S&P rates new Chiron convert A-

Standard & Poor's assigned an A- rating to Chiron Corp.'s proposed $450 million senior unsecured convertible debentures due 2033, with a negative outlook.

Also, S&P confirmed the other ratings of Chiron and removed them from negative watch, where they were placed May 19 following Chiron's purchase of U.K.-based biopharmaceutical company, Powderject Pharmaceuticals plc for $890 million in cash.

The ratings reflect a diverse product portfolio and conservative financial policies, slightly offset by the lack of significant product prospects in late stage development and the inability to produce major market leading products, S&P said.

Chiron, which is 43% owned by Swiss pharmaceutical giant Novartis AG, has a very diverse product portfolio and the Powderject acquisition further diversifies its product portfolio.

In the meantime, Chiron's financial performance remains strong. EBITDA operating margins are over 30% and 12-month funds from operations at March 31 was over $280 million. While the acquisition of Powderject will result in higher net debt, Powderject is profitable and has very limited debt.

Pro forma for the acquisition, EBITDA margins are expected to remain over 30% and funds from operations to total debt will approximate 46%, both consistent with current ratings.

The acquisition of Powderject represents a major cash outlay but Chiron continues to maintain a high level of liquidity with $843 million in cash and short-term investments on hand at March 31.

Moody's confirms AT&T ratings

Moody's confirmed AT&T Corp.'s Baa2 senior unsecured rating and Prime-2 short term rating. The outlook remains negative.

The confirmation incorporates the announcement of a $157 million dividend increase which, while a credit negative, is modest relative to expected free cash flow levels and should not materially reduce its ability to significantly reduce debt levels.

The outlook reflects the expectation that competition will result in continued decline in revenues and profitability and thus put pressure on the ability to generate cash flow in line with current levels despite actions taken to reduce operating costs and capital expenditures.

As a result, it will be more challenging for AT&T to reduce debt at the same rate it has been able to over the past 12-18 months.

Current leverage measures are very strong, with net debt to trailing 12 month EBITDA of 1.1x at June 30. Liquidity remains strong with cash of $5.3 billion at the end of June and limited mandatory debt maturities of only $3.9 billion in the next 12 months and $4.3 billion through 2005.

S&P rates Quantum convertible B

Standard & Poor's assigned a B rating to Quantum Corp.'s proposed $175 million subordinated convertible bond and confirmed its existing ratings including its senior unsecured debt at BB- and subordinated debt at B. The outlook is stable.

Proceeds from the bond offering, along with cash on the balance sheet, will be used to redeem Quantum's portion of the $288 million of subordinated convertible bonds due August 2004, which amounts to approximately $192 million. Quantum also expects to redeem the remaining $96 million of the existing bonds that are backed by a receivable from Maxtor Corp.

S&P said Quantum's ratings reflect weakened profitability offset in part by a strong market-share position and a liquid balance sheet.

Quantum's operating performance continues to reflect a weak demand environment. In the June 2003 quarter, soft pricing and reductions in channel inventories caused tape media revenues to decline about 30% sequentially to $55 million, S&P said. Despite sequential declines in total revenues, however, EBITDA remained positive at just below $10 million in the June 2003 quarter, in part because of tape-drive gross margin improvements and cost cutting.

Following the transaction, Quantum is expected to have funded debt outstanding of approximately $176 million, S&P said. On an annualized EBITDA value, based on the June 2003 quarter, of $38 million, pro forma funded debt-to-EBITDA will be approximately 4.6x. When estimated present value of operating leases of $35.3 million is included in total debt, the ratio will increase to 5x. Improvements in profitability, however, due to stabilization of the media business and seasonal factors, among other things, will likely result in debt protection metrics that are more consistent with the rating level.

Moody's cuts Quantum, rates convertibles B3

Moody's Investors Service downgraded Quantum Corp. including cutting its $287.5 million 7% convertible subordinated notes due 2004 to B3 from B2 and assigned a B3 rating to its planned $175 million convertible subordinated notes due 2010. The outlook is stable.

Moody's said the downgrade is because of the discernible erosion in Quantum's dominance of the

market for tape drives and tape media cartridges providing back-up storage capacity for the "mid-range" class of computer servers and continuing uncertainty as to the timing and robustness of a recovery in corporate investment in information technology.

The company has experienced a non-linear, yet protracted, diminution in revenues which began over the early stages of the economic downturn. Revenues had recently begun exhibiting signs of a reversal but this incipient trend was halted by a shortfall in Quantum's recently completed first quarter of fiscal 2004.

The dramatic contraction in the company's operating margin, even after adjusting for restructuring charges and asset impairment, contributed to more than a doubling in debt leverage over just the past year alone, Moody's said.

The lowered ratings are based on Quantum's moderately high 4.1 times pro forma debt to EBITDA ratio for the 12 months ended June 30, 2003, a substantial increase in leverage from the 1.8 times observed at fiscal year end March 31, 2002 and the modest 0.6 times at the end of fiscal 2001.

S&P raises E*Trade outlook

Standard & Poor's raised its outlook on E*Trade Group Inc. to stable from negative and confirmed its ratings including its counterparty credit rating at B+.

S&P said the outlook revision is due to an improvement in fundamental profitability from previously weak levels as well as an end to the cash burn.

Both of E*Trade's businesses, brokerage and banking, are benefiting from favorable operating conditions. The rebound in the stock market during the past several months has jumpstarted retail brokerage activity and historically low interest rates continue to be a boon for mortgage origination.

Since this "best of both worlds" is clearly unsustainable, E*Trade has taken important measures to preserve profitability for when market conditions turn. It has streamlined operations and wrung out excess capacity, exiting unprofitable ventures.

The retail brokerage unit has substantially reduced its breakeven point to just 50,000 trades per day. Similarly, it has been preparing for the eventuality that the refi boom must end, even though the mortgage origination pipeline stands at record levels, S&P said.

Fitch raises Corning outlook

Fitch Ratings raised its outlook on Corning Inc. to stable from negative and confirmed its ratings including its senior unsecured debt at BB and convertible preferred stock at B.

Fitch said the stable outlook reflects Corning's strong progress through its intensive restructuring actions, which included significant headcount reductions and closure and consolidation of a number of manufacturing locations.

Corning has downsized its cost structure dramatically to an estimated $3 billion revenue run rate from a $7 billion run rate at year end 2000, Fitch noted.

The company is realizing the benefits of these cost reductions as it reported a small profit excluding special charges for the second quarter of 2003 when equity earnings are included.

Revenues appear to have stabilized and were up sequentially from the first quarter of 2003 even as telecom continues to be pressured.

While Fitch believes the possibility of further revenue fluctuations exists, Corning should continue to reduce operating losses from its cost cutting efforts and could return to operating profitability by year-end 2003.

Corning has made solid strides improving its capital structure and reducing its total debt, Fitch said. Particular focus has been placed on reducing the zero-coupon convertible debentures which are putable in 2005 and have clearly been a maturity risk and liquidity issue. Through a series of open market purchases as well as a tender offer, the company has reduced the putable debentures from to $650 million as of July 2003 from $2 billion.

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