S&P cuts Arrow ratings

Standard & Poor's lowered Arrow Electronics Inc.'s ratings, including the 0% convertible due 2021 to BBB- from BBB, reflecting a leveraged financial profile and weak debt protection measures. The outlook is negative.

Effective working capital management enabled Arrow to make substantial debt reductions despite declining earnings, S&P noted. Total debt was reduced to $2.1 billion as of August 31, 2002, down about $1.5 billion from the prior year.

However, debt protection measures are expected to remain sub-par for the rating in the near term given earnings weakness, S&P said.

Liquidity is provided by more than $900 million in cash balances, as well as significant availability under a $625 million revolving credit facility maturing in February 2004.

Although there are no outstanding borrowings under the facility, covenant restrictions include a maximum total debt to capital ratio, which currently constrains the ability to borrow the entire facility amount, S&P said.

Arrow also has an unused $750 million accounts receivable securitization program.

The facility requires that Arrow maintain an investment-grade rating from S&P and Moody's, which, if not modified, could become a borrowing constraint in the event of future downgrades.

Near-term debt maturities are moderate - $365 million due in October 2003 - and are expected to be repaid from cash balances.

A material decline in debt protection measures in the near term, or the lack of profitability improvement over the intermediate term, could lead to another downgrade.

Moody's cuts Mirant

Moody's Investors Service downgraded the ratings of Mirant Corp. (senior unsecured to B1 from Ba1, convertible trust preferreds to B3 from Ba2) due to significantly lower operating cashflow relative to its high debt burden, coupled with the likelihood that future operating cashflow levels may weaken. The outlook remains negative.

The ratings downgrade reflects concerns surrounding Mirant's ability to generate sufficient levels of operating cashflow relative to its total debt of approximately $10.8 billion, Moody's said.

The rating also reflects Mirant's current liquidity profile.

The company has effectively drawn all its available credit and has unrestricted cash balances of about $1.8 billion plus $400 million in cash at subsidiaries. Debt maturities in 2003 include the $1.125 billion credit facility in July and amortization of debt at various subsidiaries totaling $437 million.

Assuming operations don't consume cash near term, Mirant appears to have adequate liquidity to meet obligations through yearend 2003. However, there is about $2.7 billion of maturities in 2004, a significant portion of which will need to be refinanced, Moody's said.

Due to the current lack of investor confidence, access to public debt markets is very limited. Furthermore, the banks have also pulled back from the sector as a whole, resulting in significantly increased refinancing risk, Moody's added.

At this point, Moody's believes Mirant's most significant challenges will be reducing its debt to a level commensurate with its cashflow and refinancing debt maturities in 2004.

S&P cuts TXU Europe

Standard & Poor's lowered the ratings of TXU Corp.'s TXU Europe Ltd. and subsidiaries to BBB- from BBB+, and said there is a very real chance that the ratings will be cut to non-investment-grade in the very near future.

The downgrade follows a material deterioration in credit quality, primarily due to weak U.K. wholesale power market conditions, a perceived diminution in support from parent TXU and increased liquidity pressures.

S&P said the ratings remain on negative watch.

Fitch affirms TXU ratings

Fitch Ratings affirmed TXU Corp.'s senior BBB rating and the ratings on its U.S. subsidiaries. The outlook is stable.

The ratings and outlook are based on robust and stable cash flow from U.S. electric and gas distribution and wholesale and retail supply businesses, and adequate liquidity for these businesses and at the holding company.

The rating also reflects Fitch's review of available liquidity facilities. Fitch focuses heavily on cash flow rather than earnings in its assessments.

S&P cuts Aspen Technology

Standard & Poor's lowered the ratings of Aspen Technology Inc., including the 5.25% convertible due 2005 to CCC+ from B-, following its warning that sales in the September quarter will be lower than previously expected.

As a result of lower sales, efforts to restore profitability and positive cash flow are likely to be delayed, S&P said.

Aspen had total debt, including convertible preferred shares, of $148 million at June.

The outlook remains negative, reflecting uncertainties as to when customer spending for software applications will stabilize, as well as challenges in realigning its cost structure, S&P added.

Failure to stem cash usage rates could result in a downgrade.

S&P keeps Sierra Pacific on watch

Standard & Poor's confirmed Sierra Pacific Resources ratings (senior unsecured B-) but is keeping the ratings on negative watch.

The ratings affirmation is in conjunction with plans to sell a $250 million debt issue at Nevada Power and a $100 million offering at Sierra Pacific Power. The financings would refund a total $350 million in bank lines, $200 million of which is at Nevada Power and $150 million at Sierra Pacific, that mature in November 2002.

The current bond offerings, if successful, would also demonstrate access to the capital markets, a very important consideration in this highly uncertain environment for energy providers, particularly for companies whose credit ratings are as low as those of the Sierra Pacific Resources companies.

The completion of this financing is important to stabilize Sierra Pacific's financial position, S&P said. The utilities are working to establish accounts receivable conduits to provide liquidity in the absence of bank lines.

Several uncertainties also remain that could still negatively impact the ratings, however, including regulatory pressures.

S&P puts United Rentals on negative watch

Standard & Poor's placed United Rentals (North America) Inc.'s ratings on negative watch, including the B+ rated convertible preferreds.

This watch follows the continued operating weakness stemming from depressed end-market conditions and the failure to meet S&P expectations for debt reduction in a declining market, the rating agency said.

In August, non-residential construction spending decreased about 20% from year-ago levels. Prospects for a significant near-term rebound are uncertain, at least until mid-2003, and current financial measures are sub-par for the rating., S&P said

Weak markets coupled with industry overcapacity have resulted in lower-than-expected rental rates. Third quarter operating income will be weaker than expected and the company has amended the fixed charge coverage ratio on its credit facility in advance of results.

S&P rates AT&T exchange notes

Standard & Poor's assigned a BBB+ rating to up to the $5.5 billion in new AT&T Corp. notes that will be exchanged for certain AT&T Corp. notes on completion of the merger of AT&T Broadband and Comcast Corp.

Also, S&P said the new Broadband notes listed in the exchange, which will become obligations of AT&T Comcast Corp., will be rated BBB with a negative outlook.

Remaining AT&T Corp. long-term debt rated BBB+ is on negative watch until the merger is completed.

It is anticipated that AT&T Corp. afterward will have a corporate credit rating of BBB+ with a stable outlook.

Ratings for AT&T Corp. reflect the high business risk profile of the long-distance industry, offset somewhat by deleveraging efforts over the past year, S&P said.

On completion of the merger, AT&T Corp.'s net debt is expected to be about 50% lower than the $31 billion net debt at the end of the second quarter. Therefore, net debt to EBITDA pro forma for the merger is anticipated to be about 1.5x at yearend 2002 and below 1.5x in 2003.

AT&T's Business Services Group, which comprises about 65% of revenues and EBITDA after the sale of AT&T Broadband, is expected to be the growth area.

AT&T's Consumer Services unit will continue to be impacted by pricing pressures on long-distance revenues due to technology substitution and regional Bell operating company entry.

Regarding liquidity, AT&T Corp. had $5.6 billion of cash as of June 30, $2 billion in accounts receivable securitization facilities, of which $200 million was drawn, and on Oct. 9 announced a new $4 billion bank facility.

In addition, the June issuance of $2.5 billion of common equity will enable AT&T Corp. to satisfy a material portion of the back-end $3.4 billion obligation for AT&T Canada Inc., net of foreign currency hedge effects, S&P said.

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