Fitch cuts Lucent

Fitch Ratings downgraded Lucent Technologies Inc.'s senior unsecured debt to B+ from BB-, its senior secured credit facility to BB- from BB and its convertible preferred stock and trust preferreds to CCC+ from B. The Rating Outlook remains Negative.

Fitch said its actions follow Lucent's announcement that it expects revenues for the third fiscal quarter ending June 30 to decline sequentially by 10%-15% from $3.5 billion compared to previous estimates of flat sequential growth.

In addition, Fitch said, financial flexibility remains strained despite an amendment to its $1.5 billion bank credit facility which provides additional room for operational shortfalls as quarterly minimum consolidated operating EBITDA levels have been reduced significantly.

The ratings reflect the company's weak credit protection measures, limited financial flexibility, and a continued difficult environment for the company's end markets, which are expected to decline in excess of 30% in 2002 and remain pressured thereafter, delaying Lucent's return to profitability until at least 2003, Fitch added.

The negative outlook reflects the uncertain capital expenditure patterns of the company's customer base and the risk that further reductions from both wireless and wireline operators will continue to pressure Lucent's revenues and cash flow, Fitch said.

S&P keeps Tyco on watch

Standard & Poor's said Tyco International Ltd. and its industrial subsidiaries remain on CreditWatch with negative implications following the news that Tyco has received SEC approval for the IPO of The CIT Group Inc. Tyco's long-term debt is rated BBB- by S&P.

Tyco's ratings incorporate expectations that this transaction will close in about a month and that substantially all proceeds will be used for debt reduction, S&P said.

If that happens, concerns regarding the company's liquidity - the primary reason the ratings remain on CreditWatch - would diminish, S&P added.

If it does not, ratings would likely be lowered, S&P said. If Tyco does not sell CIT, it would have to seek alternative financing to meet financial obligations beginning early in calendar 2003. During the next 18 months, the company has public and bank debt maturities totaling about $7.7 billion, plus the potential put of two zero-coupon debt issues totaling about $5.9 billion. (Tyco has the option to satisfy $2.3 billion of the latter amount in stock at the February 2003 put date. However, it may not choose to do so because at the current low share price this would cause significant dilution.)

Cash balances, which totaled about $4 billion as of March 31, 2002, should be sufficient to refinance obligations potentially triggered by recent rating downgrades, S&P added.

The ratings could be lowered if there are further negative developments in connection with regulatory or law enforcement agencies' investigations into potential misuse of corporate funds; CIT proceeds are insufficient to significantly improve Tyco's liquidity; or business or competitive conditions worsen, S&P said.

Moody's cuts Magellan Health

Moody's Investors Service downgraded Magellan Health Services affecting $1 billion of debt including its secured bank facility, cut to B2 from B1, senior unsecured notes, cut to B3 from B2, and its senior subordinated notes, cut to Caa1 from B3.

Moody's said it lowered Magellan because it expects Magellan's already marginal free cash flow will be negatively impacted by higher cost trends and continued volume declines associated with its AETNA membership. Moody's said it believes the company's high reliance on the AETNA contract provides additional concern although contract renewal discussions are currently underway.

As Magellan enters a period of greater uncertainty, higher cash needs will require the company to further tap its bank revolver, which had about $70 million of undrawn capacity at March 31, Moody's said.

Earlier this year, Moody's said it cited concerns regarding higher utilization trends associated with Employee Assistance Programs and the potential for additional restricted funds requirements set by state departments of insurance. The rating agency now anticipates that Magellan will face even greater challenges due to higher-than-expected declines in AETNA membership as well as overall cost trends.

Moody's said it expects continued membership declines associated with AETNA members as AETNA pursues its strategy of culling unprofitable business.

Of greater concern are cost trends that have increased from 2-3% to 6-8% since last year, Moody's added.

Since costs have traditionally been more predictable for behavioral managed care players than for medical care managed care companies (due to restricted behavioral health benefit packages), Moody's said it believes Magellan will face greater challenges in addressing this change.

Moody's cuts FMC to junk

Moody's Investors Service downgraded FMC Corp. to junk, affecting $750 million of securities. Ratings lowered include FMC's senior unsecured debt, cut to Ba1 from Baa3, subordinated debt, cut to Ba2 from Ba1, and commercial paper, cut to Not-Prime from Prime-3. All ratings except the commercial paper rating were put on review for possible further downgrade.

Moody's said it lowered FMC because of the company's recent cash flow performance, reduced earnings guidance for the second quarter, and Moody's concerns about refinancing risk due to upcoming bond maturities and bank facility expirations.

Moody's put the ratings on review for further downgrade because of the risk that successful refinancing may not be accomplished as currently contemplated.

For the first quarter of 2002, FMC reported negative operating cash flow of $130 million, and after adjusting for incremental accounts receivable financing cash flow was negative $195 million, Moody's said. While this figure reflects the seasonal nature of FMC's agricultural products business and the associated working capital demands which we expect to begin to reverse, this level is nevertheless below Moody's expectations.

