Moody's cuts Elan to B2

Moody's Investors Service lowered Elan Corp. plc's senior guaranteed debt ratings to B2 from Ba2, including the 0% convertibles due 2018.

The downgrade reflects concern over the fall in value of Elan's balance sheet investments, risks associated with implementing the recovery plan, anticipated disruption from departure of senior management and expected depletion of cash due to nearing debt maturities and contingent obligations.

The ratings remain under review for possible further downgrade, awaiting further details on balance sheet valuation and management guidance for 2002, as well as the continuing uncertainties associated with the SEC investigation into Elan's accounting practices.

Moody's concerns about the valuation of Elan's balance sheet investments are heightened by the recent announcement that it expects a non-cash impairment charge of about $600 million.

In addition, Moody's noted that along with $160 million of EPIL III debt repayment, Elan guaranteed a loan to a purchaser of EPIL III assets that may be called in three months.

Moody's believes these developments indicate difficulty Elan in disposing of financial investments, many of which are in privately held biotech and pharmaceutical companies, as it attempts to simplify its balance sheet.

Moody's is concerned that further erosion of Elan's book equity could result from potential additional write-offs of Elan's financial assets, intangible assets or restructuring charges related to its business recovery plan.

Moody's noted, however, that in addition to financial assets Elan has significant non-core assets it may sell as part of its business recovery plan.

Elan's current balance sheet cash of about $1.4 billion will begin to deplete due to near term obligations, which we believe will increase the pressure to sell assets.

Obligations include $62 million in a maturing convertible in July, some $200 million associated with prior acquisitions, as well as any shortfall related to the EPIL III asset disposal.

In addition, $325 million borrowed under the bank credit facility which expires in 2004 becomes due on July 29. Moody's said it is uncertain that Elan will retain access to this credit facility.

Looking beyond 2002, Moody's now believes that Elan's having sufficient cash to cover the potential 0% convertible put in December 2003 will depend on asset sales, the success of which may be uncertain. The put could be settled in stock, although Moody's would not consider this a viable option due to the low share price.

Moody's said Elan's access to the capital markets for refinancing may remain limited.

Elan has indicated it will provide further guidance shortly with respect to its recovery plan and the impact on the balance sheet and cash flows, as well as updated business guidance for 2002.

In addition, Moody's believes the current SEC investigation into Elan's accounting practices still presents significant uncertainties in terms of both timing and outcome, as well as potential repercussions related to the shareholder lawsuits.

Moody's believes offsetting factors include recent changes in Elan's corporate governance, favorable prescription trends in key pharmaceutical products and the potential provided by Antegren, an experimental treatment for multiple sclerosis and Crohn's disease in Phase III clinical trials.

S&P affirms Parker ratings

Standard & Poor's affirmed the ratings of Parker Drilling Co., including senior debt at B+ and subordinated debt at B-. The outlook is stable.

Ratings reflect participation in the highly competitive, cyclical and volatile oil and gas contract drilling industry in areas of high political risk, and aggressive debt leverage.

Weaknesses are mitigated by a diversified rig fleet and adequate near-term liquidity for capital spending and debt service.

Demand for drilling services is driven by the exploration and development activities of the upstream energy industry, which are correlated to highly volatile and cyclical hydrocarbon prices. Demand in Parker Drilling's U.S. offshore markets has been weak in conjunction with natural gas prices since early 2001, causing leading-edge day rates in the jack-up market to fall to about cash breakeven.

However, in recent weeks, utilization rates have improved, which could be a precursor to strengthening day rates.

While margins have strengthened in Parker Drilling's international land rig business, it has been insufficient to offset declining conditions in the U.S. Strong natural gas prices and declining North American production could stimulate a rebound in those markets during the second half of 2002, but international margins could be pressured if oil prices fall.

Parker Drilling's financial profile is burdened by aggressive debt leverage incurred to finance acquisitions and new rig construction just prior to the latest industry downturn.

Total debt to total capital was a high 59% as of March 31 and total debt to EBITDA was a very high 5.2 times.

Given Parker Drilling's high fixed-charge burden, about $55 million of annual interest expense, EBITDA interest coverage for the first quarter of 2002 was only about 2.1 times, although higher than a cyclical trough of 1 times.

