S&P puts AT&T on negative watch

Standard & Poor's placed AT&T Corp.'s long-term ratings on negative watch due to concerns about continued weakness in the business segment and long-term prospects.

S&P does not anticipate a potential downgrade of the long-term ratings will be more than one notch.

Business segment revenue growth has been affected during the past year by the soft economy and competitive pricing pressures. In the first quarter of 2003, business revenues declined 2% compared with the fourth quarter of 2002 and declined 1.4% compared with the first quarter of 2002.

In addition, operating margin declined to 9% from 13% in the first quarter of 2002 despite increased cost control initiatives.

Debt reduction measures continued in first quarter with gross debt to EBITDA annualized at about 1.9x, while net debt to EBITDA was about 1.3x. The company generated about $1 billion of net free cash flow in the quarter.

The company has a good level of liquidity with about $5 billion of cash and a $3 billion revolving credit facility at March 31, S&P said.

S&P says TXU bank refinancing positive

Standard & Poor's said the successful renegotiation of the short-term bank facility by TXU Corp.'s subsidiaries, TXU Energy Co. LLC and Oncor Electric Delivery Co., which was scheduled to mature April 22, is very good news for overall TXU Corp. credit.

S&P rates TXU at BBB.

But the rating agency said the outlook will continue to be negative until TXU's debt (including off-balance-sheet debt) is around 50% of total capital.

Importantly, except for a small amount of outstanding letters of credit, the bank facilities have all been paid down, S&P noted.

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