Moody's cuts TXU to junk

Moody's Investors Service lowered to Ba1 from Baa3 the senior unsecured rating assigned to TXU Corp.

Also, Moody's confirmed ratings assigned to TXU Energy at Baa2 senior unsecured, the Baa3 senior unsecured rating for TXU US Holdings' bank loans and the Prime-2 commercial paper ratings for Oncor Electric Delivery and TXU Energy.

But downgraded were TXU US Holdings' preferred stock to Ba2, Pinnacle One to Ba2, secured ratings of Oncor Electric Delivery to Baa1 from A3 and TXU Gas to Baa3 from Baa2.

The outlook for TXU Corp. and TXU Gas is negative

The outlook for Oncor, TXU Energy and TXU US Holdings is stable.

The outlook for the Baa2 rating assigned to TXU Australia is negative.

Moody's lowered TXU Corp. to Ba1 from Baa3 given structural subordination to the bank loans at TXU US Holdings but noted that the liquidity situation throughout the system is reasonable.

Moody's said the negative outlook for TXU Corp. reflects any potential litigation involving creditors of TXU Europe, the subsidiary which is now in administration.

TXU Energy's ratings reflect solid cash flow generation in relation to its debt. The outlook for TXU Energy presumes it remains capitalized with about 55% equity, 45% debt including the new $750 million subordinated debt, Moody's said.

Oncor's rating reflects inter-company funds flows from TXU Energy and the downgrade acknowledges the interdependency. The outlook assumes a successful refinancing of $700 million of bonds maturing in 2003 and court approvals to securitize $500 million of regulatory assets in 2003 and $800 million subsequently.

The rating assigned to $2.4 billion bank loans extended to TXU US Holdings, the holding company for Oncor and TXU Energy, is notched down from TXU Energy's rating . The downgrade of the $136 million of preferred stock issued by TXU US Holdings reflects weaker priority of claims relative to the bank debt.

TXU Gas' downgrade reflects low profitability, poor returns and low debt coverage measures. The outlook reflects its reliance on the parent for financial and other support, Moody's said.

S&P confirms AES, lowers some notes

Standard & Poor's lowered AES Corp.'s senior unsecured debt to B- from B+, but confirmed all its other ratings, including the convertible preferreds at CCC+.

AES' new $1.62 billion senior secured bank facility and $350 million senior secured exchange notes are rated BB, which were recently closed.

The outlook is negative.

The new bank facility and debt exchange lifts the immediate threat of insolvency, S&P said.

The negative outlook reflects the need for a plan to pay down parent-level debt to a more manageable level over the next two to three years, as well as the uncertainty surrounding AES Elpa, AES Transgas, AES Drax, C.A. Electricidade de Caracas and Eletropaulo.

Moody's rates Chesapeake notes

Moody's Investors Service assigned a B1 rating to Chesapeake Energy Corp.'s new $150 million senior unsecured notes due 2014 and confirmed its existing ratings, including the $150 million of 6.75% convertible preferreds at Caa1. The outlook remains positive.

Ratings follow the $300 million acquisition of 195.7 bcfe of primarily natural gas reserves from ONEOK Inc., to be funded with proceeds from the new notes and the issuance of 20 million shares of common stock.

The ratings reflect the continued step up in scale of long-lived Mid-Continent reserve base, while also taking into account high leverage from increases in debt to fund acquisitions.

The outlook is subject to a review of year-end 2002 reserve levels and the components of reserve additions and replacement costs in 2002, Moody's said.

S&P cuts Duke outlook

Standard & Poor's revised the outlook for Duke Energy Corp. and subsidiaries to negative from stable. All ratings are confirmed, including the convertibles at A.

The revision reflects the potential for further cash flow deterioration and the need to divest assets and pay down debt in order to maintain current ratings.

Of particular concern is a weaker than anticipated economic environment, which is likely to lessen the cash flow contribution from regulated electric utilities and potentially further dampen cash flow from merchant generation, S&P said.

S&P also expects growth of gas transmission revenues to slow as Duke reduces total capital expenditures.

Investigations of energy traders continue to be an overhang.

Liquidity is adequate liquidity, with about $2.8 billion of undrawn, consolidated bank facilities available, plus an additional option to borrow $500 million in February 2003 at Duke Capital.

Ratings anticipate funds from operations interest coverage and debt to total capital to about 4.5x and 46% of total capital, respectively, over the next few years.

While S&P would rate through some softness in these numbers, Duke will need to demonstrate a credible path to financial strengthening to maintain current ratings.

Fitch rates Bunge convert

Fitch Ratings assigned a rating of BBB to Bunge Ltd. Finance's $250 million of 3.75% convertible notes due 2022 and affirmed the BBB senior unsecured rating for the company and its parent, Bunge Ltd. The outlook is stable.

