S&P keeps Continental on watch

Standard & Poor's said Continental Airlines Inc. remains on CreditWatch with negative implications including its corporate credit rating at B.

S&P's comments come after Continental reported a "heavy" first quarter 2003 net loss of $221 million, including a $41 million aircraft value writedown.

S&P said the result was generally in line with expectations, given the effects of the Iraq war.

Results from other large U.S. airlines are expected to be worse, based on historical relationships, S&P noted.

Liquidity remains constrained, but has not deteriorated much, with unrestricted cash of $1.12 billion (versus $1.28 billion at Dec. 31, 2002), and forecast restricted and unrestricted cash of about $1.3 billion by the end of the second quarter of 2003 (including an expected $175 million from the U.S. government under airline aid passed by Congress), S&P said.

However, upcoming cash requirements are significant. Current maturities of long-term debt totaled $482 million at March 31, 2003, cash contributions to pensions are expected to be $90 million this year, and cash capital expenditures $250 million.

Moody's keeps Charter liquidity at SGL-4

Moody's Investors Service said Charter Communications Inc.'s speculative-grade liquidity rating remains at SGL-4, continuing to reflect its weak liquidity profile, as evidenced by its high reliance on limited cash balances and external sources of financing, and ongoing uncertainty about the availability of same over the next year.

Specifically, Moody's noted that Charter is likely to continue generating negative free cash flow of at least $150-to-$200 million on a rolling 12-month basis through the end of the first quarter of 2004, and under a considerably scaled-back capital investment program.

More significantly, though, the free cash flow deficit could approach $450 to $500 million or more, depending on the actual level of EBITDA generated, capital expenditures (and in consideration of that which has historically been capitalized but will now be expensed, thereby reducing EBITDA), changing working capital needs, and the permanence of vendor payable reductions as plant rebuild activities slow further and discretionary spending is curtailed. Net funding needs could be even larger given requisite bank term loan amortization payments (about $175 million) and a sinking fund payment of accreted interest (nearly $67 million) on the Avalon subsidiary discount notes, Moody's said.

The company does maintain an estimated $200-to-$250 million of cash balances by Moody's calculations, net of recent interest payments on certain senior unsecured and convertible notes of Charter Communications Holdings and Charter, respectively. Access to remaining undrawn lines of credit under its four committed revolving credit facilities continues to be constrained by the ongoing technical defaults for non-timely filing of the company's financial statements, Moody's said.

With the filing of the parent company's SEC Form 10-K today, however, and the anticipated near-term filing of subsidiary financial statements, Moody's said it believes that renewed access to the aforementioned bank lines will be forthcoming, and asserts that this remains critical to the company's near-term viability, as well as its ability to defer the inevitable balance sheet restructuring which we believe will otherwise likely come some time later this year.

Moody's acknowledges the significance of the now committed $300 million liquidity backstop facility being provided by Vulcan, Inc. and/or its affiliates, although it is noteworthy that documentation of same has not yet been effected.

While the formal establishment of such a facility would arguably serve well the company's intended purpose of mitigating against potential financial maintenance covenant violations, it is not yet clear whether the degree of protection afforded would be sufficient to warrant a higher speculative grade liquidity rating, Moody's said.

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