S&P puts WorldCom short-term debt on negative watch

Standard & Poor's put the A-3 short-term corporate credit rating of WorldCom Inc. on negative watch and kept the BBB long-term corporate credit rating on watch, noting concern about the loss of investor confidence in WorldCom recently.

The ratings were lowered April 22, after WorldCom released guidance that was significantly below expectations. The watch also incorporates concerns regarding the formal SEC investigation into certain WorldCom's accounting issues, S&P said.

Recent developments have had a significant effect on the company's stock and bond prices, S&P said, but although the business environment continues to be somewhat challenging, the present outlook for the telecom industry suggests some improvement is likely in the second half of 2002 if the economy cooperates.

The loss of financial flexibility for WorldCom has been dramatic and the present financial profile is clearly inconsistent with current ratings, S&P said.

If the business environment shows some improvement and the resignation of the former CEO helps restore investor confidence, S&P said it expects any downgrade to be modest. But if recent developments translate into a more permanent impairment of the company's financial flexibility, a more significant downgrade is possible.

Fitch puts Ameren on negative watch

Fitch Ratings placed the ratings of Ameren Corp. on negative watch following the announcement of its purchase of CILCORP Inc. from AES for $1.4 billion, including the assumption of some $915 million of consolidated debt and preferred stock.

Ameren has indicated it plans to finance the roughly $500 million cash portion of the transaction with a significant amount of new equity, although the amount, type and timing is uncertain. Assuming 100% equity financing for the cash portion of the acquisition, the transaction finance structure equates to about 60% debt and 40% equity.

The watch considers the substantial rate reduction recommended by the staff of the Missouri Public Service Commission in a pending rate case for Ameren's largest subsidiary, AmerenUE, Fitch noted.

From a strategic perspective the acquisition is viewed favorably by Fitch. Ameren will pay roughly book value to acquire low-cost, largely coal-fired generating assets in a contiguous service territory.

In addition, Ameren expects synergies of about $15 million (pre-tax) in the first year of combined operation, with cumulative savings of about $35 million by year three. A significant portion of the savings is expected to come from fuel purchases.

Moody's confirms GM ratings

Moody's confirms the senior unsecured long-term debt rating of General Motors Corp. at A3 following the company's decision to buy certain assets of Daewoo Motor Co. The action reflects that the transaction does not result in a material use of GM's financial resources nor an increase in the company's operating risk. GM's outlook remains negative due to the significant competitive challenges facing the company in the North American and European automotive markets.

GM will acquire a 42.1% interest in a newly formed joint venture, yet to be named, in exchange for $251 million in cash. Daewoo's creditors will own 33% of the venture with GM's business partners owning the remainder. GM will assume no contingent liabilities at this time.

In addition, Moody's anticipates that GM will not incur any future direct or indirect liabilities associated with this joint venture. Based on a cash and marketable securities balance of $17.3 billion (including short-term VEBA of $3 billion) at first-quarter end 2002, GM's investment represents a very modest draw on the company's liquidity position.

Moody's rates CenturyTel convertibles at Baa2

Moody's assigned a Baa2 rating to its CenturyTel Inc.'s $500 million offering of convertible ACES, and confirmed the short and long-term debt ratings at Prime-2 and Baa2, respectively. The ratings outlook is stable.

The actions are based on Moody's expectation that a significant portion of CenturyTel's acquisitions of access lines from Verizon Communications for $2.1 billion will be financed with the convertible and the sale of its wireless unit to Alltel, plus that the company will continue to exercise discipline in acquisitions and that any future transactions will be financed in a manner that preserves balance sheet strength.

Moody's said the sale of the wireless operations should lower overall business risk and CenturyTel's telephone operation should continue to generate strong profits, cash flow and provide significant free cash flow. Thus, Moody's said that while the financing plan for the access line acquisition will weaken near-term.

S&P raises LaBranche outlook

Standard & Poor's raised its outlook on LaBranche & Co. Inc. to positive from stable. The company's corporate credit rating is BB+.

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