Deadline Constrains Allegiance; Interpublic On Watch

Fitch Ratings has downgraded Allegiance Telecom's $470 million credit to CC from CCC as the rating agency anticipates that the company will have trouble reducing its debt from $1.275 billion to $660 million by April 30 as required by the company's recent amendment to its credit facility. Fitch notes that the CC rating implies there will be some type of default based on the training that in this current market it would be difficult to obtain the outside funding needed to meet the reduction obligation. The company has $285 million in cash on its balance sheet and is not generating cash from its operations.

Through the amendment, Allegiance was able to waive existing covenants and put in place free cash flow requirements. Under the revised covenants the company had to limit its free cash flow loss to $34 million for the fourth quarter. The figure clocked in at $33.4 million. Thomas Lord, Allegiance cfo, declined to comment on the company's reduction plans.

* Interpublic Group of Companies' ratings have been lowered by Standard & Poor's as the company confronts weaker profitability and higher leverage. The company's $875 million in credit facilities fell off the investment grade ledge with a downgrade from BBB- to BB+. The ratings have also been placed on CreditWatch negative. They will be removed from watch depending on whether Interpublic completes a $600 million convertible note offering. Interpublic needs to deal with its zero coupon convertible note issue that is putable to the company for $587 million cash in December and an undrawn $500 million revolver coming due in May.

S&P notes that Interpublic's leverage ratio with total debt, including acquisition related earn-out payments and potential puts plus contingent obligations under guarantees and letters of credit, to EBITDA is 3.7 times. The lease-adjusted leverage figure reaches 4.4 times. While total debt has decreased by about 10% in 2002, the company had about $2.6 billion in debt at year end and EBITDA has declined by about 24%. An Interpublic spokesman did not return calls.