S&P rates Lennox convertible at B

Standard & Poor's assigned a B rating to Lennox International Inc.'s $143.8 million 6 ¼% convertible subordinated notes due 2009. The corporate credit rating was set at BB-. The outlook is stable.

Proceeds from the notes were used to partially repay amounts outstanding under the company's revolving credit facility. Total debt, including capitalized operating leases and trade receivables sold, is about $820 million.

The ratings reflect a leading position in air conditioning and heating equipment markets for residential and light commercial applications, offset by a challenging residential retail business and an aggressive financial profile.

Through a series of acquisitions in recent years, Lennox has made a substantial investment in retail service centers, which now represent about one-third of sales.

However, this business is performing below expectations and hurting profitability. The company is taking actions to improve retail performance, but faces considerable turnaround challenges.

Lennox is aggressively leveraged with debt to capital of about 55%.

However, over the next two years, free cash flow and proceeds from the sale of a portion of the heat transfer business should be directed toward debt repayment as the company slows its acquisition and share repurchase activities, allowing total debt to EBITDA to average about 3 times.

In addition, capital expenditures are expected to be below levels of the past few years.

Operating margins, before depreciation and amortization, ranging between 10% and 12% for residential HVAC and commercial refrigeration are competitive.

However, overall margins are likely to remain below 10% unless the retail segment turnaround is successful.

As earnings improve, funds from operations to total debt should move toward 20% from the current 17%, with EBITDA interest coverage exceeding 3 times.

Liquidity is provided by bank credit lines totaling $500 million and a $190 million accounts receivable securitization facility.

Leading market positions and a substantial portion of sales derived from less volatile repair and replacement markets support rating stability. Weak retail business performance is limiting upside ratings potential.

S&P rates SinoPac convertibles BB

Standard & Poor's assigned a BB rating to SinoPac Holdings' new $200 million zero-coupon senior convertibles bonds due 2007. The outlook is negative.

Bank SinoPac enjoys good asset quality and adequate capitalization, and has a satisfactory funding profile, S&P said. Moreover, the bank has a good record of developing targeted market segments in Taiwan.

These strengths are counterbalanced, however, by the bank's relatively aggressive efforts to enlarge its small market share in Taiwan's highly competitive banking environment and its below-average profitability, S&P said.

National Securities Corp. is one of Taiwan's major securities firms and has an adequate financial profile compared with its domestic peers, S&P continued. However, the company operates in a relatively volatile market, even though the fundamentals of the domestic industry have improved recently.

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