Moody's cuts Corning to Baa3

Moody's downgraded both the long-term and short-term debt ratings of Corning Inc., including the two convertible notes to Baa3 from Baa1. The ratings remain under review for possible further downgrade.

The cut reflects growing concern that the recovery in telecom operations will be delayed until well into 2003, as end users have continued to dramatically scale back capital expenditures, Moody's said.

While recognizing Corning's leadership in the markets it serves and a current strong liquidity position, Moody's noted that the rapid fall off of business in the telecom sector will curtail internal cash generation more severely than originally anticipated, prolonging its cash burn rate.

At the same time, debt protection measures have weakened considerably and will remain weak over the near-to-intermediate-term. Moody's said the recent announcement of further pre-tax cost initiatives of about $600 million, which will be spread over the second and third quarters, represents management's resolve to "rightsize" its cost structure in an environment of declining revenues.

Moody's believes that it may be some time before telecom revenues stabilize.

The rating agency expressed concern that increases in bandwidth demand, which would in turn fuel a rise in capital expenditures by telecom carriers and positively impact Corning, may not occur until late in 2003 or early in 2004.

While Corning has aggressively attacked its cost structure to date, Moody's said telecom revenues have not bottomed out, and the timing and strength of rebuilding revenues is uncertain.

Until a rebound in demand occurs, Corning's fixed asset investments will be significantly underutilized and poor asset efficiency will result in continued poor financial returns.

The ongoing review will address the need for further initiatives by the company to adjust its cost base if its revenues continue to decline.

In addition, the likelihood for debt reduction through proceeds from asset sales from smaller businesses, offset by any future cash payments with respect to contingent liabilities associated with the bankruptcy of Pittsburgh Corning, will be evaluated.

S&P affirms Pepsi ratings

Standard & Poor's affirmed its ratings for The Pepsi Bottling Group Inc. at A-, and affirmed the A ratings for PepsiCo Inc. The ratings outlook is stable.

The action follows Pepsi Bottling Group's announcement that it has reached a non-binding agreement with the two principal shareholders of Pepsi-Gemex S.A. de C.V. regarding the possible acquisition of the company, which is the second largest bottler of Pepsi-Cola beverages outside of the U.S.

S&P expects Pepsi Bottling will execute financial policies in a way that will support credit measures appropriate for the existing ratings.

Moody's cuts Georgia-Pacific

Moody's downgraded the senior unsecured debt ratings of Georgia-Pacific Corp. to Ba1 from Baa3, and cut the convertible preferreds to Ba1 from Baa3.

The ratings downgrade is based on high debt and a weak near term outlook for commodity products, which will impede the company's ability to reduce debt significantly near term, Moody's said.

Georgia-Pacific's cash generation has been significantly below expectations since the acquisition of Fort James in 2000, Moody's said. Combined with a very high level of debt of about $12.4 billion currently, excluding the convertibles, this has produced debt protection that is much weaker than previously envisioned and more consistent with the lower ratings.

Looking forward, a relatively weak outlook for commodity products will result in low cash flow in relation to debt and will inhibit meaningful debt reduction.

Moody's expects retained cash flow to total debt of between 12% to 13% in 2002, if prices for commodity products do not increase meaningfully during the year.

The downgrade considers the company's planned initial public offering of the consumer products and packaging business and the contemplated exchange of rated debt securities.

Moody's believes these actions, long term, may ultimately be positive for existing bondholders because of the lower level of debt and greater stability of earnings.

However, there is significant uncertainty surrounding the timing and completion of the spinoff, which is not likely to be completed until 2003 at the earliest.

In addition, Moody's believes that debt at consumer products and packaging, even after the IPO and spin-off, will still be quite high and that debt protection measurements will be consistent with the lower ratings.

Nonetheless, long term, if the spin is completed and the company is successful in reducing debt with cash-flow, the ratings could be improved.

S&P affirms Georgia-Pacific at BBB-

Standard & Poor's affirmed its BBB- and A-3 corporate credit ratings on Georgia-Pacific Corp. and the subsidiaries after Georgia-Pacific disclosed details regarding its plans to separate into two publicly-traded companies - a consumer products, packaging, and pulp and paper firm to be spun off from existing operations and the remaining building products and distribution firm. Georgia-Pacific has total debt of about $13 billion.

S&P said the affirmation is based on expectations that Georgia-Pacific will offer to exchange existing bonds for bonds of the new consumer products company, bonds issued by Fort James Corp. and its predecessors will be obligations of the consumer products company and become pari passu with that entity's other senior unsecured debt and that holders of industrial revenue bonds associated with the building materials business will have the opportunity to transition to the consumer products company.

Based on GP management's current financing plans and S&P's assessment of the business and financial risks associated with each of the two companies, S&P expects to assign a BBB- corporate credit rating to the consumer products company and a BB corporate credit rating to the building products company, each with a stable outlook.

Liquidity is adequate, with proceeds from the expected remarketing of the mandatorily convertible debt issue, free cash flow and meaningful availability under a multiyear credit facility available to meet near-term debt maturities.

The company is in compliance with financial covenants in its credit agreements. Covenants are tight, but are not expected to be violated.

Georgia-Pacific currently has accounts receivable facilities totaling $1.3 billion that terminate if its debt is rated below investment grade by both S&P and Moody's, which Moody's did on Wednesday. These facilities are expected to be extended if necessary prior to the separation. Post-separation financing is expected to be structured so that a triggering event is more remote.

Georgia-Pacific's commitment to a stronger financial profile is a key support to the ratings, S&P said. Cost improvements and gradually strengthening market conditions across many of the company's commodity businesses should facilitate higher free cash generation and debt reduction.

