S&P rates Vivendi bonds B+, credit facility BB

Standard & Poor's assigned a B+ rating to Vivendi Universal SA's planned €1 billion of bonds and a BB rating to its new €2.5 billion syndicated credit facility due 2006. S&P also upgraded Vivendi's €3 billion multi-currency revolving credit facility 2007 to BB from B+. The corporate credit rating remains at BB and the outlook is still stable.

S&P said the rating on the high-yield bond reflects the issue's subordination to Vivendi's credit lines, which are secured by the group's assets.

The upgrade on the €3 billion credit facility reflects S&P's belief that this facility now ranks pari passu with all other secured bank lines and benefits from mandatory prepayment features broadly similar to those of the new €2.5 billion credit line.

S&P added that it believes Vivendi's planned refinancing will significantly improve the company's tight liquidity, which has been the group's primary credit risk over the past year.

Upon completion of these refinancing steps and following repayment of all existing syndicated and bilateral loans due to expire in 2003/2004, Vivendi will benefit from cash balances exceeding €1 billion and an undrawn revolving line of €1.5 billion (as part of the new €2.5 billion syndicated line), S&P said. This should be sufficient to meet its debt obligations well into 2004, even if management's disposal plan cannot be achieved as anticipated.

S&P added that the ratings assume Vivendi will continue to actively reduce debt and further improve liquidity through asset disposals in 2003. The new management's track record of timely and significant asset disposals offers a material degree of downside protection.

Moody's says Vivendi unchanged

Moody's Investors Service said Vivendi Universal SA's ratings remain unchanged including its senior unsecured debt at B1 with a negative outlook for now but added that successful implementation of its refinancing package, including a timely refinancing of debt at its Vivendi Universal Entertainment subsidiary, could have more positive rating implications.

Moody's said the current ratings highlight Vivendi Universal's continued reliance, in the absence of free cash flow from its fully controlled operating activities, on substantial asset sales to make scheduled debt repayments over the next 12 months.

Vivendi Universal has announced plans to issue €1 billion in high-yield notes and, on the back of the contemplated high-yield issuance, intends to enter into a new €2.5 billion bank facility. Funds raised will refinance existing bank debt, replace existing facilities and provide additional liquidity.

Subject to evaluation of the indentures, Moody's said it expects to assign a B1 rating to the new high-yield notes.

If achieved as planned, the refinancing, which amongst other things is contingent on the successful signing of a $700 million film securitization at Vivendi Universal Entertainment currently expected by the end of March, would create significant additional financial flexibility for Vivendi Universal. In particular, a successful refinancing would allow Vivendi Universal to fine tune the timing of asset sales contemplated and with that help towards achieving the best possible proceeds levels, Moody's said. This could well have more positive rating implications and Moody's intends to review its rating position in the light of a successful refinancing.

S&P cuts Antenna TV

Standard & Poor's downgraded Antenna TV SA including cutting its $115 million 9% notes due 2007 and €150 million 9.75% notes due 2008 to B+ from BB-. The outlook is negative.

S&P said the downgrade is because Antenna TV has been unable to improve its very aggressive financial profile. Antenna has not showed a sufficient improvement in its financial profile in 2002 and S&P said it does not expect the company to improve its credit protection measures significantly in 2003.

Antenna had about €234 million ($250 million) of outstanding debt at Dec. 31, 2002. Although Greece was among the best performers in the European TV advertising market in 2002, strong competition in the Greek market led to increased program costs and reduced profitability for Antenna. The key reason for the lower profitability was the 26% increase in the company's cash program costs to €54 million in 2002 from €43 million in 2001, S&P added.

The increase in program costs relates to competition for viewing share in uncertain advertising market conditions; the increase in the company's program inventory; and the cost of reality TV programs, which are expensive for Antenna to produce, S&P said. Antenna's profitability in 2002 was also negatively affected by loss-making operations including Daphne (a magazine publisher) and Nova TV (a Bulgarian TV station).

The negative outlook reflects uncertainty over the company's ability to improve its financial profile in the medium term, which could leave Antenna vulnerable if recent improvements in the Greek advertising market are not sustained and if the company cannot control its program costs, S&P said.

Moody's cuts Hannover Re

Moody's Investors Service downgraded Hannover Reinsurance Co. including cutting its subordinated debt to Ba1 from Baa1. The outlook is negative.

