Moody's downgrades Avaya to Baa2 from Baa1, may cut to junk

Moody's Investors Service on Wednesday downgraded the long-term ratings of Avaya Inc. (senior unsecured to Baa2 from Baa1) and has placed the ratings on review for possible further downgrade. Moody's said the review follows the company's announcement that it will incur an operating loss of 8-10c per share on an ongoing basis for first fiscal quarter ended Dec. 31. Due to the degree of deterioration and the uncertainty regarding future operating performance, Moody's said it could not rule out the possibility of a speculative grade conclusion.

S&P rates new Best Buy convertible BB+

Standard & Poor's assigned a BB+ rating to Best Buy Co. Inc.'s planned $350 million convertible subordinated notes and affirmed the company's BBB- corporate credit and senior unsecured debt. The outlook is negative.

S&P said its ratings reflect Best Buy's leading position in the consumer electronics industry, improved operations over the past four years and favorable growth prospects for digital consumer electronics.

But S&P said there are risks from the cyclicality of the electronics industry, competition from "category killer" retailers in many product categories and Best Buy's more aggressive financial policy.

Best Buy has "significantly improved" operating efficiency through better inventory management, resulting in an improvement in turnover to 8.0 times from 5.7 times, S&P said. The company has also increased revenue from warranties and strategic relationships "which have proved to be more stable and less cyclical than revenue from electronic products."

Fitch rates new Best Buy convertibles BBB-

Fitch assigned a BBB- rating to Best Buy Co. Inc.'s proposed $350 million convertible subordinated debentures. The outlook is stable.

Fitch said it recently confirmed its ratings on Best Buy and changed the outlook to stable from positive.

The ratings reflect Best Buy's leading position as a consumer electronics retailer and solid operating and financial performance, Fitch said. But they also incorporate "the weaker retail environment and risks associated with expanding its store base as well as assimilating its recent acquisitions."

S&P rates Radian's new convertible at A

Standard & Poor's on Wednesday assigned an A rating to Radian Group Inc.'s $200 million, 20-year senior convertible debentures. At the same time, S&P affirmed its other ratings on Radian and its operating subsidiaries, saying the outlook is stable.

S&P said it sees some cyclical deterioration in the terms of trade encountered by the mortgage insurance industry and because mortgage insurance is the largest component of Radian's business, it is possible that the coverage on Radian's debt could decline, but S&P does not expect the decline, if it occurs, to be to levels inconsistent with the rating. Also, Radian Guaranty exhibits the capital, embedded book of business, business position, financial flexibility, and operating history in mortgage insurance to contend successfully with conditions that are considerably more adverse than current ones. Industry conditions in the markets served by Enhance Re and Asset Guaranty are stable, and S&P said it believes Enhance Re and Asset Guaranty can operate under a considerably wide range of circumstances without any effect on the ratings.

Moody's affirms Merrill Lynch ratings after charges

Moody's Investors Service on Wednesday affirmed the ratings of Merrill Lynch & Co., Inc. (senior unsecured debt at Aa3) following the announcement of special charges in the fourth quarter. The rating outook on all long-term ratings remains negative. All short-term ratings of Prime-1 were also affirmed.

According to Moody's, Merrill Lynch retains strong franchises in high net worth brokerage, investment banking and institutional trading and asset management. Management is now reengineering each of these businesses to adjust scale and improve future core profitability. These actions should improve pre-tax margins, thereby mitigating the effect of the special charges and improving debt-service coverage in the future. For the full year 2001, the company will still generate an operating profit and tangible equity will increase, even after the charges.

Moody's also noted that Merrill Lynch's improved liquidity position and controlled appetite for trading and credit risk remain very important positive factors supporting the Aa3 rating.

Fitch affirms Merrill Lynch ratings after charges

Fitch on Wednesday affirmed its long-term ratings of Merrill Lynch & Co. with senior long-term debt at AA., and said the rating outlook remains negative, following the announcement that Merrill Lynch will recognize a restructuring charge for the fourth quarter of 2001.

Merrill Lynch's ratings are based on its global franchise in investment banking, private client and asset management, Fitch said. Its market risk appetite and capital leverage have been reduced over the last several years and liquidity profile improved. Profit margins however, have lagged peers as it expanded its retail brokerage and asset management operations. Efficiency efforts were developed and then accelerated following the recent decline in equity trading volumes and price levels. The announcement represents a broad-based effort at right-sizing the organization for current business opportunities, Fitch said.

Fitch anticipates maintaining current ratings and re-evaluating the outlook subsequent to Merrill Lynch's performance in 2002.

Moody's cuts SpectraSite convertible

Moody's Investors Service on Wednesday downgraded all the ratings of SpectraSite Holdings Inc., including slashing the $200 million 6.75% senior convertible notes due 2010 to Caa3 from B3, and the ratings of its unit, SpectraSite Communications Inc. The ratings outlook is stable.

The downgrade reflects Moody's concerns that despite the actions SpectraSite has taken to improve its near-term liquidity, the company remains overlevered and may not be able to increase cash flow quickly enough to grow into its capital structure. The new Caa1 senior implied rating reflects Moody's opinion that SpectraSite's total indebtedness cannot be supported by its operations under conservative assumptions regarding the addition of new tenants onto its towers and the lease rates those prospective tenants will pay. The B3 rating on the $1.3 billion bank credit facility reflects the lenders' strong position in the company's capital structure, at a subsidiary beneath the high-yield notes issuer, and the good asset protection with secured debt not anticipated to exceed $120,000 per tower, and bank debt is projected to stay below 5.0 times annualized EBITDA. The Caa3 rating on the senior unsecured debt issued by SpectraSite Holdings, reflects its structural subordination to outstandings under the bank credit facility.

Moody's cuts Pinnacle ratings

Moody's Investors Service on Wednesday downgraded the ratings on Pinnacle Holdings' $325 million 10% senior discount notes due 2008 to Ca from Caa1 and its subsidiary Pinnacle Towers' $520 million senior secured credit facility to B3 from B2. The downgrade, Moody's said, was taken due to the company's inability to get longer-term covenant relief from its bank group, its severe lack of liquidity, and the continuing erosion of its tenant base, primarily from ailing paging carriers. The B3 rating on the secured debt reflects Moody's opinion that the lenders have adequate collateral coverage to support their outstandings, with senior debt averaging about $170,000 per owned tower at the end of September. The precise value of Pinnacle's owned towers is difficult to determine primarily because it is unclear how much additional churn may be experienced. However, in Moody's opinion due to this relatively high level of secured debt there will likely be little recovery available to the senior discount note holders after the bank lenders claims have been satisfied, prompting the Ca rating on those notes.

Fitch rates new Duke Energy notes at A+

Fitch on Wednesday assigned an A+ rating to Duke Energy Corp.'s new $750 million issue of unsecured notes. The financing includes $250 million of three-year floating-rate notes and $500 million 10-year fixed-rate senior notes. The floating-rate notes and the senior notes are pari passu with Duke Energy's existing and future unsecured and unsubordinated debt. Proceeds will be used to repay commercial paper incurred to refinance first mortgage bonds that were retired in 2001 and for general corporate purposes.

The ratings reflect Duke Energy's ample equity base and cash flow, the good quality of its assets and the significant earnings contribution from state and federally regulated electric and gas operations, Fitch said. The ratings also consider Duke Energy's September 2001 agreement to acquire Westcoast Energy Inc. for $3.5 billion, plus the assumption of about $4.5 billion of debt.

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