Moody's puts Broadwing on review

Moody's Investors Service placed all ratings of Broadwing Inc. on review for possible downgrade, including the $400 million of convertibles at B2 and $155 million of 6.75% convertible preferreds at B3 as well as Broadwing Communications Inc.'s $395 million of 12.5% junior exchangeable preferreds due 2009 at B3.

The review reflects concern that funding needs, especially in broadband operations, will continue to challenge an already tight liquidity position that is exacerbated by amortization requirements and covenant compliance pressure in 2002, Moody's said.

At June 30, liquidity was $221 million, comprising $23 million in cash and $198 available under its bank revolver with availability under the bank revolver scheduled to reduce to $131 million by year-end 2002.

Second quarter senior secured debt leverage of 2.78x compared to a covenant of 3.25x, which reduces to 3.0x at Sept. 30.

Even if Broadwing is able to avoid tripping covenants in 2002, Moody's said it considers maintenance of covenant compliance would likely preclude any significant further drawings under its bank facility.

Management expects to attain free cash flow positive operations by yearend 2002, yet with capex and interest expense running at about $86 million for the last quarter, Moody's said the fragile liquidity position provides little room for error.

Moody's cuts Fleming

Moody's Investors Service lowered the ratings of Fleming Cos. Inc., including its $150 million of 5.25% convertible senior subordinated notes due 2009 to B3 from B2.

The downgrade reflects Moody's opinions that Fleming's national distribution presence does not provide the exceptional competitive advantage previously contemplated in the ratings and that its capital strength may be reduced with divestiture of its retail operations.

The rating outlook is stable, reflecting a belief that the current rating levels consider the likely outcomes to challenges facing the company over the next 18 months, including the expected divestiture of the retail division and the possible loss of additional Kmart business, Moody's said.

Factors that could lead Moody's to consider a negative rating action include worse than expected affects from the Kmart situation, inability to replace the normal attrition of wholesale customers, or failure to effectively integrate new acquisitions.

For Moody's to consider a positive rating action, the company would need to profitably diversify its wholesale revenue base and to materially grow operating cash flow through increased operating efficiencies.

Moody's cuts Sanmina-SCI

Moody's Investors Service lowered Sanmina-SCI Corp., including the $1.66 billion 0% convertible due 2020, $350 million 4.25% convertible due 2004 and $575 million 3% convertible due 2007 to Ba3 from Ba2.

The downgrade was based on the erosion in operating performance, high debt to cash flow ratio and the protracted downturn in customers' end markets, particularly telecom, Moody's said.

The outlook is negative, reflecting uncertainty over the strength and trajectory of the economic recovery.

The ratings could be lowered further if quarterly revenues decline significantly and the company is unable to maintain operating profitability, Moody's added.

Conversely, the outlook would be revised to stable if activity and margins exhibit significant improvement, bringing about a reduction in a debt leverage that remains high for the current ratings level.

Sanmina-SCI closed fiscal third quarter with $1.08 billion cash, cash equivalents and short-term investments. About $400 million is drawn under its $750 million revolving credit facility, $250 million of which is available under a renewable 364-day instrument coming due on Dec. 4, and $500 million under a three-year facility due in 2004.

In August, about $198 million of receivables purchase facility, expiring in July 2003, was utilized.

In total, debt to last 12-months EBITDA was about 5.9x.

Conservatively recognizing only consolidated net worth, adjusting predominantly for the $4.3 billion goodwill incurred in the SCI acquisition, debt to total capitalization was high at 66% as of June 29.

Moody's revises AMD outlook

Moody's Investors Service changed the outlook of Advanced Micro Devices Inc. to negative following its third quarter warning to reflect concern that liquidity will be further pressured.

At June, AMD had $1.1 billion of cash and marketable securities.

Debt maturities are about $100 million through the end of 2002 and $216 million in calendar 2003. The company had $75 million outstanding under a $200 million secured revolving credit facility that matures July 2003.

The $500 million senior convertible note is not putable until 2009.

The prior stable outlook had anticipated weak demand in the personal computer sector as well as intense microprocessor price competition from Intel, which would contribute to near term losses for AMD, Moody's noted.

These trends, however, have been more severe than expected.

To the extent that liquidity weakens and sufficient sequential improvement does not occur in fourth quarter, the ratings would likely be reviewed for possible downgrade.

Fitch affirms Valero

Fitch Ratings affirmed Valero Energy Corp.'s senior unsecured debt rating of BBB- and convertible preferreds at BB+. The outlook is stable.

The company is currently pursuing an early renewal of its $750 million 364-day credit facility, which matures in December 2002. Fitch expects Valero to complete the renewal of the credit facility sometime in the middle of November.

Although Fitch remains comfortable with Valero's current debt ratings, Fitch has concerns with Valero's acquisitive nature. With several refineries currently on the market, Valero is evaluating several opportunities, including the downstream assets of El Paso Corporation.

Fitch puts Radian on negative watch

Fitch Ratings placed Radian Reinsurance Co. Inc.'s AAA insurer financial strength rating on negative watch following its downgrade by another rating agency, which could trigger certain reinsurance contracts.

Fitch placed Radian on negative outlook July 26, reflecting less favorable relationships and contractual terms with major clients and increased competition from other reinsurers.

Possible actions by the primary insurers as a result of the downgrade include clawing-back previously ceded business, increasing ceding commissions and/or imposing one-time fees to compensate for the loss of rating agency credit on ceded exposure, Fitch said.

Additionally, the primary insurers may choose to do less business with Radian in the future, using instead other reinsurers or risk transfer mechanisms that provide greater rating agency credit.

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