Moody's downgrades Agilent, rates new convertible Baa2

Moody's Investors Service downgraded Agilent Technologies' issuer rating to Baa2 from A3 and assigned a Baa2 to its planned $1 billion of senior convertible securities. The outlook remains negative.

Moody's said its action was based on "challenges the company will face to orchestrate business restructuring programs sufficient to reduce operating costs in the face of weakness from key telecommunications equipment manufacturer customers, a weak and uncertain macroeconomic environment, and a dwindling sales backlog."

But the rating agency added that "Agilent's leading market share in test and measurement, semiconductor product diversity, and attractive new product portfolio position the company to prosper from an eventual cyclical upturn in technology spending."

Moody's noted Agilent is cutting costs and its workforce which the rating agency expects will lower operating breakeven to $1.5 billion to $1.6 billion by fiscal year end Oct. 31, 2002. "To the extent that these measures are insufficient to allow for a return to profitability over the near term, ratings would likely be pressured," Moody's added.

Fitch rates new Duke Energy convertible issue components at A

Fitch on Thursday assigned an A rating to the Duke Capital Corp. senior notes embedded in the convertible issued this week by Duke Energy Corp., as well as the equity purchase contract embodied in the convertible. The ratings reflect Duke Energy's ample equity base and cash flow, good quality of assets and management team and continued reliance on regulated businesses for a majority of earnings before interest and taxes (EBIT), Fitch said. The ratings also take into account Duke Energy's September 2001 agreement to acquire Westcoast Energy Inc. for $8 billion, including $4.5 billion of assumed debt. The acquisition is expected to reduce Duke Energy's business risk, Fitch noted.

After completion of the Westcoast Energy acquisition, regulated natural gas transmission and distribution assets will represent about 22% of consolidated assets compared to 8.5% prior to the transaction, according to Fitch. The proportion of earnings before interest taxes, depreciation and amortization (EBITDA) from gas transmission and distribution will increase to about 26% from 15%. In addition, Westcoast Energy's businesses are fee based, which limits commodity price risk. Future funding requirements of Westcoast Energy will not require additional capital from Duke Energy or Duke Capital. Duke Energy's lack of familiarity with Canadian regulation poses some risk, but management has a long history of strong regulatory relations in the U.S.

Moody's revises Waste Management outlook to positive from stable

Moody's revised the ratings outlook for Waste Management Inc. to positive from stable and at the same time confirmed the company's long-term debt ratings, including the Ba2 ratings for its 4% convertible subordinated notes due 2002 and 2% convertible subordinated notes due 2005. The positive ratings outlook reflects significant improvements in operating margins and cash generation, which, along with a successful asset divestiture program of $2.5 billion, led to improved return on assets and the reduction of nearly $4 billion in debt since December 31, 2000. Such results are consistent with the company's improved financial and business practices and reporting technology. In addition, the settlement of significant outstanding litigation with a lower than anticipated cash outlay has reduced event risk

Moody's noted that the company has around $1 billion in maturing debt and litigation settlement obligations during 2002. For the first nine months of 2001, the company generated free cash flow of $804 million, which Moody's said may be overstated by the lower rate of capital expenditures year to date. The company had a cash balance of $75 million at the end of third quarter and raised another $80 million in swap terminations in the fourth quarter 2001. The company has demonstrated good financial flexibility in terms of cash flow generation and recent access to the capital and bank markets. Yet, Moody's notes that its alternate liquidity is relatively short in tenor - a $750 million, 364-day line of credit that is currently undrawn and may be renewed for one year if there is an existing balance outstanding. Eighty-six percent of the company's $1.75 billion, 5-year revolver is currently tied up in letters of credit to support landfill financial assurance and tax-exempt bond obligations.

For the rating to be upgraded, the company will need to demonstrate a continuation of its trend of improvement in earnings, free cash flow generation, debt reduction and systems enhancements. The risk to an improvement in the company's rating could include any decapitalization program, Moody's said.

Fitch revises Tribune outlook to negative from stable

Fitch changed Tribune Co.'s rating outlook to negative from stable. Fitch rates Tribune's senior unsecured debt at A and its subordinated debt at A-. Fitch said the action reflects the deterioration in credit protection measures in 2001 primarily resulting from recessionary conditions that have prevailed in Tribune's newspaper and television markets.

Pro forma revenues for the broadcasting segment have declined 6% and EBITDA 17% through September, with publishing revenues down 7% and EBITDA down 25% during the same period. While debt levels have only increased moderately during the year, cash-flow leverage has increased significantly. Total debt, including debt associated with Tribune's convertible PHONES hybrids, was about $3.9 billion at the end of September, or $3.5 billion excluding the debt associated with the PHONES, compared with $3.8 billion at year-end 2000, or $3.5 billion excluding the debt associated with the PHONES, while debt-to-EBITDA has increased to about 2.8 times compared with the already high figure of 2.4 times at year-end 2000, pro forma for the acquisition of Times Mirror last year. The acquisition of Times Mirror in a cash and stock transaction had left the company with weak credit protection measures at the A rating level, Fitch said.

Tribune is taking several steps to improve its credit profile, Fitch noted, with a primary objective being to strengthen the balance sheet by conserving capital and applying free cash flow from operations to reduce debt. Company-wide headcount is being reduced by close to 1,700 through a voluntary retirement program and other initiatives. Capital expenditures have been reduced and the company has ceased share repurchases, which have represented a significant use of cash in recent years. The company typically generates significant free cash flow after capital expenditures and dividends and a moderate earnings recovery should enable Tribune to implement its plan to reduce leverage, Fitch said.

While restructuring actions and lower newsprint prices should contribute to an improved operating cost structure in 2002, Fitch said the outlook for advertising is uncertain, with major categories remaining under pressure. The negative rating outlook reflects concerns that protracted earnings weakness will limit the ability of the company to reestablish credit protection measures consistent with the current ratings, Fitch said. Maintenance of the rating at the present level will depend on the ability of the company to reduce debt and reinvigorate earnings, Fitch added, and any additional acquisitions would likely precipitate a rating change.

S&P rates Duke Energy equity units A

Standard & Poor's rated Duke Energy Corp.'s newly issued $750 million of equity units at A. S&P said its rating is based on the senior notes that serve as collateral and are issued by Duke Capital. The outlook is stable.

S&P said its analysis gives credit to common equity that will be issued in the future, whether via mandatory conversion or a contractual-deferred sale. "However, the structure of the equity units incorporates a mismatch between the mandatory issuance of equity (three years) and the maturity of the senior notes (five years). Accordingly, in Standard & Poor's analysis, the fact that equity is not issued for three years means that the equity credit for this issuance may be discounted," the rating agency commented.

For Duke Energy, it said the company's "business risk profile is enhanced by the strong competitive position of its primary subsidiary, Duke Power Co., with its reasonable rates, solid nuclear operations, economically healthy service area, and reasonable regulatory environment."

Stable cash flow - 60% of EBITDA - from the regulated U.S. utility and gas transmission businesses support the credit protection measures, S&P added.

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