S&P downgrades XO, still on negative watch

Standard & Poor's downgraded XO Communications Inc. and its Concentric Network Corp. unit. Ratings affected include XO's senior unsecured, lowered to CCC- from CCC, its convertible subordinated debt, also lowered to CCC- from CCC, its preferred stock, cut to CC from CCC- and its senior secured bank loan, lowered to CCC+ from B-. Concentric Network's senior unsecured debt and preferred stock had similar downgrades. The ratings remain on CreditWatch with negative implications, where they were placed July 31, 2001.

S&P said the downgrade is based on XO's "weakened liquidity position and its inability to provide fourth quarter 2001 guidance because of the economic downturn."

While XO had $1 billion of cash as of Sept. 30, S&P noted this only funds the company's current business plan into the second half of 2002.

S&P said it had previously anticipated there would be enough funding through 2002 but use of about $290 million to repurchase bonds and preferred stock in the open market "accelerated the funding gap time frame. Furthermore, the company has retained an investment banking firm to evaluate strategic alternatives that may be implemented to restructure the balance sheet."

Moody's confirms PartnerRe insurance financial strength rating at Aa3

Moody's on Thursday confirmed the Aa3 insurance financial strength ratings of members of the PartnerRe Group. The rating agency has also lowered its rating on the perpetual preferred stock of PartnerRe Ltd. to Baa1 from A3. These rating actions conclude the review for possible downgrade of PartnerRe's ratings that followed the company's announcement of losses arising from the Sept. 11 terrorist attacks. Also, Moody's has assigned prospective ratings (senior unsecured at (P)A2) to the holding company's multi-issuer, multi-seniority $600 million shelf registration. Moody's said that the outlook for PartnerRe's ratings is stable. PartnerRe shares dropped $1.04 to $50.42.

Moody's rates Chesapeake convertible preferred at Caa1

Moody's on Thursday assigned a B1 rating to Chesapeake Energy Corp. $250 million 8.375% senior unsecured notes due 2008 and a Caa1 rating to its $150 million issuance of 6.75% convertible preferred securities. Proceeds from the issuances, along with proceeds from the October 2001 sale of the company's Canadian assets, are expected to repay outstandings under the company's credit facility and fund near term acquisitions. Moody's also upgraded to B1 from B2 its ratings on Chesapeake's $150 million 7.875% senior notes due 2004, its $150 million 8.5% senior notes due 2012 and its $800 million 8.125% senior notes due 2011. Chesapeake Exploration LP's $225 million senior secured revolving credit facility maturing 2003 is rated Ba3. Chesapeake's senior implied rating is B1. Chesapeake's senior unsecured issuer rating was adjusted to B2 from B3. Chesapeake shares added 48c to $6.65.

S&P rates Lincoln National trust preferred at BBB

Standard & Poor's on Thursday assigned its BBB preferred stock rating to Lincoln National Capital V's $150 million trust preferred securities. At the same time, S&P affirmed its ratings on Lincoln National and its units, noting the outlook is stable. Lincoln continues to benefit from extremely strong capitalization and extremely strong earnings. Over the past decade, the company has successfully tightened its strategic focus to life insurance, retail annuities, and institutional asset management, which has improved these segments' business positions. Acquisitions of several life insurance blocks have added necessary scale to the operations. Lincoln has also been successful in growing its retail annuity business to achieve a ranking of third in variable annuities despite some volatility in annuity cash flows. The overall earnings profile has improved, and the prospective sale of the reinsurance business is expected to contribute to earnings stability. The sale of the reinsurance business removes a potential source of future earnings volatility. The capital freed up from the sale of the reinsurance business is expected to give Lincoln the flexibility to increase scale through an expected combination of organic growth and acquisitions. Lincoln National shares slipped 32c to $44.67.

Moody's lowers outlook on Merrill Lynch to negative

Moody's changed the outlook of all long-term ratings of Merrill Lynch & Co. Inc. (senior unsecured debt at Aa3) from stable to negative. This action reflects Merrill Lynch's lower profitability across the industry cycle, relative to its peers, Moody's said. To improve firm-wide profitability, Moody's said Merrill Lynch needs to reduce fixed expenses, increase recurring revenues, and grow higher margin businesses, which may be more challenging in the current environment, the rating agency said.

Moody's noted that each of Merrill Lynch's businesses is at different stages in the reengineering process. Substantial progress has already been made in U.S. private client operations. Management has reduced costs, outsourced activities, restructured compensation, streamlined services and increased recurring revenues. These actions have improved the operating leverage of U.S. retail operations and should result in better profitability when market volumes and levels recover, Moody's said. By contrast, Moody's said reengineering is still in its early stages within Merrill Lynch's international private client business, the corporate and institutional client group and the asset management group.

Moody's said that Merrill Lynch's improved capital and liquidity position and controlled appetite for trading and credit risk remain very important positive factors supporting the Aa3 rating. Merrill Lynch shares declined 32c to $48.68.

S&P rates CSX convertibles BBB

Standard & Poor's rated CSX Corp.s recent issue of senior unsecured zero coupon convertible debentures due 2021 at BBB.

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