Moody's expects to rate new CenturyTel convert at Baa2

Moody's anticipates assigning a Baa2 rating to two new privately placed senior unsecured debt securities by CenturyTel, including $250 million of 10-year unsecured notes and $150 million of 30-year convertible senior unsecured debentures. The outlook is stable.

Moody's said it expects proceeds from the offering will be used to boost liquidity by fully funding the pending acquisition of Verizon access lines in Missouri. The ratings also reflect lower overall business risk due to the recent sale of wireless operations, that operations will continue to generate strong profits, that cash flow will help the company delever despite challenges from a weak economy and that CenturyTel will face modest competitive challenges.

Total debt/EBITDA of 3.3 times in the first half of 2002 is higher than the 2.9 times in 2001. The increased leverage was not unexpected due to increased debt to finance the acquisition of the Verizon access lines, the rating agency said.

Moody's said it believes that leverage is likely to remain at around 3.3 times for the remainder of 2002.

In 2003, a renewed focus on core, high margin wireline business and future EBITDA accretion stemming from the purchase of the Verizon access lines should lead to a material reduction in leverage.

S&P rates new CenturyTel convert at BBB+

Standard & Poor's assigned a BBB+ rating to CenturyTel Inc.'s $150 million convertible senior unsecured debentures due 2032 and $250 million senior unsecured notes due 2012.

S&P had already factored into its ratings the possibility that CenturyTel would have to issue new debt to refinance and pay taxes on the sale of the wireless business.

Pro forma for the two new debt issues, the redemption of $400 million in remarketable notes, and operating cash flow from acquired Verizon access lines, debt-to-EBITDA is projected to be about 3.4 times by year end.

Because the RLEC business generates strong cash flows with an EBITDA margin exceeding 50%, the company is expected to reduce its debt-to-EBITDA leverage to less than 3.0 times in 2003.

CenturyTel maintains adequate liquidity to meet its obligations, S&P said.

Apart from free cash flow and the new $400 million in capital, it had $710 million in cash, $800 million in undrawn bank credit lines, $123 million of commitments for long-term financing from and a fully available $1.5 billion short-term commercial paper program as of Aug. 1.

With that, CenturyTel should be able to cover $1.16 billion in payment for Verizon access lines, the potential redemption of the remarketable notes, taxes on the sale of the wireless business and near-term capital expenditures, S&P added.

Debt-to-EBITDA of 3.4 times and EBITDA-interest coverage of 5.0 time for 2002 are expected to improve in 2003 to levels more supportive of the rating, S&P said.

CenturyTel's financial parameters are expected to remain weak for the ratings in the near term due to challenges of integrating the acquired access lines from Verizon and its more leveraged capital structure.

S&P cuts Charter to B- from B

Standard & Poor's lowered Charter Communications Inc.'s senior unsecured debt ratings to B- from B+, and placed it on watch with developing implications.

The downgrade was based on concern that potentially slower cash flow growth may make it difficult for the company to achieve S&P's expected financial profile improvement.

The recently launched federal criminal investigation into Charter's accounting practices and any resulting adverse effect access to the capital markets are also factored into the downgrade, S&P said. The developing watch implications stem from uncertainty surrounding the criminal probe.

Charter is able draw about $2.3 billion from its credit facilities.

The company expects this additional borrowing capacity will meet funding needs at least through mid-2003, when it expects to begin generating positive discretionary cash flow. However, slow growth from overall economic uncertainty could extend Charter's funding needs.

Negative discretionary cash flow from heavy upgrade capital spending continues to boost debt levels. Credit measures could remain weaker than appropriate for Charter at a BB corporate credit rating level over the near to intermediate term.

As of June 30, debt to annualized quarterly EBITDA was about 8.75 times, compared with the 7.9 times upper limit benchmark set for the company at a BB corporate credit rating.

S&P added that it is also concerned about the potential for debt restructuring transactions given depressed debt trading levels.

Moody's revises Charter outlook to negative

Moody's changed the outlook for the current and prospective debt and preferred stock obligations of Charter Communications Inc. and its subsidiaries to negative from stable.

Moody's rates Charter's 4.75% convertible due 2006 and 5.75% convertible due 2005 at B3.

The change reflects the growing likelihood that the ratings may come under some downward pressure, particularly if the current federal grand jury investigation reveals accounting irregularities of either a magnitude or nature to which is presently unknown, Moody's said.

