Moody's rates new Omnicare convert Ba3

Moody's Investors Service assigned Omnicare Inc.'s proposed $250 million of 30-year contingent convertible trust preferreds a rating of Ba3, as well as assigned ratings to its proposed bank facility, term loan and senior notes offering.

Also, Moody's confirmed Omnicare's existing ratings, but noted that the Ba3 rating on the $345 million of 5% convertible subordinated debtentures due 2007 would be withdrawn following the refinancing planned with proceeds from the new offerings.

The rating outlook remains stable, anticipating moderate top line growth in the high single digit range and ongoing improvements in EBITDA margins.

While the confirmation reflects positive operating trends and consistent cash flow generation, the ratings are tempered by the increase in leverage and integration issues related to the recent acquisition of NCS Healthcare Inc., which had prompted a review for possible downgrade.

Despite good cash flow generation, along with our expectation that it will continue to be consistent, we further anticipate that the company's appetite for acquisitions will continue once the NCS acquisition is fully integrated, which could limit the company's ability to deleverage going forward.

Moody's anticipates Omnicare will improve its credit profile for fiscal 2003, supported mostly by favorable operating trends and the equity issuance. Moody's expects leverage to EBITDAR at 2.5x to 3.0x and free cash flow to adjusted debt to exceed 14%.

S&P rates new Omnicare convert BB

Standard & Poor's assigned a BB rating to Omnicare Inc.'s $250 million convertible trust preferreds, as well as assigned ratings to its proposed bank facility, term loan and senior notes offering.

Also, S&P confirmed its other ratings.

The outlook is stable.

Ratings reflect the company's growing market position, with a strong presence in diverse regional markets, and its ability to aggressively expand while retaining credit protection measures consistent with the rating category, S&P said.

Nevertheless, the uncertainty of future government reimbursement remains the predominant risk, as the company derives more than half of its revenues from Medicaid and Medicare.

An extended economic downturn could affect both of these kinds of funding to nursing homes, curtailing their ability to make payments to Omnicare. Medicare recently reduced its payment to nursing homes in October 2002.

Liquidity at March 31 consisted of $129 million cash and cash equivalents and only $26 million available under its $500 million revolving credit facility.

However, the company was using the facility to temporarily finance its acquisition of NCS Healthcare Inc. After the financing, the company will repay existing debt and is expected to have full availability on a new $500 million revolving credit facility due 2007.

Fitch cuts Mirant

Fitch Ratings lowered the ratings of Mirant Corp., including the convertible senior notes to B- from B+ and convertible trust preferred to CCC+ from B-, along with other ratings, and is keeping the ratings on negative watch.

The downgrade reflects the likely subordination of most unsecured bond with the exchange offer announced Tuesday, should the offer be successfully completed, Fitch said.

Despite the explicit linkage between the exchange offer for Mirant's debt and a request for approval of a prepackage bankruptcy in the event the exchange offer is not successful, Fitch does not regard the exchange offer as a distressed debt exchange.

Fitch believes it likely that the current exchange offer will be approved and that there is a reasonable but not overwhelming likelihood that the bank refinancing upon which the exchange offer is contingent will also be approved.

Successful completion of both would lead to increased subordination of remaining unsecured bondholders within the group, and could lead to the ratings of those obligations possibly being further downgraded.

Should the exchange offer or bank refinancing fail, it is likely that a bankruptcy filing will see the ratings of all obligations in the Mirant group lowered to the D category.

Moody's ups Williams senior debt to B3

Moody's Investors Service upgraded The Williams Cos. Inc. and subsidiaries, including senior unsecured debt to B3 from Caa1. Also, Moody's changed the rating outlook to developing from negative.

While a number of disclosures have been made, Moody's concludes that certain events and markets must coincide for the management to meet its financial plan, and that only the passage of time will demonstrate the degree of its precision.

Failure of to meet its financial plan, including asset sales and margin calls as estimated, could result in a downgrade.

The upgrades follow the recent repayment of $1.2 billion in principal and interest of Williams Production RMT Co.'s secured loan prior to maturity and the replacement of its existing secured credit facilities with a $800 million cash-collateralized credit facility.