Moody's said that the action reflects Hannover Re's high levels of financial and operational leverage relative to peers and that it does not expect Hannover Re's leverage profile to change meaningfully in the short-term to medium-term.

This gearing, which reflects management's commitment to an efficient capital structure, has enabled the firm to generate substantial profits in the current underwriting environment. In Moody's view, however, this leverage structure exposes creditors - both bondholders and policyholders - to an elevated level of risk.

The negative outlook reflects Moody's concerns regarding Hannover Re's high level of reinsurance recoverables, which stood at €6.3bn as of Sept. 30, 2002. Moody's said it recognizes that a portion (€2.4bn) of these recoverables are collateralized by funds withheld, LOCs, deposits, or by the structure of the transactions. Nevertheless, the uncollateralized recoverables, which totaled €3.9bn as of the same date, represent an additional significant risk factor, although these may have offset potential.

Moody's raises Willis North America

Moody's Investors Service upgraded Willis North America Inc. including raising its senior credit facility to Ba1 from Ba2 and senior subordinated debt to Ba2 from Ba3. The outlook remains positive.

Moody's said the upgrade reflects Willis' significantly improved financial fundamentals. The benefits of the current hard market, a significant focus on both generating new sales and maintaining existing business as well as careful expense management have combined to generate strong revenue growth and significantly improved earnings.

Further, the company's cash flow from operations has steadily improved with retained cash flow relative to total debt for 2002 estimated at between 30% and 40%, despite the initiation of a common stock dividend, Moody's said, adding that this metric is very good relative to peer companies.

These positive credit factors are tempered by the group's significant, albeit substantially reduced, financial leverage. This concern also reflects the company's effective financial leverage which considers the firm's potential defined benefit pension liability and future lease payments capitalized at a multiple of annualized rent, as well as put/call options associated with its subsidiaries and associates, the largest one being Gras Savoye, Moody's said. The company also has limited diversification of earnings outside of insurance brokerage.

The outlook for the ratings remains positive. The group's recent financial metrics, which reflect substantially improved operating earnings coupled with reduced financial leverage, might suggest an even higher rating, Moody's said. However, the extent to which Willis could be impacted by the continuing legal dispute about terms of coverage placed by the company on New York's World Trade Center remains a significant uncertainty. Moody's said it considers the likelihood of Willis being drawn into this litigation as remote, but it is nevertheless a tempering factor on the current rating.

Moody's raises Mediacom outlook

Moody's Investors Service raised its outlook on Mediacom Communications Corp. to stable from negative, affecting $3.9 billion of debt including Mediacom's $172.5 million 5.25% convertible senior unsecured notes due 2006 at Caa1 and liquidity rating at SGL-2, Mediacom LLC's $125 million 7.875% senior unsecured notes due 2011, $200 million 8.50% senior unsecured notes due 2008 and $500 million 9.50% senior unsecured notes due 2013 at B2, Mediacom Broadband's $400 million 11.00% senior unsecured notes due 2013 at B2, Mediacom Broadband Operating's $600 million senior secured revolver due 2010, $300 million senior secured term loan A due 2010 and $500 million senior secured term loan B due 2010 at Ba3, Mediacom Midwest's $450 million senior secured revolver due 2008 and $100 million senior secured term loan due 2008 at Ba3 and Mediacom USA's $450 million senior secured revolver due 2008 and $100 million senior secured term loan due 2008 at Ba3.

Moody's said the outlook revision reflects its belief that Mediacom's ratings are no longer likely to be lowered over the next 12-to-18 months. The stable outlook specifically incorporates the successful integration of the former AT&T Broadband properties and operating performance levels that have generally met or exceeded prior expectations and are projected to be sustained and/or improved upon over the forward period.

The stable outlook also reflects the company's maintenance of a good liquidity position, which has allowed management to execute in accordance with plan and is expected to more than adequately fund and facilitate the achievement of its broader business objectives, Moody's added.

With the expected growth in operating cash flow and the attainment of positive free cash flow resulting from anticipated incremental penetration and the continued growth of new services, Moody's said it believes that the company will begin to accelerate a deleveraging trend that will further enhance financial flexibility and reduce financial leverage to pre-AT&T acquisition levels.

A positive outlook may be warranted if the company is able to successfully complete its rebuild program and transition to a positive free cash flow generating position later this year, and evidence of subscriber and/or margin erosion remain absent over the interim period. Conversely, Moody's might revert to a negative rating bias again if for any reason the company deviates from its projected deleveraging trajectory.

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