S&P rates Advanced Medical convertibles B

Standard & Poor's assigned a B rating to Advanced Medical Optics Inc.'s new $115 million convertible senior subordinated notes due 2023 and confirmed its existing ratings including its senior secured debt at BB- and subordinated debt at B. The outlook is stable.

S&P said Advanced Medical Optics' ratings reflect a somewhat limited operating base and the challenges of being a newly independent competitor in well-established, mature and (in the case of contact lens solutions) commodified fields.

High debt leverage, though improved in the past year, remains a concern. Underpinning credit strength are the company's proven product lines, solid cash flow, and experienced management.

Considering its business risk profile, near-term financial statistics are expected to remain consistent with the rating category, with operating margins averaging in the mid-teens percentage area, return on permanent capital in the low-20% area, and funds from operations to total debt in the high-teens, S&P said. By 2004, Advanced Medical Optics is expected to reduce its total debt to capital to the low-60% area, from nearly 83% at year-end 2002, and its total debt to EBITDA to the mid-2x area from 3.7x. Repayment of spin-off related debt and the current transaction are consistent with these expectations.

Still, with more than 70% of sales generated in the U.S., the company hedges a large percentage of its pretax income, which, in the current environment, could result in modest hedging losses. Earnings quality is also somewhat tempered by unrecognized stock-based compensation expenses.

Fitch rates Advanced Medical convertibles B+

Fitch Ratings assigned a B rating to Advanced Medical Optics Inc.'s new $125 million convertible senior subordinated notes and confirmed its amended senior secured credit facility at BB-. The outlook is stable.

Fitch said one of its main concerns regarding Advanced Medical's viability as an independent entity has been somewhat mitigated by the refinancing transactions. The company has successfully leveraged banking relationships initiated with Allergan's assistance, and established a financial history through rapid debt reduction of the secured facility, which has led to the recent refinancing transactions shifting the capital structure to more favorable terms and less restrictive covenants.

Advanced Medical continues to improve leverage since the June 2002 spin-out from Allergan. Leverage as defined by total debt-to-EBITDA dropped to 3.1 times for the last 12 months at the end of the first quarter of 2003.

Leverage is expected to remain consistent with the current rating category after the completion of the refinancing transactions, Fitch said. The company has moderate, but improved liquidity with expanded capacity under the revolving credit facility and approximately $56 million of cash and equivalents at the end of the first quarter.

Fitch rates D.R. Horton notes BB+

Fitch Ratings assigned a BB+ rating to D.R. Horton, Inc.'s new $100 million 5.875% senior notes due 2013. The outlook is stable.

Fitch noted the new issue has more favorable rates and attractive maturity relative to the debt it would replace.

Fitch added that it remains comfortable with D.R. Horton's stated debt to capital target of 49% or less by the end of fiscal year 2003.

Ratings for D. R. Horton are based on the company's above average growth during the recent economic expansion, execution of its business model, steady capital structure and geographic and product line diversity, Fitch said. The company has been an active consolidator in the homebuilding industry which has kept debt levels a bit higher than its peers. But management has also exhibited an ability to quickly and successfully integrate its many acquisitions.

D.R. Horton has expanded EBITDA margins over the past several years on healthy price increases, volume improvements and steady operating expense ratios and has produced record levels of home closings, orders and backlog in excess of expectations for this unprecedented lengthy upswing in the housing cycle, Fitch said. The homebuilding EBITDA margin increased from 9.5% in 1997 to 12.6% in 2001. The margin was 10.9% in 2002 and 11.5% for the 12 months ending March 31, 2003, taking into account the purchase accounting associated with Schuler Homes which was acquired in February of 2002.

S&P says Cablevision unchanged

Standard & Poor's said Cablevision Systems Corp.'s ratings are unchanged including its corporate credit at BB with a negative outlook in response to the announcement that a company-initiated internal review identified improper expense accruals at the national services division of Cablevision's Rainbow Media Group.

