S&P cuts Williams Cos. three notches

Standard & Poor's downgraded The Williams Cos. Inc. and its subsidiaries by three notches and kept the ratings on CreditWatch with negative implications. Ratings lowered include Williams' senior unsecured debt to B from BB and preferred stock to CCC+ from B+, the senior unsecured debt of Northwest Pipeline Corp., Texas Gas Transmission Corp., Transcontinental Gas Pipe Line Corp. and Williams Gas Pipelines Central Inc. to B+ from BB+, Transco Energy Co.'s senior unsecured debt to B from BB and WCG Note Trust's senior unsecured debt to B from BB.

S&P said the action is in response to rating triggers associated with the AES Ironwood, AES Red Oak, Georgia EMC, and Tenaska tolling agreements, which may require Williams to provide letters of credit to each entity.

AES stated in a conference call that the amount requested by them was about $900 million, although Williams believes the amount is much lower.

S&P said the requirements create "significant uncertainty in Williams' financial position," meriting a single B rating.

The triggers also add risk to Williams' ability to close on a potential $1.6 billion secured line of credit in the near term or to execute other options to meet liquidity needs, S&P said.

Moody's cuts Hanover ratings

Moody's downgraded Hanover Compressor and subsidiary ratings, including a cut to the $192 million 4.50% non-guaranteed senior convertible notes to B1 from Ba3 and $86 million of non-guaranteed parent trust convertible preferreds to B2 from B1.

While Moody's revised the outlook to stable from negative, the rating agency said it could evolve to negative absent the emergence of substantive leverage reduction, a material rise in quarterly cash flow, tighter working capital turns, or if further material accounting issues or litigation issues emerge.

Given Hanover's durable, market leading, natural gas compression rental base, the outlook could move to positive if these factors move in sustainable positive directions.

Moody's calculates Hanover's direct total effective debt at $1.9 billion.

The new ratings better accommodate more leisurely debt reduction, more growth capital expenditures, or covenant compliance issues that could evolve if 2002 quarterly results do not rise sufficiently above first quarter 2002 levels.

Moody's believes that a degree of 2000 and 2001 organic gas compression growth derived from exploration and production firms' desire to accelerate production of existing reserves into a natural gas price environment of then historic dimensions.

If that was the case, near term growth may be slower than expected.

Moody's assigned a negative outlook in February on a very low probability Hanover could deliver the 2002 deleveraging that was a core condition of the August 2001 senior implied rating upgrade to Ba1.

At that time, due to Hanover's burgeoning structural complexity that Moody's viewed to be counter-productive to longer-term financial flexibility, Hanover's note ratings were not upgraded. Moody's also stated the ratings may be downgraded if 2002 leverage reduction was deferred.

The downgrades reflect high leverage, a much weakened equity valuation that limits deleveraging alternatives, capital spending exceeding cash flow, and a need to absorb shareholder lawsuits and resolve SEC matters.

After a strong growth surge during which Hanover seized the leading market position in the natural gas compression rental business, its fixed charge coverage declined every year from 3.76 times in 1998 to 2.17 times in 2001 as Hanover leveraged up to attain that goal.

S&P puts Convertibles Ltd. on negative watch

Standard & Poor's placed the AA+ rating on Convertibles Ltd.'s $100 million Series 2000 convertible PEP certificates on negative watch.

S&P said the watch was due to placing the ratings on Monumental Life Insurance Co. on negative watch, as the rating on the certificates is based on a funding agreement issued by Monumental Life.

Fitch cuts Broadwing to C

Fitch Ratings downgraded Broadwing Communications Inc.'s 12.5% Series B junior exchangeable preferred stock to C from B, as the company's said it would defer the cash payment of the quarterly dividend due on Aug. 15.

Also, the outlook was changed to negative from stable.

The outlook reflects limited financial flexibility in terms of available liquidity resources and continued compliance with the financial covenants contained in the company's senior secured credit facility.

Fitch estimates the company has about $200 million of additional availability under its senior secured credit facility. However, the liquidity available under the revolver amortizes to about $140 million by year-nd 2002 and will provide very limited availability during the first half of 2003.

