Moody's downgrades Qwest, keeps on watch

Moody's Investors Service downgraded Qwest Communications International's long-term ratings to Baa2 from Baa1 and the long-term and short-term ratings of Qwest Corp. from A2 to A3 and P-1 to P-2 respectively. All ratings remain on review for possible further downgrade. The action affects $25.7 billion of debt.

Moody's noted Qwest's difficulty in rolling its commercial paper has required it to draw on its $4 billion bank facility.

"Without access to commercial paper, the company's alternate liquidity has been reduced by the drawdown on its bank facility," Moody's commented. "This lack of alternate liquidity considerably limits the company's financial flexibility and poses a risk to damage Qwest's overall competitive profile if not resolved expeditiously."

If all liquidity issues are resolved, Moody's said it believes Qwest's fundamental strengths are sufficient to keep it investment grade.

Fitch cuts Qwest senior secured to BBB

Fitch Ratings downgraded Qwest Communications International's senior unsecured rating to BBB from BBB+ following the drawdown of its previously untapped $4 billion bank facility this week. Also, Qwest Capital Funding and LCI International senior unsecured ratings were cut to BBB from BBB+, and Qwest Corp.'s senior unsecured rating was cut to BBB+ from A. In addition, the commercial paper ratings of Qwest Capital Funding and Qwest Corp. were cut to F3. All ratings have a negative outlook.

Fitch said the liquidity of the company has been materially reduced by the drawdown, and noted that Qwest recently has had difficulty rolling over maturing commercial paper at maturities beyond seven days and thus such balances have continued to build. The commercial paper rating reflects the low ability to access the commercial paper market. Qwest has about $3.2 billion in commercial paper outstanding, which it intends to pay off as it comes due with proceeds obtained from the bank facility, plus around $1.2 billion in maturing long term debt. The bank facility expires May 4, but contains a one-year term out option at the option of the company. The most significant performance covenant in the agreement requires a maximum debt-to-EBITDA ratio of 3.75 times, Fitch noted.

To improve its near-term liquidity position, Qwest is expected to try to access the longer term capital market and this could potentially include equity securities or securities with a high equity content, like convertibles, for up to $1.25 billion. The negative outlook, Fitch said, reflects an expectation for Qwest to operate with higher leverage over the course of 2002 than previously anticipated. Fitch expects Qwest's debt-to-EBITDA to approximate 3.5 times at the end of 2002.

S&P cuts Qwest to BBB from BBB+

Standard & Poor's lowered its long-term corporate credit rating on Qwest Communications International Inc. and subsidiaries to BBB from BBB+, after Qwest was unable to roll over its commercial paper and drew down its $4 billion bank credit facility. The outlook is negative. S&P also lowered its short-term corporate credit and commercial paper ratings to A-3 from A-2.

"The downgrade is based on Qwest's more limited financial flexibility and near-term liquidity concerns, a challenging operating environment, and uncertainty regarding the implications for indefeasible right of use (IRU) accounting among industry participants," S&P credit analyst Greg Zappin said. "The company's current leverage profile is more reflective of a mid-triple-B rating."

S&P expects a new facility may be negotiated to reflect the company's weaker credit profile, and to possibly provide greater covenant headroom. S&P also noted Qwest's plans to reduce leverage with a combination of issuing equity-linked securities and asset sales, or the sale of securities associated with assets in 2002.

S&P said it believes Qwest will remain an investment-grade credit as long as near-term liquidity issues are resolved.

Fitch cuts Reliant senior unsecured to BBB

Fitch Ratings lowered Reliant Resources Inc.'s implied senior unsecured debt rating to BBB from BBB+, reflecting an analysis of the company's plan for financing and integrating the pending $5 billion acquisition of Orion Power Holdings Inc., which includes the assumption of roughly $2 billion of Orion debt. Reliant will initially fund the $2.9 billion cash portion with a bank bridge loan, then refinance that with a combination of long-term debt and potentially common equity and/or equity linked securities.

Reliant has terminated efforts to sell Reliant Energy Power Generation Benelux. NV (current book value of $2.4 billion), a Netherlands based generation business, due to a lack of adequate bids, Fitch noted. Therefore, the cash portion of the Orion acquisition will not be offset by proceeds generated from non-core asset sales as previously anticipated. Reliant's announced plans to reduce capital spending by $1.6 billion over the next five years somewhat mitigates the lack of asset sale proceeds, however, Fitch said.

The rating outlook is negative, Fitch said, reflecting above average execution risk associated with the permanent financing plan. In particular, Fitch believes that Reliant's ability to access the debt and equity markets near-term may be constrained by the more difficult and volatile capital market environment.

S&P rates Prudential commercial paper at A-2

Standard & Poor's assigned an A-2 rating to Prudential Financial Inc.'s $3 billion commercial paper program. S&P said the rating, as well as the existing ratings on the various members of the Prudential Financial group of companies, reflect the expectation that Prudential will maintain financial leverage conservatively below the levels normally associated with the ratings, including an adjusted debt to capital ratio of less than 20%, interest coverage in excess of 9 times and a double leverage ratio below 125%.

Moody's cuts American Tower converts to Caa1

Moody's Investors Service downgraded the ratings of American Tower Corp. and subsidiaries, including cutting the company's three convertible issues to Caa1 from B3. The ratings outlook is stable.

In the past, Moody's has expressed concern with the weak operating results that have slowed EBITDA growth and the anticipated delevering. While Moody's does not foresee any near term liquidity or bank covenant issues at the company, the rating agency noted that American Tower will be relying on access to its $650 million revolver until internally generated funds begins to support operations, which the company expects in the latter half of 2003. The combination of slower cash flow growth, with still growing bank debt levels notwithstanding the decreasing amount of expected tower acquisitions and new builds are the primary drivers of this ratings action, Moody's said.

S&P downgrades Mutual Risk

Standard & Poor's downgraded Mutual Risk Management Ltd. including lowering its $324 million of zero coupon convertible exchangeable subordinated debentures due 2015 to BB- from BB+. The ratings remain on CreditWatch with negative implications.

S&P said the actions reflect developments over the past three years, including reserve additions and reinsurance recoverable writedowns, "that raise concerns about Mutual Risk's management and business franchise."

Most recent was the potential change in the carrying value of deferred tax assets on Mutual Risk's consolidated balance sheet at year-end 2001, S&P said.

"Standard & Poor's believes this company's actions could contribute to additional difficulty in raising the equity capital necessary to remain in compliance with privately placed securities," the rating agency added.

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