S&P cuts AMD, rates convert CCC

Standard & Poor's lowered Advanced Micro Devices Inc.'s corporate credit rating to B- from B, and other ratings, and assigned a CCC rating to its new convertible, which is structurally subordinated to the debt of its Germany-based operations. The outlook is negative.

S&P said the downgrade reflects expectations that market conditions will remain challenging, pressuring the company's ability to achieve its stated goals of generating significant profitability in 2003.

AMD's ratings reflect challenging market conditions for personal computer microprocessors, the company's distant second place in that industry, and AMD's dwindling liquidity, S&P said. Ratings also reflect the company's good position in the currently challenged semiconductor "flash" memory market.

Sequential quarterly revenue declines this year reflect depressed market conditions, accelerating competitive pricing pressures, and some loss of market share due to a weaker product mix than industry leader Intel Corp., S&P said.

AMD expects its December 2002 quarterly revenues to improve 20% sequentially from September, largely because of memory operations, S&P said. However, the flash sector has demonstrated substantial volatility. Sustained high volumes of advanced products will be essential for long-term strong earnings in the flash industry.

Because of operating pressures, profitability has declined, to EBITDA of $64 million for the four quarters ended September 2002, from $900 million for the year-earlier quarters. Free cash flows have been substantially negative - negative $300 million for the four quarters ended September 2002, S&P added.

Cash balances at Sept. 30, 2002, were $865 million, having declined $317 million from operating sources in the quarter, S&P said. Liquidity will be bolstered by proceeds of the pending note issue, pro forma totaling $1.2 billion at Sept. 30, 2002.

If the company cannot significantly improve its operating profitability and cash flows, or if financial flexibility declines materially, ratings could be lowered.

Fitch rates Xcel convert BB+

Fitch Ratings assigned a BB+ rating to of Xcel Energy Inc.' s new convertible, which will rank equally with oher senior unsecured and unsubordinated debt.

Xcel debt remains on negative watch, however.

The new issue is positive for Xcel's liquidity position, as it is one of several steps the company plans to pursue to strengthen its cash position in anticipation of further liquidity needs in the next few months, Fitch said.

S&P rates Duke notes A

Standard & Poor's assigned an A rating to Duke Energy Corp.'s new $400 million senior notes due 2012. Along with a recent issue of $110 million senior notes due 2007, proceeds will be used to reduce commercial paper by $300 million.

Duke had $22.9 billion of consolidated debt at Sept. 30.

The ratings reflect a consolidated credit assessment of regulated U.S. electric utility unit, Duke Power Co., as well as non-regulated operations, S&P said.

Duke currently has about $1.5 billion of undrawn consolidated bank facilities available, and an additional $500 million at Duke Capital, providing sufficient financing flexibility to mitigate current market stress.

There are about $1.1 billion of maturities coming due in 2003, with $600 million in the first quarter.

The instant placement of $400 million in the capital markets bodes well for the company's access to capital. Additionally, Duke Energy issued $1 billion of common equity in September despite its weak stock price at that time.

The outlook reflects that stable earnings from regulated businesses and reduction of consolidated debt will offset sharply contracted revenues from merchant plant operations, S&P said.

Moody's cuts PerkinElmer

Moody's Investors Service downgraded both the long-term and short-term debt ratings of PerkinElmer Inc. to Ba2 from Baa3. The outlook is stable.

The downgrade reflect concern that PerkinElmer continues to generate low returns on its asset base along with weakened earnings and cash flow generation., as well as high debt levels.

While the company anticipates continued free cash flow generation, it does face a degree of refinancing risk and must execute on the financial plan announced on Oct. 29, Moody's said.

The stable outlook reflects expectation that the company will successfully implement refinancing and profit improvement strategies in the near-term.

Moody's noted that PerkinElmer's ability to obtain the new secured $100 million bank revolving credit facility and $345 million term loan is contingent upon a successful offering of at least $225 million of subordinated securities.

A protracted delay in achieving these strategies would have adverse rating implications.

Moody's notes that PerkinElmer's liquidity appears sufficient to meet its near-term requirements, although some refinancing and execution risk exists in the near term with regard to the 0% convertible.

PerkinElmer has a ratings trigger in its $51 million accounts receivable facility, whereby a downgrade of its senior unsecured debt to below Ba2 would constitute a termination event. At Sept. 29, the company had $36 million outstanding under this facility.

S&P revises Kulicke & Soffa outlook

Standard & Poor's confirmed the B corporate credit and CCC+ subordinated ratings on Kulicke & Soffa Industries Inc. but revised the outlook to negative from stable on expectations that a protracted downturn in its industry is likely to delay attempts to return to profitability and positive cash flow.

Kulicke & Soffa expects sales in the December quarter of $95 million-$105 million, down from $122 million in the September quarter. In addition, demand in the March 2003 quarter is likely to be seasonally weak.

The ratings continue to reflect very volatile sales, operating losses and negative cash flow, offset by the company's leading niche market position and its dwindling, although still-adequate, cash balances, S&P said.

Although highly leveraged, Kulicke & Soffa has no debt maturities until 2006.

The company has no bank line or other forms of external liquidity, however.

Failure to materially reduce cash usage rates over the near term could result in a downgrade.

S&P confirms Northrop Grumman

Standard & Poor's confirmed the BBB- corporate credit rating of Northrop Grumman Corp. following the agreement to sell the automotive business of TRW Inc. to the Blackstone Group.

