Moody's cuts Charter, still on review

Moody's Investors Service downgraded Charter Communications Inc. and its subsidiaries and kept it on review for possible downgrade, affecting $22 billion of debt. Ratings lowered include Charter Communications' convertible senior debt, cut to Caa2 from B3, Charter Communications Holdings, LLC's senior debt, cut to B3 from B2, Charter Communications Operating, LLC's senior secured bank debt to B1 from Ba3, CC VIII Operating, LLC's senior secured bank debt to B1 from Ba3, Falcon Cable Communications, LLC's senior secured bank debt to B1 from Ba3 and CC VI Operating, LLC's senior secured bank debt, to B1 from Ba3.

Moody's left unchanged CC V Holdings, LLC (formerly Avalon Cable LLC)'s senior unsecured debt at B2 and Renaissance Media Group LLC's senior unsecured debt at B2 and Charter Communications' liquidity rating at SGL-2. But it said these ratings are somewhat more weakly positioned in their rating categories.

Moody's said its downgrades of Charter reflect growing concerns about operating performance, as supported by recent disclosures of disappointing third quarter results and the removal of the company's chief operating officer, and subsequent downward revisions to Moody's expectations governing future performance over the ensuing rating horizon.

Specifically, Moody's said it believes that cash flow growth at sub-double digit levels, spurred in large part by heightened customer churn and bad debt expense, will fall considerably short of prior expectations with respect to affecting targeted deleveraging and balance sheet strengthening by 2004.

Describing the actions as "interim," Moody's said they represent the rating agency's belief that the negative operating trends and broader risks facing the company are greater than it previously thought and may not be imminently reversed and/or mitigated.

Moody's said the review does not reflect the ongoing grand jury investigation and said any further negative developments in this area could cause additional downward rating pressure.

Fitch cuts St. Paul

Fitch Ratings downgraded St. Paul Cos., Inc. including lowering its long-term and senior debt to BBB+ from A- and St. Paul's trust preferred securities to BBB from BBB+. The outlook was changed to stable from negative.

Fitch said the downgrade is in response to St. Paul's third quarter earnings release in which the company reported $75 million of adverse reserve development in Lloyds' businesses that it had exited in late 2001.

Avoiding earnings disruptions from this and other business lines that St. Paul exited in 2001, particularly the medical malpractice line, were key factors in the negative outlook that Fitch had previously maintained on St. Paul.

Fitch said it believes that going forward St. Paul's exited business lines may experience adverse reserve development similar in magnitude to that experienced in the third quarter 2002, but has reflected this exposure in its current ratings and outlook.

St. Paul's core book of business has benefited from favorable market conditions and has performed well, Fitch said. Excluding the impact of a $585 million net of reinsurance pretax charge related to a second-quarter claim settlement, the company's core lines' GAAP basis combined ratio through the first nine months of 2002 was 93.3% and its core lines net premiums written increased 24%.

Going forward, Fitch estimates near-term operating earnings-based interest and preferred dividend coverage in a range of 3-6 times. Fitch's low end of this range includes earnings disruptions three-to-four times the magnitude of that St. Paul experienced in the third quarter 2002. As a result, although Fitch feels coverage could approximate the low end of the range, Fitch believes that coverage in the middle to high-end of the range is more likely.

Moody's rates new Sinclair notes B2

Moody's Investors Service assigned a B2 rating to Sinclair Broadcast Group Inc.'s new $125 million senior subordinated notes due 2012 and confirmed its existing ratings including its $600 million senior secured credit facilities at Ba2, $860 million senior subordinated notes and Sinclair Capital's $200 million Hytops at B2, $173 million convertible preferred stock at B3 and speculative grade liquidity rating at SGL-2. The outlook is stable.

Moody's said Sinclair's ratings reflect the risks posed by its high financial leverage and modest cash flow coverage of interest and dividends after capital expenditures; high planned capital investment; the financing and integration risks associated with potential acquisitions; the need to renegotiate several affiliation agreements; the relatively weak position the company's stations have in their markets, and the greater impact that economic downturns have on lower ranked stations; and exposure to the cyclical advertising environment.