The company identified $6.2 million in 2003 expenses accrued in 2002 and similar size improper accruals estimated for 2000 and 2001. Much of the improperly accrued 2003 expenses were reversed before the release of 2002 earnings, and Cablevision has determined that no restatement of previously issued financial statements is required.

Although the degree of recognized accounting irregularities is modest, S&P said it will monitor the situation to determine if the identified items are the full extent of the improper accounting and will watch for any meaningful secondary developments that could affect the company.

Fitch rates Reliant convertibles B-, notes B+

Fitch Ratings assigned a B- rating to Reliant Resources, Inc.'s $225 million 5% convertible senior subordinated notes due 2010 and a B+ to its proposed $350 million senior secured notes due 2010. The outlook is stable.

Fitch noted that it upgraded Reliant on May 29. Revised bank terms have eliminated much of the uncertainty surrounding Reliant's near-term liquidity position and have provided the company with the flexibility to access the debt capital markets over time.

Reliant's ratings recognize the weak performance of the company's wholesale merchant power segment and the high debt leverage stemming from the 2002 acquisition of Orion Power Holdings, Fitch said. Wholesale segment performance is expected to remain depressed through 2003-2004 due to weak supply/demand fundamentals and losses in 2003 associated with the wind down of speculative trading activities.

Because the vast majority of Reliant's generating portfolio is unhedged beyond 2004 a recovery in wholesale performance is dependent on a recovery in spark spreads and/or Reliant's ability to secure a higher percentage of long-term power sales agreements at favorable prices.

Fitch notes that the potential exercise of the Texas Genco purchase option in 2004, while providing a physical hedge for Reliant's retail business, would further expose Reliant to cyclical wholesale power markets particularly in the over-supplied ERCOT region.

A positive consideration is the ongoing profitability and strong cash flow contributed by Reliant's Texas-based retail electric operations.

Reliant's current financial profile is overly leveraged, especially given cyclical commodity market conditions which have significantly reduced realized returns on the company's generating portfolio, Fitch said. Consolidated gross debt to EBITDAR, adjusted to include off-balance sheet debt and certain non-recourse project financings, currently approximates 6.0 times. In addition, Reliant's consolidated capital structure includes more than $2 billion of secured subsidiary debt and lease obligations with terms that could limit Reliant's ability to upstream cash dividends for debt service at the corporate level.

Moody's upgrades Advanced Medical

Moody's Investors Service upgraded Advanced Medical Optics, Inc. including raising its 9.25% guaranteed senior subordinated global notes due 2010 to B2 from B3. The outlook is stable.

Moody's said the action is in response to Advanced Medical's success in managing its expense base as an independent entity; its stabilization of its contact lens care products business; and the moderate growth in its surgical business, which has caused Advanced Medical's actual performance to exceed projected performance slightly. The company's franchise and distribution network, both of which enable it to operate successfully in its very competitive markets, further support the rating action.

The ratings also reflect the company's significant leverage, the competitive nature of the markets in which it operates, its exposure to foreign exchange risk and the possibility that it may make some modest acquisitions.

The stable rating outlook reflects Moody's belief that Advanced Medical will continue to grow revenues and cash flow in the low- to mid-single digit range, based on the stabilization of its eye care business and the continued mid- to high single digit growth in its surgical business as well as its ability to manage its cost base as an independent entity. It also incorporates Moody's expectation that any acquisitions will be either small or conservatively financed so as not to affect unduly the company's credit profile.

S&P says DaVita unchanged

Standard & Poor's said DaVita Inc.'s ratings are unchanged including its corporate credit at BB- with a stable outlook in response to its planned redemption of its $125 million 5 5/8% convertible subordinated notes due 2006.

As of March 31, 2003, DaVita had more than $300 million in cash and short-term investments and full availability of its $115 million senior secured bank credit facility, giving it capacity to redeem the notes for cash, S&P noted.

The company's common share price has also showed a handsome increase in recent months, rising to more than $26 from below $20, so the redemption currency could also be common stock. The notes are not expected to be refinanced with new debt.

The redemption is another step in deleveraging the company's capital structure after its very aggressive March 2002 recapitalization, S&P said.

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