The company plans to use this new facility, together with a large cash balance (the company will have over $2 billion of cash pro forma these transactions) and asset sale proceeds to provide for liquidity needs over the coming year, including using it as a reserve for a $1.4 billion debt maturity in 2004. Moody's rating actions assume that Williams will complete this financing plan.

Williams' ratings reflect significant risks, however, including wide and unpredictable swings in working capital needs, net losses resulting in negative free cash flow, a debt level that remains stubbornly high at over $13 billion, despite $2 billion of debt reduced since the beginning of 2002, and weak capitalization.

While favorable high-yield capital markets are currently allowing Williams to raise capital and to supplement its liquidity, Williams may need to seek further asset sales or other sources of cash, if it fails to meet its financial plan and the capital markets turn less receptive, Moody's said.

The outlook is developing, reflecting the rapidly evolving state of the company and its ongoing cash deficits. It may be a while before we see stabilization and a discernible base line for recurring financial performance, so that there is more certainty in assessing whether the company can turn and stay cash flow positive.

The largest variable in Williams' financial performance and liquidity is marketing and trading working capital needs.

Fitch rates new Omnicom convert A-

Fitch Ratings rated Omnicom Group Inc.'s new $550 million senior unsecured zero-coupon convertible notes due 2003 at A-. The outlook is stable.

Ratings continue to reflect consistent operating performance and solid net new business wins as well as its diverse client base.

The ratings also reflect higher leverage resulting from prior acquisition activity and share repurchases, lack of tangible asset protection and the impact of a prolonged economic slowdown on operating results, Fitch said.

The company has $1.86 billion in committed bank facilities that fully support its commercial paper program which is used to meet seasonal working capital needs.

In addition, Omnicom has two large convertible debt issues, its $850 million 0% notes due 2031 and $900 million 0% notes due 2032, which have annual put dates in February and July.

A decline in the company's share price has caused Omnicom to develop financing alternatives to assure liquidity at these periods.

The new notes enhance Omnicom's liquidity as reliance on short-term debt to meet working capital needs has been reduced and additional backup has been provided for the convertible notes, should the put options on those notes be exercised.

S&P rates new R.J. Tower notes B

Standard & Poor's assigned a B rating to R.J. Tower Corp.'s proposed $250 million senior notes due 2013 and a BB- rating to its proposed $240 million senior secured term loan, noting all debt will be guaranteed by parent, Tower Automotive Inc.

Proceeds from the senior notes offering initially will be used to reduce bank borrowings and, later, to retire the Tower Automotive $200 million convertible subordinated notes due 2004. Proceeds from the new bank facilities will be used to refinance existing bank debt. Tower's $600 million revolving credit facility will be reduced to $360 million, with $44 million permanently reserved for letters of credit.

The proposed financings will relieve near-term financial stress by extending debt maturities. In addition, bank financial covenant requirements will be relaxed, S&P said.

Nevertheless, Tower remains highly leveraged, with total debt to EBITDA of about 4x, and cash flow protection is thin, with funds from operations to debt less than 20%.

Liquidity is constrained, S&P said, noting that after the convertible is redeemed, liquidity should exceed $100 million, assuming market conditions do not deteriorate.

Future covenant compliance requires improved operating performance or reduced debt leverage by the middle of 2004.

Short-term debt is substantial, with $120 million coming due within the next year. Although the maturities of short-term debt agreements are scattered and the lending sources are diverse, renewal of the facilities could become more difficult if financial performance continues to weaken.

The outlook is stable. New business opportunities, a disciplined growth strategy, and commitment to debt reduction should result in stronger credit statistics during the next few years consistent with the rating.

Fitch confirms WellPoint

Fitch Ratings confirmed the A- senior debt of WellPoint Health Networks Inc., following plans to merge with Cobalt Corp. - the Blue Cross and Blue Shield public company in Wisconsin - in a stock and cash transaction totaling about $906 million. The outlook is stable.

