Fitch cuts PMI convertible to A+

Fitch Ratings downgraded The PMI Group Inc.'s ratings, including the 2.5% convertible to A+ from AA-. The outlook is now stable.

The downgrade is the result of an expansion of the notching between the organization's insurance financial strength rating and long-term issuer rating, and primarily reflects concern with the higher use of debt leverage than in recent history, Fitch said.

At June 30, the ratio of debt to adjusted total capital was 15.3%, down from 16.7% at year-end 2002 as a result of additional retained earnings. However, this compares to an average ratio of slightly above 10% for the three-year period from 1998 through 2000.

At year-end 2002, PMI, along with its four operating insurance subsidiaries, reported $2.9 billion of statutory assets and $2.4 billion of statutory surplus, including contingency reserves.

PMI's very strong ratings reflect a top competitive position in the mortgage insurance industry, strong earnings and solid overall risk-adjusted capitalization, Fitch added.

Partially offsetting factors are a slow but steady decrease in the quality of its insured loan portfolio over the past few years, including growth in higher loan-to-value and less-than-A-quality loans.

Fitch affirms Costco

Fitch Ratings affirmed the A+ rating on Costco's bank debt and senior notes, the A rating on its subordinated notes and F1 rating on commercial paper. The outlook is stable.

The affirmations reflect ongoing acceptance of Costco's format, which offers high quality products at low prices, and solid credit protection measures.

Concerns include competitive intensity in the warehouse club segment, potential for aggressive international growth and risks associated with losing value perception with consumers, Fitch said.

Increased competition and costs associated with labor and insurance have caused the EBIT/sales margin to decline to 2.8% in the last 12 months at May 11 from 2.9% in fiscal 2002.

Bondholder protection measures continue to strengthen, with EBITDAR/total interest plus rents increasing to 13.8x for the last 12 months at May 11 from 13.7x for fiscal 2002 and total adjusted debt/EBITDAR of 1.2x held steady, Fitch added.

S&P ups ResMed ratings

Standard & Poor's upgraded ResMed Inc., including raising the senior subordinated convertibles to B from B-, reflecting extended favorable operating performance and increased confidence in the company's ability to build market presence. The outlook is stable.

ResMed's financial profile has improved as it has used excess cash flow to reduce debt by more than $66 million and build up $114 million of cash in the past two years. Total lease-adjusted debt to EBITDA has fallen to 1.6x from 3.2x in 2001.

Cash flow protection measures are strong, with funds from operations to lease-adjusted debt of about 45% and EBITDA coverage of fixed charges at about 20x. Profitability remains solid, with lease-adjusted operating margins of 31%, S&P said.

However, ResMed has been acquisitive and its financial position could change quickly if it decides to pursue large debt-financed acquisitions.

Liquidity is satisfactory with more than $114 million in cash and marketable securities at June 30. Capital expenditures are expected to increase moderately to finance building a new facility. However, ResMed has no significant maturities until the convertible mature in 2006.

Fitch cuts Radian convertible to A

Fitch Ratings downgraded Radian Group Inc.'s ratings, including the 2.25% convertible to A. The outlook is now stable.

The downgrade is the result of an expansion of the notching between its insurance financial strength rating and long-term issuer rating, and primarily reflects concern with higher use of debt leverage than in recent history, Fitch said.

At June 30, the ratio of debt to total capital was 19.2%, up from 16.5% at year-end 2002 as a result the issuance of $250 million of senior notes that was partially offset by additional retained earnings. However, this compares to a ratio of 12% in 2001 and zero from 1998 through 2000.

At year-end 2002, Radian, along with its four operating insurance subsidiaries, reported $3.1 billion of statutory assets and $2.4 billion of statutory surplus, including contingency reserves.

The very strong ratings reflect a competitive position in the mortgage insurance industry, strong earnings and solid overall risk-adjusted capitalization, Fitch said.

Partially offsetting factors are a slow but steady decrease in the quality of its insured loan portfolio over the past few years, including growth in higher loan-to-value and less-than-A-quality loans.

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