund other cash outflows over the next six to 12 months.

Vivendi Universal's bond ratings remain unchanged at B1 to reflect the protection offered to bondholders by the company's broad and deep asset base. Announced disposals such as the sale of Telepiu to News Corp. (for a headline price of €920 million) and the sale of Vivendi Universal's publishing businesses (except Houghton Mifflin) to Lagardere (on the basis of an enterprise value of €1.25 billion) are encouraging and evidence the company's asset strength.

Fitch keeps Reliant Resources on watch

Fitch Ratings said Reliant Resources, Inc. remains on Rating Watch Negative including its senior unsecured debt at BB.

Fitch's comment follows Reliant Resources' announcement that it has executed a three-year extension of $1.33 billion of outstanding Orion Power subsidiary-level bank debt.

Fitch said it views the successful refinancing of the Orion bank facilities as a favorable development.

In particular, the extension is an important first step in alleviating Reliant Resources' significant near-term debt refinancing burden, Fitch added. However the revised terms of the Orion bank debt will substantially restrict Reliant Resources' ability to extract cash generated by the Orion assets for debt service at the corporate level.

Fitch is maintaining its Rating Watch Negative for Reliant Resources pending the successful re-negotiation of Reliant Resources' corporate-level bank facilities, including the $2.9 billion Orion acquisition bridge loan maturing in February 2003.

S&P keeps Reliant Resources on watch

Standard & Poor's said Reliant Resources Inc.'s ratings are unchanged at BB+ on CreditWatch with negative implications.

S&P's comment follows Reliant Resources' announcement it successfully refinanced $1.57 billion of credit facilities (net of cash, now $1.33 billion) at wholly owned Orion Power Holdings and its respective subsidiaries, Orion Power MidWest and Orion Power New York.

Importantly, the loans were extended for three years, which will provide an opportunity for Reliant Resources to return to the capital markets, S&P said. The loan terms have an accelerating interest rate (initially Libor plus 250 basis points for the first year) to encourage their replacement with more permanent financing.

While this was a significant hurdle for Reliant Resources to clear, it now must turn to refinancing its debt by February 2003 when a $2.9 million bank loan matures; Reliant Resources plans to negotiate a "global refinancing" for holding company debt, which totals $5.9 billion, including a synthetic lease, S&P added.

It is anticipated that the terms will be more harsh; Reliant Resources will likely pay higher rates than Orion, and secure the debt, potentially with the stock of key subsidiaries and certain unencumbered generating facilities, S&P said.

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