S&P assigns AA rating to proposed Swiss Re America convertible

Standard & Poor's on Friday assigned an AA junior subordinated debt rating to $1 billion of 20-year subordinated convertible bonds to be issued by U.S.-based Swiss Re America Holding Corp. in November. The bonds are guaranteed by the Switzerland-based parent, Swiss Reinsurance Co.

S&P said the rating reflects the Swiss Re group's extremely strong financial strength, as well as the deep subordination of the issue. The group's financial strength is driven by its extremely strong and sustainable global business position, superior management team, very strong overall profitability, and extremely strong capitalization and financial flexibility. Partly offsetting these strengths is the recent unimpressive, although now improving, non-life underwriting performance.

The bonds are being issued in tandem with an equity offering, comprising a 1-for-10 rights issue to shareholders, a public offering in Switzerland, and an offering to institutional investors elsewhere. Total proceeds are expected to reach about SFr4.8 billion. The proceeds, in part, are be used to cover the cost of the group's pending acquisition of the life reinsurance business of U.S.-based Lincoln National Corp.

The initial interest rate will be a fixed-rate coupon, which will switch to floating rate in 2011, with a 100 basis point step-up over Swiss Re's current credit spread to Libor. In view of the bonds' tenor, subordination, and interest deferral feature, as well as management's intent that they should convert to equity, the bonds will receive equity credit on S&P's risk-based capital adequacy model. The conversion feature also meets S&P's criteria.

Fitch cuts Providian senior, subordinated debt ratings

Fitch lowered its long-term senior debt rating of Provident Financial Group Inc. of Cincinnati, Ohio, and its subsidiaries, from BBB+ to BBB, and the subordinated debt from BBB to BBB-. The rating outlook is stable, Fitch said.

The action was taken, Fitch said, after Providian announced increased reserves and charges necessary to offset deteriorating credit quality in the third quarter of 2001. Fitch noted that Providian has total exposure of about $290 million to the airline industry, including direct loans, operating leases and leveraged leases. Fitch said it believes that negative earnings surprises, such as the one in third quarter, are a symptom of above average volatility and risk in Providian's mix of businesses. Providian shares closed up 14c to $3.94.

Moody's rates Avaya convertible at Baa1

Moody's Investors Service assigned a Baa1 rating to Avaya Inc.'s senior unsecured zero-coupon convertible notes and (P)Baa1/(P)Baa3 ratings to the company's $1.4 billion shelf registration for senior debt and preferred stock, respectively. The rating outlook is negative.

Moody's said the ratings reflect Avaya's strong market position in traditional voice based enterprise solutions, the success of its efforts to match its cost structure to a declining revenue base, the stability of revenues and cash flows provided by its services segment, the moderate debt position and benefits from a singular focus on the enterprise market. However, the ratings also consider weak demand the company faces in its end markets, the considerable challenge of building its position in data products and the risks associated with rapid technological developments inherent in the telecommunications industry.

The negative outlook reflects continued weakness in customer demand in both the connectivity and communications solutions segments. The company has expanded and accelerated cost reduction efforts to better align its cost structure with anticipated revenue levels. But Moody's said that if the downturn in demand becomes more steep or protracted, the impact may outstrip the company's ability to reduce its cost reduction structure, placing increased pressure on the current rating. Avaya shares closed down 20c to $9.20.

Moody's upgrade Pride sr notes to Ba2

Moody's Investors Service upgraded Pride International, affecting $1 billion of debt securities. Among the ratings raised are the $431.5 million face zero-coupon senior convertible notes due 2021, the $200 million of 10% notes due 2009 and the $325 million of 9 3/8% notes due 2007, all upgraded to Ba2 from Ba3; and the $214 million of zero coupon convertible subordinated notes due 2018, upgraded to Ba3 from B2. The rating outlook is stable.

Moody's said the action follows Pride's stock-for-stock acquisition of debt-free Marine Drilling.

The rating agency said that despite the cyclical downturn in Pride's Gulf of Mexico segment the company's credit is benefiting from its five-year business transformation and fleet expansion, upcycle cash flows, and continuing strength in international drilling markets, and, "importantly the favorable business and deleveraging benefits" of the Marine merger.

Moody's said the senior unsecured note ratings could be raised to match the Ba1 senior implied rating if Pride "substantially reduces parent debt and/or permanently substantially reduces subsidiary debt."

The company could reach investment grade rating in two years if it can "substantially reduce leverage through cash flow, equity issuance, and/or conversion of debt covertibles to equity," Moody's added.

Moody's confirms CMS Energy, raises outlook to positive

Moody's Investors Service raised its outlook on CMS Energy Corp. to positive from negative based on the company's new strategic plan. It also confirmed existing ratings. The outlook for Consumers Energy Co. remains unchanged at stable. Ratings affected include CMS Energy's Ba3 senior unsecured debt and B1 subordinated debt.

Moody's said the revised outlook reflects "the company's decision to refocus its energy supply and services activity in North America and the improvements to the company's risk and financial profile that could arise as a result of this significant shift in business strategy."

The proposed actions, reflect a more conservative business strategy, Moody's said.

"Execution and implementation risks pose a significant risk to the company's financial plan as intermediate term improvements will depend largely not only on its ability to sell these assets, but also to sell these assets at its projected values," the rating agency commented. "In addition, the company may encounter challenges in growing its business activities along the natural gas value chain and in gas and electricity marketing in light of its desire to significantly reduce its capital program."

Moody's noted that cutting capital spending by $1 billion a year along with asset sale proceeds "are expected to significantly improve the company's financial profile and financial flexibility by 2004. The company believes that is this timeframe frame it will be in a position to sustain prospective financial performance sufficient for an investment grade credit rating."

S&P rates LSI Logic new convertibles B

Standard & Poor's rated LSI Logic Corp.'s new offering of $450 million of 4% convertible subordinated notes due 2006 at B.

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