Supporting the ratings are the size and geographic diversity of Sinclair's station portfolio; the more than ample collateral coverage provided to creditors, even in times of distress; margin performance at or above the levels of its industry peer group; a willingness to monetize assets to reduce debt leverage; and the company's focus on increasing local advertising revenue, which has proven more resilient than national advertising revenue during uncertain economic times, Moody's added.

The company also has a good liquidity position. Moody's said it expects Sinclair to produce positive free cash flow through the rating horizon and believes that the company's $225 million revolving credit facility is amply sized and will rarely be drawn upon for normal working capital activity exclusive of the financing of potential future acquisitions.

The stable outlook incorporates the expectation of near-term improvement in the company's financial performance, off-set by the likelihood that growth will be modest in 2003 due to the lack of political revenue and uncertain economy, Moody's said. If Sinclair pursues further stations sales that result in debt reduction, the company can achieve positive ratings momentum. The pursuit of debt financed acquisitions that further leverage the company's balance sheet would result in a ratings downgrade.

S&P says Valassis unchanged

Standard & Poor's said Valassis Communications Inc.'s ratings, including its corporate credit at BBB-, and stable outlook are unchanged.

S&P's comment follows Valassis' announcement that the company expects 2003 results to be lower than this year, due primarily to a market share issue in its co-op free-standing inserts business.

Valassis expects total revenues for the next year to be down in the mid-single digits area and earnings per share down 8%-18%, S&P noted. This reflects competitive pricing pressure that will result in reduced market share in 2003.

Valassis' overall financial profile is currently strong for the ratings and thus, should be able to withstand the negative effect of this situation, S&P said. In addition, the company is expected to continue to generate meaningful levels of free operating cash flow.

Fitch rates New York Community convertibles BBB-

Fitch Ratings said it expects to assign a BBB- rating to the trust preferred securities component of the equity-linked capital securities (Bonuses) to be issued by NYCB Trust V, a special purpose subsidiary of New York Community Bancorp, Inc. Fitch confirmed New York Community Bancorp's other ratings. The outlook is stable.

Fitch's current ratings of New York Community Bancorp's reflect the thrift's sound credit risk profile, illustrated by robust earnings generation, solid liquidity, near pristine asset quality and improving capitalization.

Its strategic balance sheet restructuring apparently has been successful, as it has reduced its residential loan portfolio by more than $900 million during 2002, in favor of its multifamily product, Fitch said. Multifamily exposures now represent nearly 80% of total loans, very near its pre-merger composition, compared with about 67% of the total portfolio shortly after its merger with Richmond County Financial Corp in July 2001.

New York Community Bancorp has steadily built capital during the period and reported a respectable 5.9% tangible common ratio at third quarter 2002 which, given current levels of problem assets, robust reserves and historically low charge-offs, adequately supports the thrift's current business model, Fitch said.

The issuance of the equity-linked capital securities will further augment tangible and regulatory capital, but also will reduce profitability due to the increased interest expense associated with the newly issued trust preferred securities, Fitch added.

S&P upgrades Superior Telecom

Standard & Poor's upgraded Superior Telecom Inc. including raising its $214 million senior secured revolver due 2004, $425 million term loan B due 2005 and $500 million term loan A due 2004 to CCC from SD. The rating was withdrawn on the $200 million 8.5% convertible subordinated notes due 2014, previously at CC. The outlook is negative.

S&P said the action follows Superior Telecom's successful completion of an announced debt restructuring.

As a result of the restructuring, Superior has eliminated its term loan amortization requirements for the remainder of 2002 and for the first six months of 2003, S&P said. In total, amortization payments will be reduced by more than $225 million through year-end 2003.

