Moody's rates Xerox new convert Caa1

Moody's Investors Service assigned a Caa1 rating to Xerox Corp.'s proposed $650 million mandatory and a B1 rating to the proposed $1 billion of senior notes. Existing senior unsecured long term ratings were affirmed at B1.

Notwithstanding the positive aspects of the refinancing, Moody's said the rating outlook remains negative, driven by continued, although moderating, pressure on equipment revenues.

An important element to a potential ratings outlook change will be the demonstration of profitable equipment installation and revenue growth, which would set the stage for higher margin post sale revenues and, subject to continued improvement in working capital management, improved operating cash flows.

While restructuring efforts have been successful at reducing the overall cost base, these actions continue to consume cash - about $450 million in the last 12 months. Moody's believes further cost reductions are necessary, although likely less dramatic than restructurings of the past.

Although uncertain as to timing and magnitude, the company might also need to contend with additional calls on cash over the medium term relating to outstanding litigation as well as pension funding.

Since June 2002, consolidated gross debt has remained around $14 billion, with increased levels of secured finance receivable funding offsetting reductions in unsecured debt. Pro forma the planned refinancings, gross debt will approximate $12.4 billion, or $13 billion including the convertible.

Excluding secured finance receivable debt that funds and repays on a revolving basis and pro forma the planned financings, consolidated debt maturities will be about $1.4 billion for the remaining seven months of 2003, with $1.9 billion due in 2004 and nearly $1 billion due in 2005.

Cash balances at March 31 were $3.0 billion. Pro forma for the planned financing, cash will be around $2.1 billion as slightly over $900 million of cash is expected to be combined with other capital market proceeds to repay the $3.1 billion of outstanding bank debt.

Cash flow leverage for the non-finance operations has improved on an EBITDA basis, from an estimated 4.4x at June 2002 to 3.8 times at March 2003. Pro forma debt to EBITDA would improve to 3.1x, Moody's said.

However, as of March 2003, the pro forma debt to latest 12 month non-finance operating cash flow remains high at about 6.3x as compared to about 5.3x at June 2002.

The proposed financing plan is positive in that it improves equity capitalization, terms out the existing $3.1 billion bank facility amortization and final maturity from 2005 to 2008 and reduces overall interest expense.

Moody's rates new Lamar convertible B2

Moody's Investors Service assigned a B2 rating to the $250 million of senior convertible notes issued by Lamar Advertising Co., parent of Lamar Media, and confirmed the existing ratings. The outlook is stable.

Ratings continue to reflect relatively modest business risk associated with operating a large portfolio of outdoor advertising assets in small to medium-sized markets, counterbalanced by the high financial risks associated with the debt capitalization and significant operating leases, Moody's said.

The rating on the convertible reflects meaningful subordination, structural and contractual, to the balance of Lamar's debt.

S&P rates new Lamar convertible B

Standard & Poor's assigned a B senior unsecured debt rating to Lamar Advertising Co.'s $250 million 2.875% convertible notes due 2010. The outlook is stable.

Ratings reflect significant debt levels, attributable to growth through acquisition over the years, S&P said. Adjusted for operating leases, debt to EBITDA is in the high-5x area.

This is tempered by strong and geographically diverse market positions and an emphasis on the better-margin and more stable local advertising revenues.

Also, with very strong operating cash flow margins, manageable capital expenditures and minimal cash taxes, Lamar generates healthy levels of free operating cash flow, S&P said.

In March, Lamar replaced its bank credit facility with a new $225 million revolving credit facility, $300 million term loan A and $675 million term loan B. As of early May, about $180 million was available under the revolver. As a result of the new credit facility, debt maturities are minimal over the next two years.

The outlook reflects the expectation that, given Lamar's acquisition growth strategy, the overall financial profile will not change meaningfully in the intermediate term.

Moody's cuts Arch Coal

Moody's Investors Service downgraded the ratings of Arch Coal Inc., including the convertible preferreds to B2 from B1, due to factors that have increased the risk and volatility of cash flow and by rising costs, especially at its eastern operations.

Also, Moody's assigned a Ba2 rating to the proposed $700 million senior notes offering of Arch Western Finance LLC, a subsidiary of Arch Western Resources LLC.

The outlook is now stable.

For the 12 months ended March 31, Arch Coal on a consolidated basis had sales of $1.5 billion, EBIT of $24 million, EBITDA of $218 million, cash from operating activities of $145 million and capex of $112 million.

As of March 31, total debt was $705 million, or 3.2x consolidated last 12 months EBITDA. Pro forma for the Triton acquisition and based on incremental acquisition debt of $300 million and Triton's 2002 EBITDA of $56 million, consolidated debt to EBITDA will be 3.7x .

On a stand-alone basis, i.e. without Arch Western Resources cash flow or debt but including the $334 million of promissory notes, $300 million of acquisition debt, and giving full credit to Arch Coal for Triton's EBITDA, the parent's debt protection measures look considerably weaker, Moody's said.

S&P puts Getronics on positive watch

Standard & Poor's put Getronics NV on CreditWatch positive including its €350 million 0.25% notes due 2004 and €500 million 0.25% convertible subordinated notes due 2005 at CCC.

S&P said the action reflects Getronics' substantially reduced liquidity risks as the holders of its €575 million subordinated bonds have accepted a non-detrimental proposal for a €325 million cash payment at the end of June 2003, with the balance of €250 million to be amortized until September 2008.

The bonds were initially set to mature in April 2004 and March 2005, but carried a minimal coupon (0.25%, compared to the 13% newly agreed upon). The new bonds will remain contractually subordinated, but will lose conversion rights.

The June 2003 cash payment will be made using €315 million in proceeds from the May 28 disposal of Getronics' Dutch subsidiary HR Solutions and €11 million from the sale of Getronics' stake in the Norwegian IT services company Merkantildata (not rated). As a result, the threat of early repayment of outstanding bonds has been removed, S&P said.

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