AT&T Teeters On I-Grade; Forest Oil Revises Reserves

Fitch Ratings has downgraded AT&T Corp.'s senior unsecured debt rating from BBB to BBB- with concerns over continued negative operational trends within the company's core businesses. The company has a $2 billion revolver, which was issued in October through lead banks J.P. Morgan and Citigroup.

Fitch also maintains a negative outlook on the credit due to current industry dynamics and operational trends, which will continue to deteriorate the company's EBITDA and free cash flow generation. An unstable pricing environment, heightened competition, a lack of telecom demand and margin pressures should increase the business risk associated with AT&T's core businesses. Intensifying competition from the regional bell operating companies and restructured inter-exchange carriers, as well as product substitution could put pricing pressure on voice and data products.

AT&T has been working on cost cutting efforts, but these efforts only partially mitigate revenue declines. Fitch notes the company's intent to repurchase $3 billion of debt in 2004 could allow the company to reduce its gross debt leverage multiple of 1.5 times and save approximately $160 million of pre-tax interest expense. Calls to company officials were not returned.

*Forest Oil Corp.'s 2003 proven developed reserves are lower than expected despite two major acquisitions over the year. This development has caused Moody's Investors Service to place the company's Ba1-rated $600 million senior secured revolver and other debt under review for a possible downgrade. The company's lower year-end proven developed reserves has led to a large rise in the proportion of debt relative to the company's funded, productive, cash generating proven developed reserve base, notes Moody's.

Moody's anticipates that Forest Oil's bank group will revise its revolver borrowing base downward from $575 million. Only about $323 million of the facility is currently drawn. The company's final reserve, reserve mix, reserve addition, finding and developing cost, total unit cost, run-rate production, the price outlook and liquidity will be the focus of Moody's review on the credit. Dave Keyte, executive v.p. and cfo, did not return calls.