S&P rates Harris convertible BBB

Standard & Poor's assigned a BBB rating to Harris Corp.'s new $150 million senior unsecured convertible debentures and affirmed its BBB corporate credit rating.

Harris' strong position in government, secure radio and broadcast products has helped offset weakness in the telecom market, which is expected to remain challenged until economic conditions recover, S&P said.

As of June 30, total debt outstanding was $306 million.

The outlook is stable.

Ratings continue to reflect conservative financial practices, moderate diversity, prudent acquisition policies and small overall size relative to key competitors, said S&P credit analyst Joshua Davis.

Well respected technologies and ongoing demand in its core competency areas should protect the defense sector in the next several years, contributing to Harris' stable outlook.

The company is expected to be able to maintain profitability levels and capitalization appropriate for the rating, S&P added.

Fitch affirms Devon ratings

Fitch Ratings affirmed Devon Energy Corp.'s senior unsecured debt rating at BBB based on Devon's size and diversity, Fitch's confidence in management, progress in improving credit profile and expectations of continued improvement near to intermediate term

The outlook remains stable.

Devon's growth strategy has been and continues to be to obtain critical mass in its core areas, while maintaining a strong balance sheet and credit profile.

Management has divested $1.1 billion of non-core assets, with proceeds used to reduce debt, and expects to rationalize an additional $200-$250 million of assets before year-end.

Devon has also hedged about 50% of its production for the remainder of 2002 and for 2003 some 33% of 2003 gas production at prices above $3.30 and 25% of oil production at prices above $21.40.

Partially offsetting that is the levered nature of its balance sheet.

For the quarter ended June 30, Devon generated EBITDA of $650 million, providing interest coverage of 4.4 times and debt to run rate EBITDA of 2.8x. Subsequent to quarter end, management used $400 million of cash to further reduce the amount of commercial paper outstanding leading to debt to run rate EBITDA of 2.7x.

Devon should generate interest coverage of between 4.5x-5.0x and debt-to-EBITDA between 3.0x-3.5x in 2003, Fitch said.

The numbers could be improved with a meaningful equity offering, which Fitch would view constructively. Such an offering, along with continued progress at improving its balance sheet through internally generated free cash flow would result in a thorough review of the rating.

S&P cuts Ciena ratings

Standard & Poor's lowered Ciena Corp.'s ratings, including its 3.75% convertible due 2008 to CCC+ from B-, reflecting a dramatic decline in sales and expectations that business will remain weak intermediately.

Ratings reflect a narrow business position, substantial leverage and risks of continuing technology evolution offset by good financial flexibility, S&P said.

Market conditions have been highly challenging. Ciena reported revenues for the July quarter of $50 million, down from $87 million in the prior quarter and very substantially below its $458 million peak posted in the year-ago quarter. Revenues also included six-week results of ONI Systems Corp., acquired on June 21.

Although Ciena is guardedly optimistic about prospects for 2003, marketplace visibility is nonexistent and a return to former revenue levels is not expected over the long term, S&P noted.

Historically, Ciena had been heavily reliant on a very limited customer base, with two customers representing more than 50% of sales in fiscal 2001.

Due to the sharp decline in sales, gross margins were zero for the July quarter and operating losses have been considerable.

Even though the company took restructuring actions to reduce head count and write off inventory and purchase commitments, losses are likely over the intermediate term.

Ciena had financial assets totaling $2.2 billion at July 31. Balance sheet debt totaled $990 million.

Although Ciena has sufficient financial assets to meet operating requirements over the intermediate term, prospects are highly uncertain and the outlook is negative.

S&P puts Quantum on negative watch

Standard & Poor's placed Quantum Corp.'s ratings on negative watch, including its 7% convertible due 2004 at B+, due to weakened operating performance. Quantum had $290 million of debt outstanding as of June 30.

Operating performance reflects the ongoing slump in spending by enterprise customers on information technology. Revenues of $211 million in the June quarter declined 13% sequentially.

Despite being at the beginning of a positive product cycle, Quantum is suffering from weak volume demand, pricing pressure in certain product areas and increased tape media inventories in the channel, S&P said.

EBITDA turned negative in the June quarter to a minus $7 million. Also, Quantum announced that revenues will decline by as much as 10% in the quarter ending Sept. 30.

Quantum is currently formulating a restructuring plan to address the operating environment under the guidance of its new CEO, who will take over officially on Sept. 3.

Actions will focus on cost reduction and restoring profitability.

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