Fitch cuts Telefonica de Argentina, Cointel

Fitch Ratings downgraded the foreign and local currency senior unsecured ratings of Telefonica de Argentina SA's and its holding company Compania Internacional de Telecomunicaciones SA (Cointel) to C from CC affecting $954 million in outstanding securities. The ratings remain on Rating Watch Negative.

Fitch said the action reflects the recent announcement of a debt exchange offering by TASA and Cointel. TASA is seeking to refinance $300 million senior notes due 2004 and $368.5 million senior notes due 2008. Under the current terms of the debt exchange offer, holders of the 2004 notes would receive 85% principal amount of newly issued notes due 2007 plus 15% cash payment while holders of the 2008 notes would receive 90% principal amount of newly issued notes due 2010 plus 10% cash payment. In each case, the newly issued notes have the same coupon as the exchanged notes.

TASA is also seeking to refinance Cointel's US$225 million 8.85% series A notes due 2004 and Ps175 million 10.375% series B notes due 2004 (equivalent to approximately $60 million). Under the current terms, Cointel bondholders would ultimately receive 85% principal amount of newly issued TASA 8.85% notes due 2011 plus 15% cash payment.

Fitch views the debt exchange as distressed under the current terms of the offering; TASA and Cointel have a limited number of financing alternatives due to their weak financial position.

As a distressed debt exchange, the existing notes would be considered in default under Fitch's rating methodology upon completion of the exchange, and the existing notes would be rated in the default category for 30 days.

Fitch cuts Lumbermens notes

Fitch Ratings downgraded the $700 million of surplus notes issued by Lumbermens Mutual Casualty Co. to D from C.

The action follows Lumbermens' March 25 announcement that it has received a notice from the director of the Illinois Insurance Department denying Lumbermens' request to make interest payments on its surplus notes due in June 1 and July 1.

Fitch said the D rating indicates it believes that Lumbermens' surplus note holders' recovery value is unlikely to exceed 50%.

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