Moody's assigns Ba3 rating to L-3 Communications' new convertible debt

Moody's Investors Service on Monday assigned a Ba3 rating to L-3Communications Holdings Inc.'s new $350 million of 4% convertible senior subordinated notes due 2011, and made a "conformity adjustment" to its rating of L-3's $300 million of 5.2% convertible senior subordinated notes due 2009 to Ba3. Moody's also confirmed its Ba3 ratings for L-3's $225 million of 10.375% senior subordinated notes due 2007, $180 milliion of 8.5% senior subordinated notes due 2008 and $200 million of 8% senior subordinated notes due 2008. Moody's said the outlook was positive.

The ratings recognize L-3's track record and success in integrating the businesses acquired since the original 1997 buyout from Lockheed Martin, its limited reliance on any single platform, program or product, its established technology and proprietary products base and on-going R&D efforts, its strong margins and increasing free cash flow, and its substantial sole-source position (over 60% of revenue), and the favorable mix of cost plus contracts and the higher margin fixed price contracts (about 30%/70%, respectively), Moody's said. However, Moody's added that the ratings also continue to reflect the company's high financial leverage and significant goodwill on its balance sheet, the high potential for further substantial debt-financed acquisitions, and the potential for the much larger prime defense contractors to reverse strategy and increase their vertical integration. The ratings also consider the significant amount of contracts-in-process included in current assets and the possibility of decline in the currently high returns on tangible assets.

Moody's rates new Adelphia notes B2, puts all ratings on review for downgrade

Moody's Investors Service rated Adelphia Communications Corp.'s new $500 million of 10¼% senior unsecured notes due 2006 at B2 but put all ratings of Adelphia and its subsidiaries on review for possible downgrade, affecting $20 billion of debt and preferred securities.

Ratings affected include: Adelphia's senior secured bank debt, rated Ba3, its senior unsecured notes, rated B2, its convertible subordinated notes, rated B3, and its convertible and exchangeable preferred stock, rated Caa1.

Moody's said its review will mainly be an independent assessment of management's ability to:

--Complete now-delayed sales of previously identified non-core assets in the near term and at valuations in accordance with prior expectations;

--Off-load the still lingering overhang and uncertainty associated with its majority-owned competitive local exchange carrier Adelphia Business Solutions (its ratings are not affected by this action);

--Mitigate the risks of further margin erosion, slower cash flow growth and a correspondingly reduced ability to delever given Moody's expectations of a more prolonged economic slowdown than previously anticipated, in conjunction with the expected maturing of overall subscription pay television services more broadly;

--Satisfaction of the company's intermediate-term liquidity needs.

Moody's changes Titanium Metals outlook to negative

Moody's Investors Service changed its outlook on Titanium Metals Corp. to negative from stable, affecting, among other ratings, its $201 million of 6 5/8% convertible trust preferred securities due 2026.

The rating agency said the new outlook reflects the impact that reduced construction of commercial airliners will have on TIMET's titanium shipments and its operating margins over the next couple years.

Moody's said it believes commercial aircraft deliveries will likely fall around 50% from the 1999 peak, with an upturn unlikely before 2004. Commercial aerospace accounts for 76% of Timet's net sales.

A six-year take-or-pay contract with Boeing gives some protection and the company will try to shift sales to military, armor and automobile markets, Moody's said, although it added the potential upside is limited compared to the weakness in commercial aerospace.

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