Management realizes it needs to reduce fixed charges and is targeting a capital structure with 40% debt leverage.

Unfortunately, achieving this goal will be very gradual and well-beyond S&P's usual outlook time horizon.

Minimal debt reduction is anticipated in 2002.

Internal cash flow should be sufficient to fund debt service and the company's planned capital expenditures of about $50 million, but few funds are likely to be available for debt reduction.

If strong U.S. natural gas prices persist into 2003, the outlook for increased rig demand and debt reduction next year is more promising.

Financial flexibility is supported by $60.9 million of cash and equivalents as of March 31, $50 million of unused bank credit facilities, low maintenance capital requirements and minimal near-term debt maturities.

Although industry conditions in the U.S. are weak, the outlook remains stable as the company has adequate liquidity for at least the next two years.

In addition, fundamentals for U.S. operations are improving because sharp depletion rates are helping to sustain natural gas prices that are sufficiently high to entice increased demand for Parker's rigs by exploration and production companies.

Moody's sees Vivendi's new bank facility as a positive step

Moody's Investors Service acknowledged Vivendi Universal's recent additional €1 billion unsecured credit facility from a group of international banks to provide incremental short term liquidity as an important step in the right direction to shore up pressured short term liquidity and evidences the support of its banks.

Moody's noted, however, that while the facility is unsecured its availability is subject to very stringent terms and conditions leaving the company highly dependent on the banks' support.

The company is working with the banks on putting in place a refinancing to address longer term financing requirements. Moody's believes a comprehensive refinancing in the very near term remains absolutely essential for to secure liquidity for the medium term and to regain a degree of financial flexibility.

This should allow the company to review its strategy and to execute potential asset sales in an orderly fashion.

Against this background, Vivendi's ratings remain under review for possible downgrade, reflecting liquidity concerns but also uncertainties about the further development of its credit fundamentals.

Failure to achieve a comprehensive refinancing near-term would still have significant negative rating implications.

It remains Moody's expectation that should an adequate longer term refinancing be achieved, terms and conditions of the new financing will likely be onerous and that this could lead to selected downward ratings adjustments in its own right.

Moody's further noted that the Commission des Operations de Bourse, the French market regulator, has begun a probe into Vivendi Universal's financial information.

Moody's cuts Qwest to B2

Moody's Investors Service lowered the senior unsecured long-term rating of Qwest Communications International and Qwest Capital Funding from Ba2 to B2. Also, Moody's lowered the senior unsecured long-term rating of regulated subsidiary Qwest Corp. from Baa3 to Ba3.

All ratings continue to remain on review for further possible downgrade.

The downgrades follow Qwest's announcement that the Denver based U.S. Attorney has launched a criminal investigation of the company.

While details of the investigation have not been disclosed, Moody's is concerned about possible adverse consequences on near-term liquidity should asset sales or planned accounts receivable securitizations suffer any setbacks due to the news.

Moody's is also concerned about the deleterious long-term affects such an investigation might have on the company's ability to grow and retain customers.

The review for downgrade will focus on Qwest's ability to sell DEX in the near-term for reasonable cash proceeds and a proposed $300 million asset securitization program in the very near-term. Also, an analysis of the effects of the SEC and Department of Justice investigations on Qwest's ability to retain and grow customers and suppliers

Qwest's operating performance in light of uncertain industry trends and some resolution or clear direction resulting from the SEC investigation into the company's accounting practices and the Department of Justices criminal probe also will be factors, as well as Qwest's ability to repay or extend its $3.4 billion May 2003 bank facilities.

S&P keeps Qwest on negative watch

Standard & Poor's said Qwest Communications International Inc.'s and related entities's BB+ long-term and B short-term corporate credit ratings remain on negative watch following news of the criminal probe by the U.S. Attorney General's office.

The investigation is a new development that could potentially materially weaken the company's financial and business profile and increase the likelihood that ratings will be lowered.

This investigation also increases concerns about the timing of sales of the directory business, which is key to meet the yearend 2002 total debt to EBITDA covenant of 4 times in its $3.4 billion bank facility.

During the next two weeks, as more relevant information becomes available, S&P will focus the review on analyzing the effect of the criminal investigation on Qwest's ability to manage its business, as well as getting further clarity on the anticipated timeline for the directory sales.

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