Moody's ups D.R. Horton outlook

Moody's Investors Service confirmed all ratings of D.R. Horton Inc., including the $211 million accreted value of 0% convertible senior notes due 2021 at Ba1 and the speculative-grade liquidity rating of SGL-2, and raised the outlook to stable from negative.

The change reflects progress in meeting conservative capital structure projections, as a debt/capitalization ratio of 52.3% at fiscal yearend 2002 represents the lowest in many years, as well as the successful integration to date of Schuler Homes, Moody's said.

Reflected in the rating are an enviable operating performance, a strong equity base, geographic diversity and tight cost controls.

However, the ratings also continue to reflect higher than average business risk profile given an appetite for acquisitions, greater debt leverage than peers, capacity under its credit agreement that could lead to substantial additional debt and the cyclical nature of homebuilding.

The outlook had been changed from stable to negative in March 2002, reflecting the aggressive use of debt leverage despite previous indications that capital structure discipline would be maintained.

Since then, the company has worked hard to bring debt leverage down and continues to project further improvement. At Sept. 30, debt/capitalization was reduced to 52.3% from 57.6% a year before. Projections call for this to be reduced to below 50% by fiscal yearend 2003, Moody's said.

Going forward, the outlook will depend on Horton's maintaining capital structure discipline.

S&P puts Standard Motors on negative watch

Standard & Poor's placed the ratings of Standard Motor Products Inc. on negative watch following on its plan to acquire the assets of Dana Corp.'s engine management division for $120 million.

The acquisition will result in an immediate increase in Standard Motor's debt load and weaker cash flow generation, although the acquisition would result in a stronger business and financial profile over time, S&P said.

Consideration for the purchase will be in the form of cash, a seller note and Standard Motor common stock. The cash portion will be financed with an expansion of its existing revolving credit facility, increasing debt service obligations, and the proceeds of a public equity offering for $59 million. The

Standard Motor's currently weak credit protection measures, with total debt to EBITDA of about 4x and EBITDA interest coverage of 3x, will further weaken in the next year on the acquisition.

Moody's cuts AEP

Moody's Investors Service downgraded American Electric Power Co.'s ratings, including senior unsecured to Baa3 from Baa2.

The outlook is now stable.

Weak operating cash flow relative to consolidated debt, modest free cash flow, poor returns, asset sale execution risk and a continued financial drag from energy trading contributed to the downgrade, Moody's said.

Regulatory uncertainty also was a factor.

AEP's operating results for 2002 were weak, reflecting substantial declines in earnings and cash flow for the wholesale power business, write-downs of investments in the wholesale business and increased costs.

Core operating results for 2003 and 2004 are likely to mirror this past year's results, with the exception that the decision to exit the speculative energy trading business should reduce working capital requirements for, Moody's said.

Free cash flow is anticipated at about $300 million annually over the next two years, when the company has substantial debt maturities.

With modest free cash flow anticipated for the next two years, AEP's ability to delever will depend on initiatives like asset sales and equity issuance, Moody's added.

S&P puts Aristocrat Leisure on watch

Standard & Poor's put Aristocrat Leisure Ltd. on CreditWatch with negative implications including its $130 million 5% convertible subordinated bonds due 2006 at BBB-.

S&P said the watch placement follows Aristocrat's announcement that it expects its net profit after tax for fiscal 2002 to be A$80.2 million, a 26% decline compared with the company's previous forecast of A$109 million.

The change in earnings expectations is due to the deferral of a large contract in South America involving a single client, S&P noted. Although Aristocrat continues to generate strong free operating cash flow, S&P said it will assess the company's exposure to single customers and the stability of future earnings.

Fitch cuts AES Gener

Fitch Ratings downgraded AES Gener SA including cutting its senior unsecured local and foreign currency ratings to B+ from BB-. The outlook is negative.

Fitch said the action reflects a continued delay in selling assets, near-term liquidity constraints and longer-term refinancing concerns.

The company's negotiations regarding the sale of certain Central American investments have been delayed. An agreement may no longer be reached in time to mitigate liquidity concerns for the second half of 2003, Fitch said. The company has been analyzing other alternatives to generate cash.

The recent refinancings plus semiannual interest payments on the $503 million convertible bond and $200 million Yankee bond have resulted in total required debt service payments in 2003 of approximately $134 million (at Gener, TermoAndes/InterAndes and Energy Trade and Finance Corp.), excluding any debt reduction related to asset sales.

The company ended 2002 with a cash balance of approximately US$14 million.

Sources of near-term cash include operating cash flow as well as dividends from its Chilean subsidiaries based on 2002 results. Through September 2002, the most recent financial information available, Gener reported EBITDA-to-interest of 2.2 times with total consolidated leverage, as measured by debt-to-EBITDA, of 6.1x, an improvement from 1.8x and 7.0x, respectively, as of year-end 2001, Fitch said.

In addition to the restructured bank debt, Gener has bullet maturities of approximately $503 million of convertible bonds due March 2005 and $200 million of Yankee bonds due January 2006. The company is currently pursuing refinancing alternatives since operating cash flow alone is insufficient to fully repay this debt at maturity.

Moody's cuts Rogers Cable, Rogers Communications

Moody's Investors Service downgraded Rogers Cable Inc. to junk and also lowered Rogers Communications. Rogers Wireless Inc. was confirmed. Ratings lowered are Rogers Cable's senior secured debt, cut to Ba2 from Baa3, and senior subordinated debt, cut to Ba3 from Ba1, and Rogers Communications' senior unsecured debt, cut to B2 from Ba1. Rogers Wireless' ratings are Ba3 for its senior secured debt and B2 for its senior subordinated debt. The actions conclude a review begun last year. The outlook is stable.

Moody's said it lowered Rogers Cable because it expects the company will be able to develop only minimal positive free cash flow even two years from now, compared to debt of more than C$2.5 billion.

While this will be a significant improvement relative to negative free cash flow levels of C$400-450 million in each of the last three years, it does not support continuation of an investment-grade rating, Moody's said.

The confirmation of Rogers Wireless reflects a similar expectation: slightly positive free cash flow in two years, against debt of approximately C$2.4B. Moody's believes however that the competitive environment for wireless is more challenging, placing a higher risk on delivery of free cash flow.

Moody's cut Rogers Communications because of the structural subordination of its C$1.6 billion in debt (including preferred securities of C$600 million) to nearly C$6 billion in liabilities (including debt, payables and other liabilities) at the operating companies.

Moody's said it believes Rogers Communications alone will experience negative free cash flow, using $550 million of intercompany funds currently owed to Rogers Communications.

Since no capital distributions are expected from Rogers Cable or Rogers Wireless, Rogers Communications' accreted convertible debt due in November 2005, estimated to be C$360 million (equivalent) at the time, will need to be refinanced with new capital or asset sales, Moody's said.

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