Bowater, a Greenville, S.C., newsprint company, has been placed on review by Moody's Investors Service and could be downgraded to junk status. The senior unsecured notes and revolver currently are rated Baa3, but an aggressive acquisition program and difficult operating environment for newsprint and pulp producers have crimped Bowater's financial flexibility, according to Moody's. A spokesman for Bowater did not return calls.
The acquisition program over the past three years totals about $1.1 billion and has pushed the company's debt to capital ratio to around 50%, well above management's target of 40%. Last year, the acquisition of Alliance contributed to a $312 million increase in debt and increased exposure to the newsprint, pulp and paper markets as the sector was weakening. Moody's will consider, as part of the review, the company's ability to reduce debt in the near term through operating cash flow and sales of timberland and other assets. Moody's also will consider the prospects for a sustained recovery in the newsprint and pulp markets.
* The senior unsecured long-term rating for Qwest Communications International has been notched further downward from Ba2 to B2, and Moody's also has lowered the senior unsecured long-term rating of regulated subsidiary Qwest Corp. from Baa3 to Ba3, affecting approximately $26.1 billion of debt. All ratings continue to remain on review for further possible downgrade. Qwest's announcement that the U.S. Attorney's office in Denver has launched a criminal investigation of the company prompted the latest downgrade.
While details of the investigation have not been disclosed, Moody's is concerned about possible adverse consequences on the company's near-term liquidity should asset sales, specifically the DEX directories business, or a planned $300 million accounts receivable securitization suffer any setbacks resulting from the announcement. Moody's also is concerned about the long-term effects such an investigation might have on the company's ability to grow and retain customers. Additionally, the rating agency will analyze Qwest's ability to repay or extend its $3.4 billion in bank facilities, which mature in May 2003.
* Lastly, Moody's has downgraded Alcatel's senior debt rating from Baa2 to Ba1, citing an expected continued decline in telecom equipment demand over the next two years. The rating action also takes the short-term debt rating from Prime-2 to Not Prime. Moody's acknowledges that management at the French telecom equipment provider has prepared the company well for the expected period of pressure by shoring up cash liquidity and reducing debt. Steps taken by Alcatel include a 27% reduction in headcount to 87,000 employees. However, Alcatel's ample liquidity is likely to erode over time if its market continues to decline rapidly. There is a negative outlook on the rating, reflecting the continued low visibility of shrinking order patterns by telecom carriers.