S&P puts Foster Wheeler on watch

Standard & Poor's put Foster Wheeler Ltd. on CreditWatch negative including its $200 million 6.75% notes due 2005 and $200 million convertible subordinated notes due 2007 at CCC+ and corporate credit rating at B.

S&P said the CreditWatch listing reflects its heightened concerns that, short of a material asset sale, or noncoercive financial restructuring within the next few quarters, the viability of Foster Wheeler would be questionable.

These concerns stem from Foster Wheeler's limited financial flexibility, its expected usage of working capital during 2003 as construction projects are completed, and its onerous capital structure, including its underfunded pension plan, S&P said. If the company is unable to provide specific plans of action that will adequately address these concerns, a ratings downgrade of several notches is possible.

In recent years, the company has accepted projects that include less favorable payment schedules, and it has demonstrated poor risk management and operating controls, leading to more than $1 billion of charges to shareholder's equity over the past couple of years, S&P noted. Foster Wheeler's current management has implemented a more disciplined risk management program, as well as strengthened internal controls compared to the previous group. However, it will be a major challenge to demonstrate improved operational performance in the face of weak end-markets, a global corporate structure, and with nominal liquidity.

Fitch warns on airline debt, pension payments

Fitch Ratings warned that the top 10 U.S. airlines face $21.2 billion of debt and capital lease maturities between 2003 and 2006.

Although the carriers should see business conditions improve, helping some return to profitability in 2004, the rating agency cautioned that a better operating environment will not mark the end of liquidity concerns.

"Combined cash outflows related to debt repayment, pension funding requirements and planned aircraft capital spending may delay the arrival of healthier balance sheets until the second half of the decade, and may trigger future liquidity crises or bankruptcies," Fitch said.

Among the major U.S. network carriers operating outside of bankruptcy, American, Northwest and Delta have the largest debt and capital lease maturities. Each of these airlines faces scheduled annual maturities in excess of $1 billion in 2005 alone.

In addition, the major network carriers face an aggregate underfunded pension liability of more than $22 billion. United, which filed for Chapter 11 bankruptcy last December, faces the largest pension problem among the major carriers with an underfunded obligation of $6.3 billion as of year-end 2002.

While some of the debt burden may ultimately be refinanced, extending maturities beyond the industry's critical stabilization period, the obligations nonetheless represent immense cash funding requirements at a time when operating cash flow may well remain weak, Fitch said.

Fitch rates Lucent convertibles CCC+

Fitch Ratings assigned a CCC+ rating to Lucent's new convertible debentures. The outlook remains negative.

Fitch said the ratings continue to reflect the company's weak credit protection measures, limited financial flexibility (which was further evidenced by the restriction on its $595 million of new senior secured bank facilities to be used exclusively for letters of credit and not operating purposes), execution risks surrounding the company's restructuring programs, uncertainty surrounding the prospects for the company's success in implementing its network integration strategy and the continued difficult environment for Lucent's end markets.

The negative outlook reflects the uncertain capital expenditure patterns of the company's customer base and the lack of visibility into the timing of a recovery in the telecommunications equipment market, Fitch added.

While Lucent has strengthened its balance sheet through the execution of preferred stock and debt exchanges, credit protection measures remain weak, mainly from lack of positive EBITDA generation, Fitch said.

Despite the availability of the new senior secured facilities, Fitch continues to believe that Lucent's financial flexibility remains limited. Cash and marketable securities were approximately $3.4 billion as of March 31, 2003 and the company expects to end the fiscal year (ending Sept. 30, 2003) with at least $2.5 billion, after funding operations, satisfying restructuring needs and meeting debt service obligations.

While Fitch acknowledges that the substantial cash balance is more than adequate to meet the company's near-term obligations, there is concern that the cash burn may continue at a higher than expected rate as the company's operations continue to struggle in the difficult economic environment and it is unlikely that the company will continue to benefit from working capital reduction.

Moody's rates CMS liquidity SGL-4

Moody's Investors Service assigned an SGL-4 speculative-grade liquidity rating to CMS Energy.

Moody's said the SGL-4 rating reflects the company's weak liquidity position given the current pressures on financial performance associated with its historical unregulated growth initiatives, a continuing reliance on asset sales as part of its debt reduction strategy, and large ongoing capital requirements partially offset by an aggressive financing program over the last 90 days which has provided significant cash balances.

The SGL-4 rating assignment assumes that these cash balances will diminish significantly over the next 12 months as existing maturities are met leaving a nominal cushion to support unforeseen contingencies. Moody's said it anticipates that during this time the company will remain challenged to stay in compliance with its debt covenants particularly in regards to its interest coverage test as leverage will likely remain high.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.