Moody's ups Sovereign Bancorp

Moody's Investors Service upgraded the ratings of Sovereign Bancorp, including senior debt to Ba1 from Ba2 and preferreds to Ba2 from Ba3.

The upgrade was made because the company successfully executed two initiatives that should improve liquidity and reduce double leverage plus enhance the financial flexibility of its operating thrift, Sovereign Bank, Moody's said.

Sovereign Bank issued $500 million of subordinated debt that will qualify as regulatory capital. Also, Sovereign Bancorp bought back some $300 million of its 2004 debt.

The subordinated debt allows the thrift to make a large dividend to the holding company and still meet "well capitalized" regulatory capital levels. With the dividend proceeds, the holding company will pay off its Bank of Scotland loan that helped finance the buyback of much of the 2004 debt.

Following the upgrades, the outlook is stable.

S&P cuts DDi on missed coupon

Standard & Poor's cut DDi Corp.'s ratings on the missed interest payment on its 5.25% convertibles on March 1.

The 5.25% convertible was lowered to D from CCC-. Also the 6.25% convertible was cut to C from CCC-, and the Details Capital Corp. 12.5% senior discount note to C from CCC-.

And ratings not cut to D were placed on negative watch.

The Anaheim, Calif.-based company has total debt outstanding of about $318 million.

Weak financial performance in fourth quarter resulted in covenant violations under DDi's senior credit facility for minimum EBITDA, thereby restricting its ability to make the interest payments on the 5.25 converts, as well as the upcoming interest payment on the 6.25s in April, S&P said.

DDi has entered a forbearance agreement with senior lenders intended to facilitate restructuring of all its debt. The agreement is scheduled to expire March 25, 2003, but may be extended until May 9.

Management has engaged a financial advisor and started negotiations with creditors.

The $68.5 million credit facility balance is now classified as a current liability.

Standard & Poor's will continue to monitor timeliness of future interest payments, the status of the forbearance agreement, and debt restructuring efforts.

Fitch rates TXU Energy notes BBB

Fitch Ratings assigned a BBB rating to TXU Energy Co.'s proposed $500 million senior notes and affirmed its other ratings along with parent TXU Corp. senior debt at BBB- and preferreds at BB.

The outlook on all ratings is stable.

Proceeds of the issue, expected to price this week, will be used to paydown inter-company loans and for general corporate purposes.

The rating reflects TXU Energy's capital structure of about 2.83x net debt-to-EBITDA, sufficient liquidity to meet refinancing needs, solid cash flow interest coverage of 6.7x and a currently low retail churn ratio in Texas, Fitch said.

However, the rating also takes into account currently high margins among retail power suppliers in Texas are likely to moderate over time if price competition becomes more prevalent in that market.

An additional concern is the current over-supply of generation in Texas that has placed pressure on the energy spot market and has limited the profitability of TXU Energy's favorable generation portfolio.

Fitch cuts Provident ratings

Fitch Ratings downgraded Provident Financial Group Inc.'s senior debt to BBB- from BBB and preferreds to BB- from BBB. The outlook is stable.

The downgrade follows the announcement of the restatement of earnings for years 1997 through 2002 and lowered earnings guidance for 2003.

Fitch rates Travelers notes A

Fitch Ratings assigned an A rating to Travelers Property Casualty Corp.'s proposed $1.4 billion of new senior notes.

The outlook is stable.

Travelers expects to use the proceeds to redeem $900 million of trust preferred stock and pay down a revolving line of credit with Citigroup Inc.

Although the transaction will ultimately increase adjusted financial leverage due to partial equity credit that Fitch assigned the trust preferred securities, Travelers current ratings provide ample cushion for an increase in holding company financial leverage.

Alternatively, fixed charge coverage will improve modestly and holding company financial flexibility will be enhanced due to Travelers increased ability to tap the $500 million Citigroup revolving line of credit.

Moody's rates Hexcel new notes B3

Moody's Investors Service assigned a B3 rating to Hexcel Corp.'s $125 million senior secured notes due 2008, reflecting the highly levered capital structure, although at improved levels due to its recently announced financial restructuring program.

The restructuring includes a $125 million issue of convertible preferred shares to Berkshire Partners, Greenbriar Equity Group and affiliates of The Goldman Sachs Group Inc.