Any debt issued to finance the acquisition is not expected to push WellPoint's leverage beyond 30%, which, given the strong cash flow and solid track record of de-leveraging the balance sheet, is within Fitch's expectations for the current ratings.

Moody's confirms WellPoint ratings

Moody's Investors Service confirmed the debt ratings of WellPoint Health Networks Inc., including senior unsecured debt at Baa1, following plans to merge with Cobalt Corp. - the Blue Cross and Blue Shield public company in Wisconsin - in a stock and cash transaction totaling about $906 million.

The outlook remains stable.

The confirmation is based on an opinion that a favorable dividend capacity should be able to support the additional debt and that an established track record in successfully integrating acquisitions should improve operating and financial performance.

The outlook reflects Moody's expectations that, following this transaction, WellPoint will maintain relatively strong capital adequacy and adequate, albeit lower, dividend to debt metrics.

Moody's noted that while this transaction as contemplated may add up to $500 million of additional debt, overall debt to capital levels should be within WellPoint's targeted mid-20% range at closing.

Fitch ups Tyco outlook to stable

Fitch Ratings confirmed the ratings of Tyco International Ltd. and changed the outlook to stable from negative.

The change reflects Tyco's progress with respect to re-establishing access to capital, addressing its liability structure, implementing steps to improve operating performance and demonstrating cash generation despite a difficult economic environment in a number of key end-markets.

While liquidity will be somewhat constrained through the end of 2003, free cash flow still is expected to remain positive despite weak economic conditions, potentially providing further confidence to lenders and opportunities to extend debt maturities.

At March 31, Tyco's debt totaled $21.8 billion. Projected free cash flow, along with planned debt retirement of $4.5 billion (assuming $2.5 billion of convertible debt is put by the holders in November), would leave the company with debt of $17.3 billion and cash balances of $464 million at Dec. 31.

While this cash level is well below Tyco's historical levels, additional liquidity is available under a $1.5 billion bank facility expiring Jan. 30, 2004 that is currently undrawn, Fitch said.

In addition, Tyco could consider issuing modest amounts of new debt given its improved access to capital. After December, continuing cash flow and limited debt maturities should allow Tyco to begin rebuilding cash balances.

S&P puts Jones Apparel on negative watch

Standard & Poor's placed the BBB senior unsecured debt ratings of Jones Apparel Group Inc. on negative watch, after Jones and Polo Ralph Lauren Corp. announced lawsuits against each other in an ongoing licensing dispute.

The BBB- subordinated debt ratings were also placed on negative watch.

The companies are disputing the expiry date of a licensing agreement for Jones Apparel Group to produce clothing under the "Lauren" brand name. Jones also holds the Ralph and Polo jeans licenses.

The Lauren license represents more than $500 million in revenues for Jones, which reported about $4.6 billion in revenues for fiscal 2002.

While Jones expects no immediate financial impact for 2003 from the loss of the Lauren license, the loss is expected to have a material impact on 2004 financial results, S&P said.

Jones announced that it is launching a new Jones New York lifestyle brand that is expected to replace some of the revenues from the Lauren line, however, the impact of this on the company's overall operating results is unclear at this time.

Fitch confirms Cendant ratings

Fitch Ratings confirmed the BBB+ rating for Cendant Corp. senior unsecured debt, the BBB rating for its subordinated debt and the F2 short-term rating for its commercial paper, and affirmed PHH Corp. ratings.

The outlook for both Cendant and PHH is negative.

Cendant's ratings consider its leading position in most of its business lines and concentration of franchise and fee-for-service businesses which have low capital expenditures and fixed operating costs.

The ratings also reflect strong free cash flow and the $2.9 billion revolver which provides adequate liquidity to fund near-term obligations. Availability under the revolver is about $1.8 billion, net of $1.1 billion of outstanding letters of credit.

Positive factors are weighed against leverage which is somewhat high although improving and a concentration of travel-related businesses, which could continue to be impacted by the slow economy.

The outlook reflects continued softness in the travel sector and the high level terrorism alert status, regulatory risk in the travel distribution segment and business risk associated with the integration of Budget.

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