Allegiance Telecom was facing an imminent default last week, causing Fitch Ratings to downgrade $500 million in secured credit facilities, the 113/4% senior discount notes due 2008 and 127/8% senior notes due 2008 to C from CC. According to Fitch, Allegiance will have great difficulty reducing its debt levels to meet the requirements of an amended credit agreement, which required the company to reduce total indebtedness to $645 million from $1.2 billion by April 30. Last November, the company reached an agreement with its creditors modifying some of the terms of its credit facility. Allegiance received a waiver of its existing financial covenants through April 30 and replaced them with a free cash flow from operations covenant and a leverage covenant.
Allegiance announced that it is still negotiating with its lenders and that they have agreed to forbear from accelerating their loans or exercising their remedies until May 15. As a result of this and other events, there is an event of default under Allegiance's senior credit facility, according to Fitch. As part of the agreement, Allegiance made a $5 million payment on the facility on which there is approximately $471 million outstanding. Fitch believes that the current market environment will make it extremely difficult for the company to obtain the outside funding that will be required in order for the debt reduction obligation to be met by the new deadline. Fitch believes it is likely that Allegiance will be required to enter into a restructuring situation, according to its report, given that the company has no other sources of liquidity and clearly has a financing shortfall. An Allegiance spokesman did not return calls by press time.
* Advanced Medical Optics' senior secured credit rating has been upgraded to BB- from B+ while the company's senior subordinated rating improved to B from B- by Fitch. The ratings apply to approximately $250 million of bank debt and securities. The ratings upgrade recognizes the successful efforts of Advanced Medical to reduce leverage and to expedite the transition of the company to an independent entity since the spin-out from Allergan last June. From the time of the spin-out the company has used proceeds from debt issuances and excess cash flow to meet the $275 million financial commitments to Allergan. Advanced Medical has also increased capital expenditures and reduced the amount under the senior unsecured credit facilities by $50 million through the first quarter 2003. Additional support for the ratings upgrade include the strong year-end 2002 operating cash flow due in part to working capital improvements and better-than-expected performance through the first quarter of 2003. This is despite modest growth in the cataract surgery market and a commodity-like contact lens care market.