The company's liquidity position will be further pressured in 2003 as the term loans under its bank facility begin to amortize during the second quarter of 2003.

Fitch acknowledges steps the company has taken to maximize and preserve cash flow including reductions to capital spending, operating cost controls and the suspension of the dividend on the exchangeable.

Broadwing borrowed only $27 million during the second quarter of which $12 million was for restructuring.

While the company has made significant progress towards being free cash flow positive in the fourth quarter 2002, Fitch expects that it will need to access capital markets to solidify its liquidity position entering 2003.

While the company reports it is in compliance with bank covenants for second quarter, Fitch anticipates that compliance in third and fourth quarters will be challenging given the anticipated step downs in the senior debt and total debt leverage covenants.

Factors that could contribute to a stabilization of the credit rating include the company improving financial flexibility through securing additional liquidity, easing of bank covenants through an amendment or reduction of the facility size and stabilization of the broadband communications unit.

Moody's rates St. Paul shelf

Moody's assigned provisional ratings to The St. Paul Companies Inc.'s $1.5 billion shelf, putting senior debt at A2, subordinated debt at A3 and preferreds at Baa1.

Moody's said it expects to confirm all ratings, with a stable outlook, pending completion of the $375 million mandatory convertible preferred and $375 million stock offerings.

The rating agency noted that a confirmation would also reflect expectations that St. Paul's financial leverage would continue to moderate and debt service coverage measures would improve over the near to medium term.

The stable outlook would reflect the expectation that St. Paul will continue to pursue its exit from its reinsurance business consistent with its stated intentions, and without material adverse consequences for the company.

Should these things not occur, Moody's said that it would likely reconsider its rating opinions on St. Paul.

Moody's originally placed the company's ratings on review following St. Paul's disclosure that they intended to more aggressively seek early resolutions of certain asbestos and environmental related litigation that may require substantial payments and/or responsibility for substantial contingent payments that may be material to the results of St. Paul's operations.

Shortly thereafter, St. Paul entered into a definitive agreement to settle ongoing litigation with Western MacArthur that led to an after-tax charge to earnings of about $380 million, net of expected reinsurance recoveries.

Moody's noted that this charge, together with the subsequent downward revisions in Platinum expected Re's valuation, fell outside the bounds of the rating agency's near-term expectations for St. Paul's earnings and capitalization.

Fitch expects to confirm St. Paul ratings

Fitch Ratings said that following a successful completion of The St. Paul Cos. Inc.'s convertible and stock offerings, it will remove the ratings from negative watch and affirm the ratings with a negative outlook.

If successfully completed, Fitch believes St. Paul's capital raising initiative will reduce financial leverage and improve operating company leverage and flexibility, two key factors in placing the ratings on watch in June.

The negative outlook reflects uncertainty around St. Paul's ability to successfully manage risks associated with various restructuring efforts announced over the last eight months.

Going forward, Fitch's assessment of the outlook will focus on the company's ability to manage these risks and stabilize its operations and earnings profile.

Fitch rates St. Paul senior debt at A- and trust preferreds at BBB+.

S&P affirms Smurfit-Stone at B+

Standard & Poor's affirmed the B+ corporate credit rating on Smurfit-Stone Container Corp. following its agreement to purchase a corrugated medium mill from MeadWestvaco Corp. for $350 million in cash, plus $25 million related to financing.

The outlook remains stable.

"The acquisition should allow Smurfit-Stone to continue the progress it has made during the past few years in optimizing its manufacturing base and improving its cost structure," said S&P credit analyst Cynthia Werneth.

"Management expects at least $40 million in synergies from the transaction."

The purchase closely follows news that Smurfit-Stone agreed to sell its industrial packaging operations to Caraustar Industries Inc. for about $80 million in cash, retaining about $12 million in receivables.

S&P said the ratings incorporate the expectation of continued, gradual strengthening of the company's financial profile over the intermediate term.

However, in the near term, somewhat better economic and containerboard market conditions are likely to be offset by high recycled fiber costs, continued production downtime and slightly higher debt levels.

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