Fitch raises AES outlook

Fitch Ratings raised its outlook on AES Corp. to stable from negative and confirmed its ratings including its senior secured bank debt and senior secured notes collateralized by first priority lien at BB, senior unsecured debt at B, senior and junior subordinated debt at B- and trust preferred convertibles at CCC+. Fitch assigned a B+ rating to AES' recently offering of $1.8 billion junior secured notes collateralized by a second priority lien.

Fitch said the outlook revision reflects the improvement in AES' financial position since Fitch's last review of the company in February 2003. Over the past six months, AES has executed $990 million of planned asset sales, issued $340 million of equity and raised $1.8 billion in private placements, and it has used proceeds from these sources to repurchase debt at a discount and pay down bank and public market debt.

As a result, AES has reduced gross debt by over $400 million during the financial year to June and expects this amount to grow to over $1 billion by the end of 2003, Fitch said.

At the same time, AES has extended its maturity schedule with no major maturities until December 2005 and with the anticipated completion of the new bank credit facility, would extend this further to 2007-2008. Interest expense is also expected to decrease meaningfully with lower interest rate debt refinancing and debt reduction, a key factor given thin interest coverage at the parent level.

Offsetting the improvements in liquidity and leverage above is potential volatility in AES parent operating cash flow. With gradual improvement of the economic situation in Latin America, the company expects slight and moderate improvement in South America and the Caribbean region, respectively, in the next two years. Fitch's ratings anticipate only modest recovery in these areas compared to current performance.

Overall, AES' credit metrics are expected to improve as the impact of lower interest costs and a degree of deleveraging feed through, although they are anticipated to remain consistent with the B category, Fitch said. Parent debt to parent operating cash flow ratio is projected to decline to the 6.0-7.0 times range with parent operating cash flow to interest ratio approaching 2.0x in the next year.

S&P upgrades ChipPac loan

Standard & Poor's upgraded ChipPAC Inc.'s bank debt to BB- from B+ and confirmed its other ratings including its subordinated debt at B-. The outlook remains negative.

S&P said the action reflects a material reduction in ChipPac's bank facility following the repayment of the remaining balance of the outstanding term loan. The bank facility retains an unused $50 million revolving credit facility.

The ratings on ChipPAC continue to reflect volatile semiconductor market conditions and protracted overcapacity in the highly competitive independent semiconductor packaging industry, offset by the company's good position in its market niche and strong technology base, S&P said.

While unit volumes and average selling prices have recently shown signs of stabilizing, sequential revenue improvements are expected to be moderate.

Total lease-adjusted debt as of March 2003, pro forma for the notes issue and debt repayments, was estimated to be about $420 million, S&P said. While sales growth, combined with cost-cutting measures, improved operating profitability to about 20% of sales over the 12 months ended March 2003, protracted overcapacity in the industry continues to challenge further profitability improvements over the near term. Sales in the 12 months ended March 2003 increased 18%, to $374 million, from $318 million in the like 2002 period.

Pro forma for the notes and debt repayments, total debt to EBITDA was estimated to be about 5.2x, and EBITDA interest coverage was about 2.5x in the 12 months ended March 2003, S&P said.

S&P rates IMC Global notes B+

Standard & Poor's assigned a B+ rating to IMC Global Inc.'s proposed $310 million senior unsecured notes due 2013 and confirmed its existing ratings including its senior unsecured notes at B- and senior secured bank loan at BB-. The outlook is stable.

S&P said IMC Global's ratings reflect its average business profile, offset by a very aggressive financial profile.

IMC holds the world's leading position in the production of phosphate fertilizers and is the largest supplier of potash (with the second-largest production capacity). In addition to solid positions in the mature, competitive, and cyclical fertilizer markets, IMC benefits from plentiful, low-cost reserves, backward integration into raw materials, efficient production methods, and strong distribution capabilities, S&P said.

he financial effects of volatility in phosphate prices and seasonal bulk sales are somewhat tempered by the more stable potash sales. More recently, however, these advantages have been more than offset by the company's exposure to natural gas and ammonia, commodities that have become increasingly volatile, S&P noted. Still, a growing population, higher incomes, and improved diets support long-term prospects. In addition, the need to rebuild global grain supplies, which remain at near record low levels, should continue to spur fertilizer use. China's entry into the World Trade Organization could benefit North American phosphate producers.

Debt levels remain elevated, stemming from the $1.4 billion acquisition of Harris Chemical Group in 1998, S&P said. The financial profile is also affected by a fair amount of unfunded postretirement obligations ($362 million at Dec. 31, 2002).

Funds from operations to total debt has fallen into the single-digit percentage area; EBITDA interest coverage is almost 2.0x; and debt to EBITDA is nearing 6.5x. Still, a gradual recovery in business conditions and restrained capital spending ($140 million estimated for 2003) should result in some improved free cash flow generation unless further raw material price volatility occurs, S&P said.

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