However, Moody's said it remains concerned about very high consolidated financial leverage and comparatively low interest coverage, particularly given still high capital spending needs to complete system upgrades/rebuilds and roll out new products and services.

Still, liquidity is reasonably well assured as effected mainly through undrawn bank lines of credit.

Moody's expects the bank lines should be sufficient to fund the business plan until Charter is in a position to generate positive free cash flow in 2004.

Also, Moody's continues to believe that equity sponsorship of Paul Allen and affiliates is an important and differentiating consideration, one which has perhaps become more pronounced in terms of lending further ratings support during recent times as the public capital markets have turned decidedly negative.

S&P affirms Berkshire Hathaway

Standard & Poor's affirmed the AAA senior debt and other ratings on Berkshire Hathaway Inc. because of its extremely strong financial flexibility and earnings diversification and insurance operations' extremely strong consolidated capital adequacy. The outlook is stable.

Additional positive considerations are the leading market positions held by operations, initiatives taken to improve business models and a continued, positive pricing environment that should boost insurance earnings over the next two years, said S&P credit analyst Frederick Loeloff.

Offsetting those factors are exposure to market risk, reinsurance operations' susceptibility to loss severity, uncertainty surrounding prior-year reserve requirements for General Re Group and the entwinement of non-insurance earnings performance with the general economy.

S&P believes Berkshire Hathaway will continue to maintain extremely strong capitalization and financial leverage, supported by a strong, diversified earnings stream.

Barring the potential negative earnings impact of large-loss events or investment risk, S&P believes the prospective financial leverage and interest coverage will continue to remain within the rating range.

Moody's upgrades Radio One

Moody's raised Radio One's ratings, including the $310 million of 6.5% convertible HIGH TIDES to B3 from Caa1. The outlook is stable.

The upgrade reflects Radio One's successful acquisition track record, continued organic growth in cash flow and willingness to use equity as well as debt to fund expansion, Moody's said.

In addition, Radio One's ratings reflect an experienced management team.

The company is expected to have adequate liquidity, including an unused $250 million revolving credit facility and $50 million in cash, and has demonstrated access to the capital markets following its acquisitions.

However, ratings also consider that Radio One has expanded extremely rapidly, potentially straining management depth.

While the company has supplemented its debt offerings with equity, Radio One remains highly leveraged, particularly through the preferred at 7.4 times and cash flow coverage of interest and dividends after capital expenditures is thin at 1.4 times, as of the last 12 months ended June 30.

The stable outlook incorporates the likelihood that Radio One will continue to be acquisitive but that future acquisitions are likely to have a smaller impact on overall performance.

Improvement in the ratings is likely to be driven by increases in cash flow leading to lower levels of leverage.

The outlook could shift negatively if expansion were to continue without ongoing contribution of equity, particularly in light of current radio acquisition multiples, Moody's said.

Moody's notes Vivendi Environmental vote

Moody's noted that Vivendi Environnement SA gained bondholder approval to remove the cross default linkages to Vivendi Universal SA in its €1.54 billion 2005 convertible bond.

Once the vote is final, Moody's anticipates confirming the Baa1 long-term rating with negative outlook, but said the rating is under review for possible downgrade.

The outlook reflects uncertainty that continues to surround Vivendi Universal's ongoing strategic review and the implications this may have on Vivendi Environmental.

Once Vivendi Universal clarifies its strategy and if this has no implication on the Vivendi Environmental credit, then Moody's expects to stabilize the rating at Baa1.

S&P notes Vivendi Environmental vote

Standard & Poor's said the ratings and outlook on Vivendi SA (BBB+/stable/A-2) remain unchanged following the Vivendi Environmental convertible bondholders' vote to remove the cross-default clauses applying to Vivendi Environmental's 40.8% owner Vivendi Universal SA (BB/negative watch/B).

The vote is very beneficial to Vivendi Environmental's stand-alone credit quality as it eliminates exposure to a forced accelerated repayment of its €1.5 billion convertible bond in the event of a default by Vivendi Universal.

The stable outlook considers adequate liquidity to cover such an event, said S&P credit analyst Karl Nietvelt.

Any change in Vivendi Universal's ownership to regain majority control over Vivendi Environmental, a potential strategy hinted by Vivendi Universal's CEO, Jean-Rene Fourtou, would, however, result in Vivendi Environmental being placed on negative watch.

Nevertheless, S&P views such a possibility very unlikely, given Vivendi Universal's recent reduction of its stake in Vivendi Environmental to 40.8% and the significant amount of cash required to fund such an operation.

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