FMC recently reduced its outlook for second quarter earnings, due to the loss of a major European detergent customer, a slower-than-expected ramp-up of the purified phosphoric acid (PPA) plant at Astaris (FMC's joint venture with Solutia Inc.), and a shift of certain agricultural products sales to the latter half of 2002, Moody's added.

S&P cuts Neenah Foundry

Standard & Poor's downgraded Neenah Foundry Co. The outlook is negative. Ratings lowered include Neenah's $50 million revolving credit facility due 2002, $50 million revolving acquisition facility due 2002, $20 million term A loan due 2003 and $125 million term B loan due 2005, all cut to B- from B, and its total $282 million 11.125% senior subordinated notes due 2007, cut to CCC from CCC+.

S&P said the downgrade was in response to "very constrained liquidity, meaningful and increasing debt amortization, and near-term refinancing risk."

Neenah has limited liquidity, with about $10 million in cash and no availability on the company's $29.6 million revolving bank credit facility as of March 31, 2002, S&P said.

The company faces heavy debt maturities in the near term with about $12.5 million coming due in

2003 and about $62.5 million in 2004, further straining liquidity. Additionally, in September 2003, the company's secured revolving credit facility matures, increasing refinancing risk, S&P added.

Neenah continues to be negatively affected by the weak North American industrial markets, especially the volatile heavy-duty truck, and heating, ventilation, and air conditioning markets, S&P said.

Although the company has seen an increase in sales into the heavy-duty truck market, this increase is expected to be temporary, as heavy-duty truck sales are expected to soften in late calendar 2002 following the "pre-buy" of trucks related to the new emission standards, S&P said.

As of March 31, 2002, the company's credit measures were very aggressive, with total debt to EBITDA in the 7.5 times area and EBITDA interest coverage around 1.0x, S&P said.

Moody's puts Del Monte on upgrade review

Moody's Investors Service placed Del Monte Corp.'s ratings on review for possible upgrade following the announcement that the company will merge with certain businesses from H.J. Heinz Co. Ratings being reviewed include Del Monte's $325 million senior secured revolver due 2007 at Ba3, $415 million term loan due 2008 at Ba3, $300 million 9¼% senior subordinated notes due 2011 at B3, senior implied at B1 and unsecured issuer rating at B2.

The merger would entail Heinz spinning off its North American pet food/snacks, tuna, U.S. soup, and U.S. baby foods businesses and $1.1 billion of debt into an entity that would be merged into Del Monte. Heinz shareholders would own 74.5% of the merged entity and Del Monte shareholders would own 25.5%. Del Monte would manage the merged entity, which would be headquartered in San Francisco.

Moody's said its review will examine historical and expected sales, market share and margin trends, and assess Del Monte's strategies to rebuild momentum for the acquired product lines. The review also will consider the capital, marketing, and other investment needs going forward; the extent and timing of potential synergies; and the challenges of accomplishing integration of such a large addition to Del Monte's existing business platform, Moody's added.

Moody's rates PT Telkom B3

Moody's Investors Service assigned a B3 foreign-currency issuer rating to PT Telekomunikasi Indonesia Tbk and a B2 local-currency issuer rating. The outlook is positive.

Moody's said the positive outlook reflects Telkom's link with the ratings of the Government of Indonesia (B3 for both local and foreign currency, positive outlook) and its strong profile.

Telkom's ratings reflect risks associated with the large scale political, economic, and social uncertainties in Indonesia; operating in a regulated industry, where regulation is still developing and the government may seek to change the industry structure, or rates, should its policy needs evolve; the challenges of servicing foreign currency debt obligations with cash flow primarily denominated in Rupiah; ability to meet large debt maturities and other liabilities in the period 2002-2004 given limited access to capital markets, with a weak domestic bank/bond market and operating under a low sovereign ceiling (B3); and the potential requirement for Telkom to support the Indonesian Government, its controlling stockholder.

Positives include the strategic importance of telecommunications in assisting Indonesian economic recovery; the operational, financial, regulatory, and political benefits of being the incumbent fixed line operator majority owned by the government; relatively healthy quantitative financial measures of creditworthiness, the underlying value of Telkom's 65% investment in PT Telekomunikasi Selular (Telkomsel - rated B1 local currency issuer rating, B3 foreign currency rating); and limited potential for direct competition in the medium term, Moody's added.

S&P rates PT Telkom B+

Standard & Poor's assigned a B+ corporate credit rating to PT Telekomunikasi Indonesia Tbk. The outlook is stable.

S&P said the company's rating reflects Indonesia's high economic and political uncertainties, volatile local currency, increasing competition in the industry, regulatory uncertainties and uncertainties over its joint operating schemes.

Positives include its strong market position, comprehensive network, steady operations and earnings, strong financial position, and partial insulation from sovereign risk, S&P added.

S&P noted Telkom's rating is the highest assigned to an Indonesian corporation and is on a par with its cellular phone subsidiary, PT Telekomunikasi Selular.

S&P takes Knowles off watch

Standard & Poor's removed Knowles Electronics Holdings Inc. from CreditWatch with negative implications and confirmed its ratings including its $250 million senior secured credit facility due 2007 at CCC+ and its $153.2 million 13.125% senior subordinated notes due 2009 at CCC-.

