Fitch cuts UnumProvident

Fitch Ratings downgraded UnumProvident Corp's long-term ratings by one notch including cutting its senior debt to BBB- and trust preferreds to BB+. The ratings remain on Rating Watch Negative.

Fitch said the downgrades reflect the deterioration in UnumProvident's GAAP earnings outlook and its resulting impact on fixed charge coverage going forward.

UnumProvident's $454 million GAAP reserve strengthening in the group income protection line underscores the company's concentration in business lines challenged under current economic conditions which contribute to higher claims incidence and lower recovery rates, but also reflects issues in operational efficiency specific to UnumProvident, Fitch said.

While the operational issues are being addressed by management, Fitch added that it expects that the lower earnings levels in this line are likely to persist at least through 2003 and 2004, given the low interest rate environment and continued weakness in the economy.

Resolution of the current Rating Watch Negative is dependent upon the successful completion of capital raising efforts detailed by UnumProvident on April 25.

S&P cuts some PPL ratings

Standard & Poor's downgraded PPL Capital Funding Inc.'s senior unsecured debt to BBB- from BBB, assigned a BBB rating to PPL Energy Supply LLC's new $300 million senior unsecured notes and confirmed PPL Corp. and PPL Energy Supply's corporate credit rating at BBB. The outlook remains negative.

S&P said the ratings reflect PPL Energy Supply's position as the full-requirements supplier of PPL Electric Utilities Corp.'s provider-of-last-resort (POLR) obligations over the next seven years, and the high proportion of projected margins that result from this long-term, fixed-price arrangement.

These strengths are offset by poor cash flows from PPL's merchant portfolio and an aggressive financial profile with average debt protection measures and a likely negative free cash flow position through 2004, S&P added.

The rating revision on PPL Capital's senior unsecured debt is based on its structural subordination, which will increase as new debt is financed at PPL Energy Supply.

Debt protection measures are weak, with FFO interest coverage at 3.2x in 2002, largely because of low wholesale prices, but in part affected by one-time charges, including a penalty payment of $150 million in 2002 to the vendor related to cancellation of turbine purchase contracts and a $50 million payment to buy down a non-utility generator contract, S&P said.

Almost $65 million of Cemar-related tax credits were also deferred to 2003 resulting in lower cash coverage in 2002. FFO interest coverage in 2003 is expected to improve due to a combination of higher wholesale margins and lower interest costs (Cemar's $30 million interest will no longer be reflected). FFO interest coverage in 2003 through 2005 is expected to vary because of the nature of merchant margins but is expected to average about 3.7x.

Moody's cuts Vishay

Moody's Investors Service downgraded Vishay Intertechnology, Inc. including cutting its $550 million LYONs due 2021 to B3 from Ba1 and General Semiconductor, Inc.'s $172.5 million 5.75% convertible subordinated notes due 2006 to B2 from Ba3. The outlook is negative.

Moody's said the action is in response to deteriorating operating results combined with increased debt assumed in connection with the recent acquisition of BCcomponents.

The rating action also took into account Vishay's emerging difficulties in executing its acquisition strategy. It further acknowledges the impact that charges related to tantalum purchase contracts, and the potential for future write downs associated with the passives business, may have on the company's ability to comply with its bank loan covenants. Finally, it incorporates the potential for near-term liquidity issues arising from a put option associated with its LYONs in June 2004.

The negative outlook reflects Moody's concern that the company faces near-term liquidity issues and potential covenant violations together with longer-term problems arising from the poor integration of its many acquisitions.

If Vishay does not develop a concrete plan for retiring its LYONs or develops one that relies too heavily on its revolving credit, reducing alternative liquidity and increasing the risk of a covenant violation, the ratings could fall further.

Fitch cuts Carnival

Fitch Ratings downgraded Carnival Corp. including cutting its senior unsecured notes to A- from A. The outlook is stable.

Fitch said the action is in response to Carnival's closing of its acquisition of P&O Princess Cruises plc. The downgrade incorporates Carnival's new $773 million face value in senior convertible debentures.

Fitch said the ratings reflect Carnival's dominant market position (enhanced by its acquisition of P&O Princess), very high profitability, significant cash flow generating ability, ample liquidity, historically conservative financial policy, and favorable long-term fundamentals (high barriers to entry, strong demographics, low penetration, industry consolidation, and slowing supply growth).

Offsetting these factors are the more near-term concerns and risks which include the weak economy, geopolitical events, war, terrorist alerts, the SARS virus, short booking windows, lower yields, near-term capacity absorption and rising fuel costs.

While high projected capacity increases and the current environment are likely to produce lower yields over the near term, there is little risk of Carnival not producing free cash flow for debt reduction commencing in 2005, Fitch added, explaining the stable outlook.