Fitch changes Xerox's outlook to negative

Fitch Ratings changed the rating outlook on Xerox Corp. and its subsidiaries to negative from stable due to ongoing negotiations with its bank group to refinance the $7 billion revolver due in Oct. 2002, the potential that core operating cash flow could limit access to the capital markets and the delay in filing its annual report. The BB senior unsecured debt ratings and the B+ convertible trust ratings are affirmed.

Fitch also noted Xerox's weakened credit protection measures, refinancing risk of the revolver, significant debt maturities for the next three years, the competitive nature of the printing industry, the necessity for constant new product introductions and overall weak economic conditions.

"Fitch continues to recognize the company's improving operational performance, strong, technologically competitive product line and business position, completed asset sales, execution of the cost restructuring program, and progress in exiting the financing business," the rating agency said. "Xerox continues to improve its core operations as core EBITDA for the fourth quarter of 2001 was approximately $420 million, compared to $61 million in the third quarter, mainly as a result of higher gross margins and a lower cost structure."

At March 30, 2002, the company had $4.7 billion in cash and about $17 billion in total debt. Debt maturities for the second quarter of 2002 are $1.3 billion and $1.5 billion for the second half of the year, according to Fitch.

Moody's confirms Richardson at B3

Moody's confirmed Richardson Electronics Ltd.'s ratings, including the 7.25% convertible subordinated debentures due 2006 at B3. The ratings outlook is stable.

Moody's confirms Duane Reade ratings

Moody's confirmed all ratings of Duane Reade Inc. following the company's tender offer for all of the subordinated notes using proceeds from the recent upsized 20-year convertible CATZ issue. The convertible was confirmed at Ba3.

In spite of the significant upsizing of the convertible over initial plans and the replacement of subordinated debt with senior debt, Moody's said all ratings at current levels are appropriate because of the materially lower coupon and the substantial lengthening of the company's maturity profile.

The rating outlook continues to be positive.

The positive outlook reflects expectations that ratings could be upgraded over the intermediate term if operating margins remain relatively constant as gross margins decline, debt protection measures such as adjusted leverage modestly improve, and the company maintains an adequate liquidity cushion.

Inability to find efficiencies that keep operating margins at a constant level, difficulties in achieving strong performance at the significant number of new non-Manhattan stores, or failure to maintain an adequate liquidity cushion would place downward pressure on the ratings.

Moody's puts Williams on review for downgrade

Moody's placed under review for possible downgrade the ratings of The Williams Companies Inc. and its affiliates, including the Baa3 rated convertible preferreds. The ratings have had a negative outlook since Feb. 27.

The review will continue to assess cash flow of each key business segment, the drivers behind cash flows and variables that could put cash flows at risk. Moody's also will look at medium-term liquidity and ongoing execution of the company's balance sheet enhancement plan.

Moody's recognizes that Williams has made progress in reducing its sizable debt burden.

Moody's cuts Primedia ratings

Moody's lowered the ratings of Primedia Inc., including $125 million of 9.2% exchangeable preferred stock and $200 million of 10% exchangeable preferred stock to Ca from Caa1.

The downgrade reflects deleveraging at a pace and magnitude that has been below Moody's expectations.

Primedia targeted $250 million in asset sales in order to initiate balance sheet repair. To date, the company has completed sales for gross proceeds of about $160 million. In addition to falling short of its divestiture goals, the impact of the sales that have occurred has not been significant enough to result in material deleveraging because the sale multiples approximate the company's total debt and preferred leverage.

Further, Moody's believes the implied coverage provided to noteholders by the remaining underlying assets is modest and likely to provide little incremental cushion above current debt levels.

The negative outlook incorporates the likelihood that the operating environment will remain difficult well into 2002 and difficulty expected in achieving meaningful cash flow growth via cost cuts.

Given Primedia's financially strained position, it has very little room for error in 2002, Moody' said.

If Primedia is unable to achieve targeted cost cuts, particularly in its Internet group, and continues to fall short of asset sale targets, further ratings downgrades are likely.

If the company is able to more meaningfully deleverage by completing its assets sales and meeting its expense reduction plan, ratings stabilization can be achieved.

S&P rates Amcor convertibles BBB-

Standard & Poor's assigned a BBB- rating to Amcor Investments (New Zealand) Ltd.'s AUD200 million junior subordinated convertible notes.

S&P ups Millenium, COR Therapeutics

Standard & Poor's raised the corporate credit rating on Millennium Pharmaceuticals Inc. to B from B- and the subordinated debt rating to CCC+ from CCC. S&P also raised the senior unsecured debt rating on the COR Therapeutics Inc. 4.5% senior convertible notes due 2006 to B from B- and the subordinated debt rating on COR's 5% convertible subordinated notes due 2007 to CCC+ from CCC. The outlook is stable.

The upgrades incorporated improved business profile resulting from the combination of Millennium's diverse drug development partnerships and promising drug pipeline with COR's established Integrilin-driven product revenue base.

Still, S&P said, the low-speculative-grade ratings reflect the expectation of net losses and negative operating cash flows over the next several years due to high R&D funding.

With $1.9 billion in cash and investments on hand, Millennium Pharmaceuticals can easily pay off the debt while continuing to fund R&D.

Nevertheless, it is expected that Millennium will continue to post significant losses and negative operating cash flows over the next several years, especially as the company enters the later, more expensive stages of drug development for several of its candidates.

Although no major new launches are expected over the near term, increasing cash generation from Integrilin will help fund drug development spending. However, drug development is inherently uncertain and highly competitive, especially in the therapeutic classes that Millennium is focusing on.

Timely and successful commercial product launches are essential to Millennium's long-term prospects.

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