In conjunction with the restructuring, Moody's revised the outlook to stable from negative.

Moody's confirmed Hexcel's other ratings, including the $26 million of 7% convertible subordinated debentures due 2011 at Ca3.

Following the proposed restructuring transactions, whereby the company intends to replace $180 million of existing senior bank debt and $47 million of convertible subordinated notes due August 2003, overall leverage remains high despite a general reduction in total debt by about $100 million.

Leverage will reduce somewhat, as debt will fall from 5.7x actual 2002 EBITDA to 4.8x pro forma 2002 EBITDA. Additionally, free cash flow available to repay debt is a concern, Moody's said.

Through the restructuring, senior debt amortization has been reduced substantially near-term. Moody's anticipates leverage to remain high (over 4x EBITDA) through 2004. EBIT/interest expense coverage thin at 1.0x pro forma 2002, and likely to remain under 2.0x near term.

However, Moody's notes the positive contribution that the $125 million convertible preferred share issue provides to the capital structure.

Moody's cuts Valero ratings

Moody's Investors Service downgraded Valero Energy Corp. senior unsecured debt to Baa3 from Baa2 and subordinated debt to Ba1 from Baa3.

The downgrade reflects high financial leverage, the expectation that near-term incremental debt reduction will not likely be sufficient to maintain a Baa2 rating even under a reasonably high refining margin scenario and event risk related to growth through acquisitions.

The outlook is stable, reflecting the expectation that Valero will finance any large acquisitions with a meaningful amount of common equity.

The rating could be lowered if the company's indebtedness were to increase materially from current levels as a consequence of a debt-financed acquisition or poor industry fundamentals, Moody's added.

S&P confirms Teck Cominco, off watch

Standard & Poor's confirmed Teck Cominco Ltd. and removed it from CreditWatch with negative implications. Ratings confirmed include Teck Cominco's $170 million 3.75% convertible subordinated debentures due 2006 at BBB-, $200 million 7% senior notes due 2012 at BBB and Teck Cominco Metals Ltd.'s $150 million 6.875% debentures due 2006 and $2.6 million 8.03% medium-term notes due 2003 at BBB and C$55 million redeemable preferred shares expires 2006 series F and C$79 million redeemable preferred shares expires 2006 series E at BB+. The outlook is stable.

S&P said the confirmation reflects the successful creation of the new Fording Canadian

Coal Trust, which combines the metallurgical coal assets of Fording Inc., Teck Cominco, and the Luscar Energy Partnership.

The ratings were placed on CreditWatch due to concerns about the increased leverage arising from the acquisition and the company's reduced financial flexibility due to the use of bank facilities to fund the acquisition, S&P said. Teck Cominco's financial performance has suffered from ongoing weak zinc prices, which are not expected to recover materially in the near term.

Based on detailed analysis of company projections reflecting the coal acquisition, S&P said it expects that Teck Cominco's free operating cash flows will be sufficient to bring leverage back in line with lower historical levels within a relatively short timeframe.

In addition, financial flexibility remains adequate, with availability of C$639 million under the company's bank lines immediately following the acquisition, S&P added.

The acquisition of the Fording coal assets also moderately enhances Teck Cominco's business profile, due to the increased revenue diversification and stronger market position provided by the partnership's coal assets.

S&P puts Swiss Life on watch

Standard & Poor's put Swiss Life/Schweizerische Lebensversicherungs-und Rentenanstalt AG on CreditWatch with negative implications including Swiss Life Cayman Finance Ltd.'s CHF250 million 5.25% mandatory convertible securities due 2005 at BBB.

S&P said the action follows the group's announcement that it expects to report a bottom-line loss of CHF1.7 billion ($1.3 billion) for the year ended Dec. 31, 2002, mainly as a result of deepened losses in the group's domestic business, realized capital losses, and significant asset impairments.

S&P said it is concerned about the further deterioration in Swiss Life's domestic book of business and the potential negative effect that full-year 2002 results may have on the group's capitalization.

In addition, the current low interest rate environment, combined with continued weak equity markets, will delay the expected improvement in the group's underlying operating performance, in particular for the group life insurance business, S&P said. This may also challenge Swiss Life's ability to maintain capitalization at a level consistent with the ratings.

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