The ratings reflect a strong business profile, satisfactory financial flexibility and the operating and financial risks inherent in an active acquisition program, S&P said.

At Sept. 30, Northrop Grumman had about $460 million of cash and equivalents. In addition, the company had a $2.5 billion revolving credit agreement, maturing in 2006, under which there were no borrowings.

Liquidity is more than sufficient for operating needs. There is an ample cushion in financial covenants, S&P said.

The outlook is stable, noting major acquisitions are expected to be funded with a mix of debt and equity, supporting current credit quality.

S&P cuts Aquila to junk

Standard & Poor's downgraded Aquila Inc. to junk, affecting $3.6 billion of debt. The action includes cutting its senior notes and first mortgage bonds to BB from BBB-, premium equity participation securities to B+ from BB+, preferred stock to B+ from BB and convertible subordinated debt to BB- from BB+. The outlook remains negative.

S&P said the downgrade reflects the slower-than-expected recovery of Aquila's credit quality as the company exits the merchant energy business. Recent financial results revealed lower than anticipated operating cash flows and higher debt leverage numbers.

Despite significant progress in its plan to restore its financial strength, S&P said it believes that depressed power prices and negative spark spreads will continue to be a drag on Aquila's operating cash flows on the Network Utilities side of the business.

As the company transitions from a wholesale energy marketing and trading company to a traditional utility, Aquila will face continuing restructuring expenses curtailing cash flow improvement, S&P added.

Even though Aquila has taken steps to strengthen its balance sheet on the Networks Utilities side of their business, the numbers are weaker than we expected. Aquila's financial plan has not provided the level of sustainable cash flow necessary for investment-grade status, S&P said.

Aquila will be in violation of an interest coverage requirement contained in its $650 million credit facility and guarantees related to three synthetic leases until at least Dec. 31, 2003. Aquila has obtained waivers from the affected lenders from the interest coverage requirement from Sept. 30, 2002 until April 12, 2003. In exchange, Aquila paid down obligations of $158.6 million to those lenders and has agreed that 50% of any net cash proceed under $1 billion and 100% of any net cash proceeds above $1 billion received prior to April 12, 2003, from any further domestic asset sales would be used to pay off the lenders, S&P said.

Fitch cuts TXU unit

Fitch Ratings downgraded the senior unsecured and short-term debt ratings of TXU Europe Limited to D from C, reflecting the default by subsidiaries of TXU Europe Ltd. on interest payment payments and the guarantee of interest payments.

The default relates expiration of a 30-day grace period on interest payments not met for a $200 million bond issued by Energy Group Overseas BV and guaranteed by The Energy Group Ltd., and default under these obligations cross-defaults to the group's remaining capital markets debt.

The ratings also reflect the decision by TXE to place several of its units into temporary administration.

S&P cuts Colt

Standard & Poor's downgraded Colt Telecom Group plc and removed it from CreditWatch with negative implications. The outlook is stable. Ratings lowered include Colt's $146 million 12% discount notes due 2006, €210.2 million 2% convertible notes due 2006, €275.7 million 7.625% notes due 2008, €292.7 million 7.625% notes due 2009, €292.8 million 2% convertible bonds due 2005, €305.8 million 2% convertible notes due 2006, €333.9 million 2% convertible notes due 2007, €72.7 million 8.875% notes due 2007 and £50 million 10.125% notes due 2007, all cut to B- from B+.

S&P said the downgrade is in response to persistent weak demand and falling prices in Colt's markets, which have resulted in Colt failing to grow revenues, gross profits, and operating cash flow in line with S&P's previous expectations.

Given the relative weakness of macroeconomic conditions in Colt's key markets and the ongoing competitive nature of Colt's markets, S&P said it considers that revenue growth rates will continue to be depressed and, as such, believes that it may be difficult for Colt to grow into its capital structure.

The stable outlook reflects S&P's expectation that reduced capital expenditures following the completion of Colt's core infrastructure and the measures taken to reduce costs will result in a much reduced rate of cash burn and improving profitability going forward.

Fitch confirms AT&T

Fitch Ratings confirmed the BBB+ rating of AT&T Corp.'s senior unsecured debt following the completion of the spin-off and subsequent merger of AT&T Broadband with Comcast Corp.

The outlook is stable.

The ratings reflect a strong capital structure and credit profile resulting from the separation of AT&T Broadband. Also, a strong liquidity position, free cash flow generation capabilities and the elimination of the over-hang related to AT&T's back-end obligation to AT&T Canada.

Improvements in AT&T's capital structure stem from the debt reduction realized in connection with the AT&T Comcast transaction as it was able to shed some $25 billion of debt.

Fitch rates Comcast BBB

Fitch Ratings formally assigned the previously indicated BBB rating on the senior unsecured debt obligations of Comcast Corp, the holding company for the newly merged entity, Comcast and AT&T Broadband.

Likewise, a BBB senior unsecured rating is formally assigned to the proposed restricted group, which represents Comcast Cable Communications, AT&T Broadband LLC and MediaOne Group.

The outlook is stable.

Financial flexibility for Comcast is provided by a new credit agreement totaling $12.8 billion available on the date of the closing, which will be used to fund about $9 billion of AT&T inter-company debt, near-term debt maturities and other liabilities.

Primary rating concerns include the risks associated with the integration and performance of the AT&T Broadband properties and the event risk associated with the IPO of the company's 21% interest in TWC, Fitch said.

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