S&P said the action follows Knowles' payment of interest on its senior subordinated notes within the grace period.

Fitch rates Kronos notes BB

Fitch Ratings assigned a BB rating to the proposed offering of €270 million senior secured notes due 2009 by Kronos International Inc., a wholly owned subsidiary of NL Industries. Fitch also confirmed NL Industries' senior secured rating at BB. The Rating Outlook is Stable.

Proceeds from the proposed notes are expected to be used to redeem the remaining $169 million of NL's senior secured notes due 2003, Fitch noted.

While Kronos' and NL's recent historical credit statistics have been strong for the ratings assigned, an acquisition or a restructuring transaction affecting NL could change the credit profile of NL and potentially the credit profile of the various subsidiaries, including Kronos, Fitch said.

However, the current transaction structure and covenant provisions mitigate some of these uncertainties, particularly with respect to Kronos, Fitch said.

Kronos also generates slightly less EBITDA than NL, however the benefit to Kronos bondholders of being structurally senior to expenses and obligations of NL outweighs the slightly diminished EBITDA, Fitch added.

S&P cuts Alestra

Standard & Poor's downgraded Alestra S de RL de CV and kept it on CreditWatch with negative implications. Ratings affected include Alestra's $270 million 12.125% notes due 2006 and $300 million 12.625% notes due 2009, both cut to CCC+ from B-.

S&P said it lowered Alestra because of uncertainties about the company's ability to pay its near-term debt maturities, a reflection of Alestra's deteriorated financial flexibility.

"Even a favorable resolution to its July 1 note payment would not improve Alestra's risk profile, at least until November's coupon payment is met, and the company shows a well-designed business plan according to its highly leveraged balance sheet," S&P said.

S&P rates Durango notes B+

Standard & Poor's assigned a B+ rating to Corporacion Durango SA de CV's proposed $175 million senior unsecured notes due 2009 and confirmed the company's B+ corporate credit rating. The outlook is stable.

Proceeds will use to refinance the existing $121.7 million senior notes due 2003, as well as other bank debt facilities, S&P noted.

S&P said it expects Durango will benefit from its lower cost structure once demand starts showing signs of recovery in the second half of 2002.

S&P also expects Durango will be able to maintain adequate liquidity.

Durango's inability to improve its cash flow generation and to reduce debt, due to current market conditions, has resulted in a continued deterioration of its financial profile, S&P noted. The company is highly leveraged, with debt to EBITDA exceeding 6 times. EBITDA interest coverage and funds from operations to debt are weak at 1.4x and 1.4% for the three months ended March 2002, S&P added.

Operating margins remain at about 15% and are expected to remain around those levels at least during 2002, S&P said.

S&P puts Del Monte on positive watch

Standard & Poor's put Del Monte Foods Co. on CreditWatch with positive implications. Ratings affected include Del Monte's $150 million 12.25% senior subordinated notes due 2007, $125.5 million 12.5% senior discount notes due 2007 and $300 million 9.25% senior subordinated notes due 2011at B- and its $350 million revolving credit facility due 2003, $200 million tranche A term loan due 2003, $150 million tranche B term loan due 2005, $325 million revolver due 2007 at B+.

S&P said the action follows the announcement that Del Monte Foods has agreed to acquire H.J. Heinz Co.'s pet food, seafood, private label soup and infant feeding operations and merge it with a subsidiary of Del Monte. The transaction is valued at $1.1 billion and is an all-stock transaction that will result in Heinz shareholders owning 74.5% of the new Del Monte Foods Co.

S&P said the business combination could result in an enhanced business profile for Del Monte, creating a company with a larger stable of stronger, higher margin consumer food brands.

The acquired operations represent about $1.8 billion in sales and will create a company with slightly more than $3.0 billion in total sales, S&P said.

Following the acquisition, Del Monte will take on about $1.1 billion of additional debt and management will be challenged to integrate the new portfolio of brands with minor disruption to the retail trade, while operating a company about double its current size, S&P said.

However, Del Monte's commitment to increasing the promotional and brand spending while forming a core product category for the company should expand its existing product mix and provide long-term growth opportunities.

S&P puts Bell Canada International on positive watch

Standard & Poor's put Bell Canada International Inc. on CreditWatch with positive implications.

Ratings affected include BCI's C$160 million 11% senior unsecured notes due 2004 at BB-.

Moody's lowers Solutia

Moody's Investors Service downgraded Solutia Inc. and kept the ratings on review for possible further downgrade, affecting $1.3 billion of debt. Ratings lowered include Solutia's long-term notes and debentures, cut to Ba2 from Ba1.

Moody's said it cut Solutia because it believe the company's liquidity has weakened because of the continuing delays in amending or refinancing its $800 million credit facility, roughly $500 million is currently outstanding under the credit facility.

The ratings will remain under review pending resolution of this issue, Moody's said.

However Moody's said it believes that Solutia's operating fundamentals have improved since year-end.

First quarter margins improved significantly and are expected to remain well above 2001 performance due to lower raw material prices and cost reductions, the rating agency added.

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