Moody's cuts Baytex

Moody's Investors Service downgraded Baytex Energy including cutting its $150 million 10.5% senior subordinated notes due 2011 to B3 from B2. The outlook is stable.

Moody's said the downgrade is due to Baytex's pending conversion from public shareholder to public unit trust ownership. In a related move, the company proposes to exchange the existing $150 million 10.5% senior subordinated bonds due 2011 for $180 million 9.625% subordinated bonds due 2010 with key covenant changes. Moody's said the new bonds will likely be rated similarly to the existing bonds.

Moody's said the stable outlook is pending Baytex's demonstration of an ability to continuously reinvest for full reserve replacement, without adding material leverage, while also making cash distributions to unit holders.

The ratings reflect satisfactory 2002 and first quarter 2003 pro-forma volume, total unit cost, and unit cash flow trends on reinvested capital, still strong support from up-cycle oil and gas prices, sound initial liquidity, pro-forma leverage on proven developed (PD) reserves comparable to year-end 2002 levels, and mitigation of much of Baytex's exposure to volatile Canadian heavy oil price discounts by hedging 70% of that exposure with an off-take contract with Frontier Oil, Moody's said.

However, while the new ratings reflect the expected impact of Baytex's conversion to a unit trust, the ratings or outlook could still be pressured. Exploration and production is a depleting asset business, Moody's said.

Debt will rise unless Baytex issues new units because cash flow directed to distributions leaves internal funding for roughly only 40% of expected capital outlays. Baytex has a low 37% of reserves in the proven developed producing (PDP) category and a below average PD reserve life of 6 years.

Fitch rates Crum & Forster notes B

Fitch Ratings assigned a B rating to Crum & Forster Funding Corp.'s $300 million 10.375% senior notes due 2013. The outlook is negative.

Fitch said the rating reflects Crum & Forster Holding Corp.'s operating insurance subsidiaries current and uncertain future ability to pay parental dividends, concern regarding the reserve adequacy of Crum & Forster Holding Corp.'s subsidiaries, particularly in regards to recent commercial lines accident years and latent exposures such as asbestos and event risk associated with deterioration of Fairfax's credit quality which could have an impact on the ability of Crum & Forster Insurance Group's ability to write new business if its financial strength ratings were negatively affected.

Since Fitch's downgrade of Fairfax Financial Holdings Ltd.'s senior debt rating in March, Fairfax has executed a partial spin-off of its Canadian insurance subsidiaries, as well as the note offering which may significantly increase holding company cash resources and enable Fairfax to reach its year-end goal of C$500 cash and marketable securities at the ultimate holding company level.

Although these actions decrease current liquidity concerns regarding the retirement/refinancing of internal and external debt maturities in 2003, overall financial leverage and interest burden have increased and potential dividend flow to Fairfax has decreased as the result of the partial public ownership of the Canadian operations, Fitch said.

Over the near to intermediate-term, Fairfax's ability to maintain a sizable holding company cash cushion and service its sizable debt burden will likely continue to rely on asset sales and borrowing in light of the partial public ownership of the Canadian and reinsurance operations, run-off status of TIG Insurance Co./International Insurance Co., and uncertainty regarding Crum & Forster's ability to pay meaningful parental dividends in the future.

Moody's rates PMA Capital notes Ba1

Moody's Investors Service assigned a Ba1 rating to PMA Capital Corp.'s $50 million 8.5 % senior unsecured notes. The outlook is negative.

Moody's said the issuance of senior notes in combination with the recent issuance of $32.5 million of trust preferred securities mitigates Moody's concerns related to near-term liquidity risk at PMA Capital.

Going forward, Moody's focus will be on the company's ability to improve operating performance and maintain a strong level of capital adequacy at its operating subsidiaries.

Fitch upgrades Portland General Electric

Fitch Ratings upgraded Portland General Electric including raising its senior secured debt to BBB- from BB+, senior unsecured debt to BB from BB- and preferred stock to B+ from B. The ratings were removed from Rating Watch Positive. The outlook is positive.

Fitch said the action follows the closing of a $150 million secured bank facility on May 28, the final step in a series of financial transactions that have meaningfully improved Portland General Electric's near-to-intermediate term liquidity outlook.

The rating action also reflects improved visibility with regard to Portland General Electric's potential contingent liability exposure. Although a 12-notch differential exists between Portland General Electric and its corporate parent Enron Corp.'s senior unsecured debt rating, Portland General Electric's ratings remain well below levels that could be supported by the company's standalone credit profile due to contagion risks associated with Portland General Electric's status as a subsidiary of an insolvent corporate parent tainted by significant unresolved legal issues, Fitch said.

The positive outlook reflects potential for a reasonable outcome in the pending Federal Energy Regulatory Commission investigation into Portland General Electric's role in the manipulation of western energy markets and the greater clarity expected to emerge from Enron's filing of a plan of reorganization by the end of June 2003, Fitch said.

Fitch raises Brazilian corporations' outlook

Fitch Ratings raised the outlook on the foreign currency rating of a series of Brazilian corporations to positive from stable.

The action follows a similar revision to the foreign currency rating of the Federative Republic of Brazil, Fitch said.

The revision to the sovereign's outlook revision reflects signs that President Lula could succeed in building a consensus on economic policies that would place Brazil's public and external finances on a sustainable path, Fitch noted.

Corporations affected are Alcoa Aluminio SA, Aracruz Celulose SA, Companhia de Bebidas das Americas SA (Ambev), Companhia Petrolifera Marlim, Companhia Siderurgica de Turbarao SA, Companhia Siderurgica Nacional SA, MRS Logistica SA, Petroleo Brasileiro SA, Ripasa Celulose e Papel SA, Sadia SA, Samarco Mineracao SA, Tele Norte Leste Participacoes SA, Telemar Norte Leste SA and Trikem SA. All are rated B.

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