NTL disappointed with Moody's downgrade

NTL Inc. said it reacted with "disappointment" to its downgrade Thursday by Moody's Investors Service.

The telecommunications company also noted that Moody's was acting on publicly disclosed information in its third quarter results.

However, NTL said internally it has been making adjustments to its business plan "to reflect the current and anticipated business environment."

NTL added that these plans will be communicated as part of its regular update on public guidance.

Moody's downgrades NTL Communications

Moody's downgraded NTL Inc. and its subsidiaries, affecting $20 billion of debt. Affecting ratings include: NTL Inc. senior unsecured rating cut to Caa3 from Caa1 and preferred stock cut to Ca from Caa3; NTL Delaware Inc. convertible subordinated notes to cut Caa3 from Caa2; NTL Communications Corp. senior unsecured notes cut to Caa2 from B3 and convertible subordinated notes to Caa3 from Caa1; NTL (Triangle) LLC senior unsecured notes cut to Caa1 from B3; Diamond Cable Communications Ltd. senior unsecured notes cut to Caa3 from B3; Diamond Holdings Ltd. senior unsecured notes cut to Caa1 from B3; NTL Business Ltd. senior secured bank facility cut to B1 from Ba3; and Cablecom (Ostschweiz) AG senior secured bank facility cut to B3 from B1.

"Today's downgrade reflects Moody's heightened concerns regarding NTL's liquidity position and longer-term ability to adequately service its debt, following the company's third quarter results announcement," the rating agency stated.

Moody's added that the lesser (one notch relative to two notches for NTL Communications) downgrade of the senior notes of Diamond Holding plc and NTL (Triangle) LLC and the more severe (three notches) downgrade of the senior notes of Diamond Cable Communications Ltd. reflect the relative asset coverage that Moody's believes is afforded to the bondholders of each of these subsidiaries.

S&P downgrades XO, Concentric Network

Standard & Poor's downgraded XO Communications Inc. and its Concentric Network Corp. unit and kept the ratings on CreditWatch with negative implications.

Ratings affected include: XO's senior notes, cut to C from CCC-; its preferred stock, cut to C from CC; its senior secured credit facility, cut to CC from CCC+; and its convertible subordinated notes, cut to C from CCC-. Concentric Network's senior notes were cut to C from CCC-.

Fitch downgrades XO

Fitch downgraded XO Communications, cutting its senior secured rating to CC from CCC-, its senior unsecured rating to D from CC and its convertible subordinated notes to D from C. The senior secured rating was put on Rating Watch Evolving.

Fitch said the downgrade follows XO's announcement it will not make the scheduled interest and dividend payments on its unsecured notes and preferred equity securities after Nov. 30. Based on the terms of the announced restructuring, XO will not seek to cure this default within the 30-day grace period.

XO will seek to waive the cross default provision in its bank debt, Fitch added.

XO announced Forstmann Little and Telefonos de Mexico SA intend to invest $800 million in exchange for equity, respectively owning 39% of XO pro forma for the recapitalization. The investment is contingent upon a recapitalization and a fully funded business plan.

Fitch said if bondholders agree to the recapitalization they will receive less than par value for the debt securities exchanged into equity.

S&P lowers Continental Airlines to B from B+, eight other airlines cut

Standard & Poor's on Thursday downgraded its senior unsecured debt ratings for nine airlines, including Continental Airlines, reflecting reduced asset protection for unsecured creditors and application of revised criteria for notching down of such debt ratings based on the proportion of secured debt in a company's capital structure. The ratings remain on watch with negative implications. The rating actions do not indicate a changed estimate of default risk, S&P said, but rather poorer prospects for recovery on senior unsecured obligations if the affected airlines were to become insolvent. Accordingly, no corporate credit ratings or other types of debt are affected. S&P said bank loan ratings are affected where those facilities are unsecured.

Airlines worldwide increasingly rely on aircraft and other asset-backed financings, rather than unsecured debt, to finance capital expenditures, a trend that accelerated since the Sept. 11 terrorist attacks in the U.S. and resulting damage to airline revenues, S&P noted. Although such instruments, particularly enhanced equipment trust certificates in the U.S., have cost advantages, they have encumbered, either through leases or secured debt as a substantial proportion of the asset base of many airlines.

In addition, S&P said its criteria for rating senior unsecured debt have been revised to incorporate more directly the effect of leases on asset protection for unsecured creditor. Specifically, the criteria recognize that certain industries, because of the ease of financing their revenue assets, can carry higher proportions of secured debt and leases and the criteria accordingly allow for higher thresholds before notching down of senior unsecured debt is warranted due to reduced asset protection for those creditors. Still, the high and rising proportions of secured debt and leases at many airlines indicate that a distinction between the corporate credit rating and senior unsecured debt rating is justified. S&P has not defined specific, separate thresholds for airlines, but examines asset protection based on their individual characteristics and relative to industry norms and standard notching criteria. Speculative-grade companies can have their senior unsecured debt rated one or two notches below the corporate credit rating, depending on the proportion of secured debt and leases, while investment-grade companies can have their senior unsecured debt rated at most one notch below the corporate credit rating.

The sharp deterioration in airline financial performance since Sept. 11 has increased reliance on secured debt as the principal form of airline debt funding. Even Southwest Airlines, the highest rated airline, used enhanced equipment trust certificates, the company's first, in October. Excepting Southwest, all U.S. airlines that had unsecured bank revolving credit facilities have either provided collateral to the banks or are repaying borrowings. Although the federal loan guarantee program may provide unsecured loans for some U.S., S&P said most borrowing is expected to take the form of leases or secured debt for the foreseeable future. Accordingly, senior unsecured creditors are likely to continue to be in a disadvantaged position as regards asset protection at many airlines due to the relatively high proportion of secured debt and leases on their balance sheets.

S&P upgrades Vishay Intertechnology

Standard & Poor's upgraded Vishay Intertechnology Inc.'s $150 million of 5.75% convertible subordinated notes due 2006 to BB- from B-.

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