The rating is supported by a successful financial and operational restructuring.

In addition, proceeds from divestitures are expected to be used for debt reduction and investment in core businesses. Furthermore, Bunge has exceeded its operating performance targets during 2002.

As a result of financing for the Cereol acquisition, leverage is expected to increase to about 3.2x from 1.7x and EBITDA-to-interest incurred is expected to decrease to 3.8x from 5.4x for the last 12 months ended Sept. 30, Fitch said.

Adjusted EBITDA-to-adjusted interest expense is expected to decrease to about 5.0x, from 6.9x for the last 12 months ended Sept. 30.

S&P cuts Teradyne

Standard & Poor's lowered Teradyne Inc.'s ratings, including the 3.75% convertible due 2006 to B+ from BB-, noting ongoing stressed conditions in semiconductors that are likely to impede the ability to restore operating profitability intermediately. But the outlook was revised to stable from negative.

The ratings reflect moderate capitalization and sufficient intermediate operating liquidity, offset by substantial volatility in Teradyne's market and substantial negative cash flows.

To support its financial flexibility, Teradyne sold $400 million in senior notes in October 2001 and mortgaged some company-owned buildings for another $45 million.

Financial assets of $543 million at Sept. 30 are expected to meet intermediate operating requirements, S&P said.

Debt of $545 million was 26% of capital.

Free operating cash flows was negative $33 million in the September quarter and total a negative $400 million since March 2001, despite substantial reductions in working capital.

The company does not have a revolving credit facility.

The outlook recognizes a good industry position and that current liquidity should provide a degree of near-term downside ratings protection.

Fitch rates Navistar convert

Fitch Ratings has assigned a BB rating to Navistar International Corp.'s new $190 million of senior unsecured convertible notes. The outlook is negative.

Fitch recently downgraded Navistar's existing debt to reflect the continuing weak industry environment in medium and heavy-duty truck markets in North America and concern over the impacts of substantial cash calls related to pension contributions and restructuring charges, among other things.

Positive factors include completion of a major capital expenditure program, overall product competitiveness, restructuring efforts and the recent conclusion of contract negotiations with the UAW.

Overall, Navistar's competitive position remains well intact through this extended downturn and Navistar stands poised to recover strongly longer term with the eventual return to more normalized industry volumes.

S&P says Broadwing unchanged

Standard & Poor's said Broadwing Inc.'s ratings remain unchanged including its corporate credit rating of B- on CreditWatch with negative implications following news that the company has a commitment for $200 million in financing in the form of senior subordinated discount notes due 2009.

The commitment is contingent upon Broadwing successfully renegotiating its current bank credit facility and the satisfaction of various closing conditions.

The moderate commitment of financing does not significantly address three challenges that Broadwing faces, S&P said.

First, without obtaining a material extension of the bank amortization schedule and favorable amendments to maintenance covenants through its current bank negotiation process, Broadwing faces substantially increased risk of having a liquidity issue in 2003, S&P said. Second, challenges that are causing its long-haul data business, Broadwing Communications Inc., to negatively affect consolidated free cash flows are likely to persist for some time. Broadwing Communications faces industry overcapacity and is exposed to a number of customers with risky financial profiles.

Third, even assuming that Broadwing Communications is divested or successfully restructured, Broadwing may not be able to materially reduce its debt level for several years given the relatively small size of free cash flows generated by its healthy local incumbent and wireless businesses, S&P said.

Fitch upgrades Kamps

Fitch Ratings upgraded Kamps AG's senior unsecured debt to BB from BB- and removed it from Rating Watch Positive, where it was placed on April 23, 2002. The outlook is stable.

Fitch said the upgrade follows meetings held with management of both Kamps and the new shareholder, Barilla group, and reflects the stronger profile of the group following its takeover by Barilla.

Although financial ratios remain stretched and profit margins have weakened due to the difficult economic environment in Germany, secured debt has been replaced with unsecured funding.

Fitch said it believes that with Barilla as a shareholder, Kamps will benefit from cross-selling opportunities, transfer of best practice and stronger financial discipline. The appointment of a new CFO before the takeover and the arrival of a new CEO in January 2003 are also expected to have a positive influence.

Despite the overall resilience of Kamps' portfolio of bakery products to the economic downturn in sales terms, margins have been under pressure, Fitch said. Coupled with a balance sheet clean-up being conducted by the new management and extraordinary costs incurred in conjunction with the takeover, both profitability and cash generation are expected to be significantly reduced for fiscal 2002.

Consolidated fiscal 2001 net debt/EBITDA of 4.1x and EBITDA/net interest of 3.5x are expected to deteriorate in fiscal 2002 respectively to just under 6.0x and little above 2.0x, and to improve only slightly in fiscal 2003, Fitch added.

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