The company negotiated payment-in-kind interest on its $200 million subordinated notes in 2002 and is negotiating to have the PIK option extend into 2003. S&P said it expects that negotiations with the subordinated note holders will be successful.

The ratings reflect Superior's position as the largest U.S. producer of copper cables and wires, a very aggressive financial profile, an onerous debt maturity schedule, weak end-market demand, and tight liquidity, S&P added. Superior's operations have been negatively affected by weak conditions in the telecommunications market, which are not expected to rebound until the latter half of 2003 at the earliest.

S&P cuts Comverse

Standard & Poor's downgraded Comverse Technology Inc. including cutting its $500 million 1.5% convertible debentures due 2005 to BB- from BB. The ratings were removed from CreditWatch with negative implications; the outlook is now negative.

S&P said the downgrade reflects deteriorating profitability, particularly in Comverse's network services business segment, precipitated by the sharp deceleration in wireline and wireless telecommunications carrier capital spending, offset by strong technology and market share positions and significant financial flexibility arising from the company's net cash position.

Comverse has been adversely affected by cutbacks in spending on enhanced services such as voicemail, its largest product offering representing about 57% of total revenues, S&P said. The cutbacks have come from telecommunications carriers, especially wireless operators. Comverse has had five consecutive quarters of sequential revenues declines, to $181 million in the most recently reported quarter, ended July 31, 2002, from a high of $365 million in the quarter ended April 2001. Profitability has likewise deteriorated, with EBITDA falling to a loss of approximately $13 million in the July 2002 quarter from quarterly levels of $90 million and higher throughout 2001.

Comverse has responded with cost reductions, including reducing total company headcount by 20%, or 1,200 people, which will help lower the company's quarterly net income breakeven revenue rate to $190 million by mid-2003, S&P noted. However the rating agency said it expects that continued weak capital spending will result in ongoing EBITDA losses for Comverse in coming quarters.

S&P rates New York Community convertibles BB

Standard & Poor's assigned a BB rating to the $240 million Bonuses to be issued by New York Community Bancorp via New York Community Capital Trust V.

Moody's lowers St. Paul outlook

Moody's Investors Service lowered its outlook on The St. Paul Cos., Inc. to negative from stable and confirmed its ratings including the senior unsecured debt at A2 and capital securities at A3.

Moody's said the outlook change is in response to third quarter results that fell below near-term expectations for stronger levels of earnings and interest coverage.

Moody's noted that while performance in the company's core business segments is steadily improving, continued drag from St. Paul's run-off segments and investment write-downs combined to offset these improvements.

The rating agency also noted that the negative outlook reflects St. Paul's increased cash contribution to its reinsurance operations in connection with the pending divestiture and incremental concerns surrounding the pace of future de-leveraging at the holding company.

Moody's keeps Carnival, Royal Caribbean on review

Moody's Investors Service said Carnival Corp. remains on review for possible downgrade including its notes, debentures and convertibles at A2.

Moody's review continues after Carnival announced it had made a pre-conditional offer to enter into a dual listed company DLC structure with P&O Princess Cruises plc.

Royal Caribbean's ratings remain on review, direction uncertain.

Moody's put Carnival on review for possible downgrade on Dec. 17, 2001 after the company announced that it had made an offer to acquire all of the outstanding shares of P&O Princess in a hostile transaction.

Moody's ongoing review of Carnival's ratings is focusing on possible integration risks, the potential for cost savings, the combined entity's shipbuilding program, the level of secured debt in the capital structure, as well as the outlook for the industry against the back-drop of a weak economy, capacity expansion, and geo-political risks.

Moody's said it will also assess the potential for structural subordination since future creditors, but not existing debtholders, are expected to be cross-guaranteed under the DLC structure.

The rating agency added that it expects to complete its review of Royal Caribbean within the next week.

The review will focus on the company's competitive position within the industry should Carnival and P&O Princess complete the contemplated transaction, as well as the lingering impact of weak global economic conditions and industry fundamentals, Moody's said.

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