Moody's rates Alltel convertible at A2

Moody's confirmed the short- and long-term debt ratings of Alltel Corp. at Prime-1 and A2, respectively, and assigned a (P)A2 rating to the senior unsecured debt securities to be issued under Alltel's $5 billion shelf registration, including the proposed $1.25 billion offering of mandatory convertibles.

Since the equity units rank pari passu with Alltel's other senior unsecured obligations, Moody's rates the instrument A2. The ratings outlook is stable.

The ratings are based on the expectation that Alltel's acquisitions of access lines from Verizon Communications and the wireless operations of CenturyTel, for a total of about $3.6 billion, will be financed in part with equity, including the convertible.

The ratings also consider that Alltel will continue to exercise discipline in acquisitions and that any future transactions will be financed in a manner that preserves balance sheet strength, that wireless operations will generate steadily increasing cash flows plus that Alltel's telephone operations will remain a significant and reliable source of strong cash flow.

Consequently, while the financing plan for acquisitions will weaken credit measures near-term, Moody's anticipates the company will generate strong free cash flow and quickly restrengthen its balance sheet. In 2001, the company was able to reduce net debt by almost $800 million despite increasing its capital spending by over $100 million.

In addition to the convertible, Moody's expects the balance of the acquisition costs will be financed with debt of varying maturities, including a modest amount of commercial paper.

While Moody's anticipates that the current $1 billion bank facility will be more than adequate to provide 100% backup for all outstanding commercial paper, Alltel is expected to increase its backstop facilities by about $500 million to strengthen alternate liquidity.

Alltel has received $2.75 billion of committed interim financing from Merrill Lynch and Bank of America, in addition to its plan to expand its existing credit facilities.

S&P rates Alltel issue at A

Standard & Poor's assigned an A rating to Alltel Corp.'s $1.25 billion senior unsecured notes due 2007 that underlie the three-year mandatory convertibles. Also, S&P affirmed its A long-term and A-1 short-term corporate credit ratings on Alltel and subsidiaries. The outlook is negative.

Assuming full debt funding for the acquisitions, pro forma total debt as of March 31 was about $7.3 billion.

The ratings reflect the expectation that Alltel will be able to reduce overall debt levels to a total debt to EBITDA of less than 2 times in 2003, including the convertible debt.

Such debt reduction is achievable, given the high margins of the ILEC business and on-going growth of operating cash flows from the wireless business, said S&P analyst Catherine Cosentino.

Alltel faces the challenge of integrating both the Verizon access line properties and the CenturyTel wireless properties into its own operations.

If its execution efforts result in lower-than-expected operating cash flows in 2003, the company may not be able to achieve a total debt to EBITDA of below 2 times in 2003 and the ratings could be lowered.

The company has initiated a comprehensive organizational effort to address the various requirements for implementing these integrations, thereby mitigating S&P's concerns about the transitions.

However, the ratings do not incorporate the possibility of material additional near-term acquisitions, despite the company's appetite.

Fitch rates Alltel convertible at A

Fitch Ratings assigned an A rating to Alltel Corp.'s proposed mandatory convertibles. Alltel's unsecured senior debt is rated A and its commercial paper F1, but the securities remain on negative watch.

The convertibles are viewed positively and accorded a significant level of equity consideration.

Alltel was initially placed on negative watch as a result of its unsolicited bid to purchase all of CenturyTel on Aug. 16. Fitch maintained the watch following the announcement of Alltel's agreement to purchase the wireline access lines from Verizon Communications for $1.9 billion in November and the wireless operations from CenturyTel for $1.65 billion in March.

Proforma debt-to-EBITDA for 2002 is expected in the range of 1.8 times to 1.9 times, taking into account the level of equity consideration with the convertibles, compared to a historically strong debt-to-EBITDA over the last 12 months of 1.25 times.

Proforma EBITDA-to-Interest for 2002 is expected to approximate 7 times. Based on the proceeds of the convertible and anticipated operating performance at the time of the last transaction closing in August, Fitch anticipates removing the watch and expects to affirm Alltel's current A rating.

Credit protection measures are expected to improve going forward in 2003 due to Alltel's positive free cash flow and operating synergies. Benefiting Alltel's anticipated improvement in its credit profile is the capital funding requirements of the company.

Alltel's prudent management of its operations is reflected in its capital spending as a percentage of revenue, which has been under 20% for the last three years. Expectations for 2002 and 2003 capital spending are consistent with current spending levels of approximately 16% of revenue.

S&P rates new Titan bank facility at BB-

Standard & Poor's assigned a BB-rating to Titan Corp.'s $450 million senior secured credit facilities and affirmed its BB-corporate credit rating. Also, S&P affirmed the B rating on Titan's preferred stock.

Opportunities exist to expand Titan's currently small but profitable commercial businesses. This segment includes international telecommunications, E-business solutions, and emerging technologies. Capital expenditures are moderate but could expand over the next few years to support these commercial initiatives.

A stable cash flow base limits downside credit risk, said S&P credit analyst Philip Schrank. Management is expected to structure and pace acquisitions to support current credit quality.

Earnings and cash flow visibility is supported by a respectable contract backlog, exceeding $3 billion.