With this business combination, CCL enhances its position as the largest cruise ship operator in the world based on revenues, passengers carried, and available capacity, Fitch noted. As of April 9, the combined entity would have been approximately 66 ships with 101,252 lower berths, or approximately 44% of industry capacity. Planned capacity additions - 17 cruise ships having 40,990 lower berths, or most of the industry growth -should result in an even stronger presence, and increase market share to approximately 50% by 2006.

Carnival management expects that the combined group will generate at least $100 million in annual cost savings starting in 2004. The savings are expected to be extracted primarily through economies of scale, rationalization of certain shore-side operations, and dissemination of best practices, Fitch said.

S&P cuts CommScope

Standard & Poor's downgraded CommScope Inc. including cutting its $150 million 4% convertible subordinated notes due 2006 to B+ from BB-. The ratings were removed from CreditWatch with negative implications. The outlook is stable.

S&P said the downgrade reflects the expectation that profitability will remain at depressed levels over the midterm because of lower forecasts of cable television industry capital expenditures, among other factors.

CommScope is the long-standing leading manufacturer of coaxial cables and a more recent leader in fiber cables for the cable television industry, with twice the sales of the next largest supplier. In addition, rising deployment of broadband products within cable networks, to facilitate such services as Internet access and cable telephony, benefit CommScope and its product lines, which are well positioned for this technology transition.

Still, CommScope's business prospects are reliant on cyclical capital spending by cable television operators, S&P said.

While S&P said it recognizes that required maintenance of cable systems necessitates an ongoing level of recurring investment in cable, pressures on cable operators could result in a continuation of reduced overall capital spending. As a result, combined revenues for the two dominant suppliers of cable have declined to an estimated $651 million in 2002 from $1 billion in 2000, and S&P expects only modest recovery, at best, over the next two years.

Profitability has suffered, with EBITDA falling to $69 million in 2002 from $126 million in 2001 and $183 million in 2000. Operating margins, which were 11.8% in 2002, are below historical levels of 15% to 17%. Despite profitability declines, however, credit protection metrics remain comfortable for the rating, with total debt to EBITDA at 2.8x in 2002, S&P said.

S&P puts Stelco on watch

Standard & Poor's put Stelco Inc. on CreditWatch with negative implications including its C$125 million 10.4% retractable debentures due 2009 and C$150 million 8% debentures due 2006 at BB- and C$90 million 9.5% convertible debentures at B.

S&P said the action is due to a weakening financial profile, specifically weakness in earnings and uncertain prospects for steel prices and demand.

Stelco faces difficult industry conditions, resulting from lower industrial demand, sharply reduced spot market prices and higher input costs.

As a result, credit measures have fallen below S&P's previous expectations.

Moody's puts PPL on review

Moody's Investors Service put PPL Electric Utilities Corporation, PPL Energy Supply, LLC, PPL Capital Funding, Inc., and PPL Corp. on review for potential downgrade including PPL Electric Utilities Corporation's A3 first mortgage bonds, A3 senior secured debt, Baa1 senior unsecured, and Baa3 preferred stock; and PPL Energy Supply, LLC's Baa1 senior unsecured debt; PPL Capital Funding, Inc.'s Baa2 senior unsecured debt, Baa3 preferred securities; and PPL Corp.'s Baa3 subordinated debt.

Moody's said the review was prompted by its concerns about PPL's high debt level; PPL Energy Supply's increased exposure to merchant generation risk, with the completion of the University Park and the Sundance projects in 2002 and Lower Mount Bethel project in late 2003; continued weakness in the wholesale power market; and concerns regarding the amount of cash flow to be generated from PPL Energy Supply's non-regulated domestic operations and its regulated international assets, including investments in the regulated delivery business in the United Kingdom and Latin America.

Moody's notes that in 2001 and 2002, PPL wrote off its investment in Cemar, a Brazilian regulated delivery business, while purchasing the remaining ownership in Western Power Distribution plc, a regulated distribution business in the United Kingdom. However, PPL issued common stock to finance the purchase of the remaining interest in WPD in September 2002.

Moody's also notes that PPL Energy Supply's non-regulated investments now account for a larger proportion of PPL's total cash flow, as PPL Electric Utilities' financial performance has been affected by a rate cap implemented as part of a 1998 Pennsylvania Public Utility Commission restructuring order. The transmission and distribution rate cap extends through Dec. 31, 2004.

Moody's said its review will focus on PPL's plans for improving its balance sheet and cash flow, including proposed common stock issuances to retire indebtedness; the extent to which PPL Energy Supply's merchant generation risk will be hedged or otherwise mitigated; and PPL's contingency plans for its international investment portfolio.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.