Moody's revises Freeport-McMoRan outlook to positive

Moody's confirmed Freeport-McMoRan Copper & Gold Inc.'s senior unsecured debt rating at B3 and changed the outlook to positive from stable. Although Moody's views Freeport-McMoRan 's operating position and financial profile as stronger than a B3, the rating is constrained by the risks associated with its concentration of assets in Indonesia.

The change in outlook reflects Moody's change in outlook for its Indonesian ratings, which reflects a number of factors including the country's improved relationship with other foreign creditors and the IMF. While this positive outlook reflects progress made so far, continued reforms are necessary to lift Indonesia's economic performance and improve investor confidence.

Ratings affected include Freeport-McMoRan's senior unsecured debt at B3 and preferred stock at

Caa2.

S&P rates El Paso euro notes BBB

Standard & Poor's assigned a BBB rating to El Paso Corp.'s euro 500 million bonds due in May 2009. The outlook is stable.

The rating anticipates El Paso's stated intention to strengthen its financial profile and simultaneously strengthen credit protection measures, said S&P credit analyst William Ferara.

These important steps help to balance the growing contributions of the higher-risk, nonregulated business lines, he added, but a major deviation from this commitment to credit quality would likely pressure credit ratings.

In December, El Paso initiated a balance sheet enhancement plan to strengthen its financial profile specifically to lower debt, reduce liabilities, simplify its capital structure and address uncertainties related to rating triggers in debt financings.

El Paso completed a $860 million common stock offering in December, espects asset sales of about $2.25 billion and lowered capital spending to $3.1 billion in 2002 from $4.6 billion in 2001.

Ratings on El Paso reflect steady cash flow characteristics of its regulated pipeline units, which currently account for about one-third of assets and EBIT.

This strength is countered by the growing importance of investments in a myriad of nonregulated businesses, including exploration and production, merchant energy marketing and trading and chemical processing.

S&P rates Reliant CP at A-2

Standard & Poor's assigned a rating of A-2 to the $300 million commercial paper program of Reliant Resources Inc., which is backed by two $800 million bank revolvers with maturities in August 2002 and August 2004.

The rating is appropriate with the BBB corporate credit rating of RRI, which was recently lowered fom BBB+ to incorporate the debt associated with the $5 billion acquisition of Orion Power Holdings.

The business prospects of the combined entity, coupled with management's generally conservative business and financial strategy, should enable the company to maintain measures of debtholder protection that are appropriate for the BBB rating, said S&P credit analyst Judith Waite.

Specifically, debt at less than 50% of total capital and cash interest coverage of around 4.0 times.

The commercial paper will be used to fund working capital.

The remainder of the $1.6 billion of available bank credit will be used to support collateral requirements of the trading company. Management believes the combined capacity will provide adequate liquidity, based on their experience during the extreme price increases in the western power market in 2000-2001.

S&P takes Temple-Inland off watch

Standard & Poor's removed Temple-Inland Inc. from CreditWatch with negative implications and confirmed its ratings including its new Upper DECS convertibles, notes and bank facility at BBB.

Fitch downgrades Tyco

Fitch Ratings downgrades Tyco International Ltd.'s senior unsecured debt and that of its subsidiary Tyco International Group SA to BBB from A-. It also lowered the commercial paper to F3 from F2. The ratings remain on Rating Watch Negative.

Fitch said it downgraded Tyco because of the continuous revisions to the company's restructuring plans which have delayed debt reduction anticipated from the divestiture of assets, resulting in heightened concern surrounding the company's maturity schedule.

This has coincided with weak operating results across a broad range of the company's operating segments, particularly in the company's electronics and telecommunications areas, Fitch said.

Additionally, the recent turmoil surrounding Tyco has exacerbated the weakness in the external environment, Fitch added.

Moody's keeps negative outlook for Merrill

Moody's said it will maintain the negative outlook on the long-term ratings of Merrill Lynch & Co., Inc. and subsidiaries (senior at Aa3).

The negative outlook is primarily a function of Merrill Lynch's lower profitability and higher earnings volatility relative to its peers, Moody's said.

Merrill Lynch is taking action to narrow the gap in profitability. In first quarter, the firm's pre-tax margin expanded nearly five percentage points to 20%. Margin improvement progress has been particularly strong in the firm's asset management and private client operations.

At Merrill Lynch Investment Management, margins improved nearly 8 percentage points to 24% from the year earlier period. In Private Clients the margin actually improved from the year earlier period, despite a 15% drop in revenues.

Nonetheless, Merrill Lynch may be dependent on revenue increases in a challenging market environment, as well as a recovery in private client activities, to reach its firm-wide pre-tax margin target of 24% by the end of 2003.

Investigations by the New York Attorney General and the SEC into possible abuses of the research process may result in increased litigation and settlement costs for Merrill Lynch. Also, these inquiries may further delay the recovery of private client activity.

Moody's noted that while these investigations are an issue for all firms with large investment banking and retail operations, the issue is more acute for Merrill Lynch, given the size of its U.S. private client franchise and the importance of these operations to the performance of the firm.

f Merrill Lynch were criminally indicted, this would prompt a one-notch downgrade of the long-term debt ratings.

Moody's said that Merrill Lynch maintains a very strong liquidity profile. The holding company has sharply reduced its use of commercial paper and has access to a substantial portfolio of liquid securities.

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