http://www.anotherfp.com Financial news and data focused on fixed income, hedge funds and banking. A direectory of Hedge Fund and Fixed Income Personnel is free to subscribers Standard & Poor's Ratings Services lowered its long-term counterparty credit rating on Allied Irish Banks PLC (NYSE:AIB) to 'A' from 'A+'. At the same time, the 'A-1' short-term rating was affirmed. The outlook is stable. In addition, the ratings on undated capital instruments were lowered to 'BBB' from 'A-' and placed on CreditWatch with negative implications. "The downgrade reflects our anticipation of continued significant weakening of asset quality, and the pressure we expect this to continue exerting on profitability over the rating horizon. We believe that the government would continue to provide support to AIB in case of need, and we now include one notch of support above AIB's stand-alone credit strength," said Standard & Poor's credit analyst Claire Curtin. The ratings on AIB reflect what we view as a strong position in the Irish banking sector, considerable asset quality pressures in its Irish commercial real estate book, a good funding and liquidity position, and the significant support it has received from the government of Ireland as a highly systemically important bank. The Irish government announced yesterday that AIB will receive €3.5 billion in deeply subordinated 8% preference shares. It has also announced that it is investigating ways in which to reduce the banks' land and development exposures, which are currently a significant drag on AIB's asset quality. Although details of the scheme have not yet been announced, we consider that it may reduce downside risk to AIB's stand-alone credit profile. The government also plans to enable Irish domestic banks to issue longer dated government-guaranteed bonds beyond the current September 2010 deadline. The stable outlook reflects our belief that support from the Irish government, particularly in relation to capital and potential assistance regarding troubled assets, will allow AIB to maintain adequate capitalization despite, in our opinion, a likelihood of ongoing significant weakness in asset quality in the coming years. The outlook is also underpinned by our view that the bank is of high systemic importance to the country's banking sector and that further state support would be forthcoming if required. A further downgrade could occur in particular if we consider the government to be less willing to provide support, or if losses appear likely to erode the bank's capital base faster than expected, notwithstanding our expectation of the likelihood of further support. In this event, external support may not, in our view, be sufficient to continue to justify the current ratings. An upgrade is currently considered remote within the rating horizon, due to the weak outlook for the Irish economy and the challenges facing AIB in this environment. "The CreditWatch placement of the undated capital instruments reflects our view that, while AIB may continue to be willing to service the coupons on these instruments, uncertainty exists on whether it will be allowed to by the authorities, particularly the European Commission, if the bank makes material losses in the coming years," added Ms. Curtin. We intend to resolve the CreditWatch placement of these instruments when the authorities' position becomes clearer. Should we consider there to be no impediment to AIB servicing its hybrid obligations, and all other things being equal, we may affirm the ratings on these instruments. Should the instruments be downgraded as a result of our view of increased deferral risk arising from potential authorities' intervention, at this stage and again all other things being equal, they are likely to be downgraded to subinvestment grade. http://www.anotherfp.com/newsite/story2.php?id=126 Moody's Investors Service announced today that it has taken rating action on 434 notes from certain U.S. cash-flow collateralized loan obligations (CLOs) issued in 2004 and 2005. According to Moody's, the rating actions taken on the notes are a result of applying the revised assumptions as described in the press release dated February 4, 2009, titled "Moody's updates key assumptions for rating CLOs." These revised assumptions include a 30% stress to the underlying portfolio default probability, the modified treatment of ratings on "Review for Possible Downgrade" or with a "Negative Outlook," and a change in the calculation of the Diversity Score. The actions also reflect a general consideration of the credit deterioration in the underlying portfolios. In a press release published on March 4 and titled "Moody's puts all but senior-most tranches on review for downgrade," Moody's announced that it would undertake CLO rating reviews in two stages. Today's actions are a result of our Stage I analysis that is largely based on the examination of certain CLO portfolio and tranche parameters, including, but not limited to (1) the current tranche rating, (2) the level of over-collateralization (O/C), (3) the Weighted Average Rating Factor (WARF) transition since mid-2008, (4) the absolute increase in the percentage of Caa-rated assets since mid-2008, (5) whether a tranche is currently, or is expected on an upcoming payment date, to pay-in-kind (PIK), and (6) the concentration of structured finance securities, such as other CLOs, in the collateral pool. In addition to these parameters, which serve as guidelines for rating committees, Moody's is also individually assessing each transaction by taking into account additional deal performance information and certain qualitative factors such as deal-specific document features and structural protections. Moody's notes that the ratings of all CLO tranches affected by today's actions remain on review for possible downgrade. Moody's will continue to review these transactions with additional detailed deal analysis in Stage II -- which will commence in the second quarter of 2009. During Stage II, ratings on all CLO tranches may be subject to additional rating actions as necessary. http://www.anotherfp.com/newsite/story2.php?id=200 Moody's Investors Service announced today that it has taken rating action on 71 notes from certain European cash-flow collateralized loan obligations (CLOs) issued in 2007. According to Moody's, the rating actions taken on the notes are a result of applying the revised assumptions as described in the press release dated February 4, 2009, titled "Moody's updates key assumptions for rating CLOs." These revised assumptions include a 30% stress to the underlying portfolio default probability, the modified treatment of ratings on "Review for Possible Downgrade" or with a "Negative Outlook," and a change in the calculation of the Diversity Score. The actions also reflect a general consideration of the credit deterioration in the underlying portfolios. In a press release published on March 4 and titled "Moody's puts all but senior-most tranches on review for downgrade," Moody's announced that it would undertake CLO rating reviews in two stages. Today's actions are a result of our Stage I analysis that is largely based on the examination of certain CLO portfolio and tranche parameters, including, but not limited to (1) the current tranche rating, (2) the level of over-collateralization (O/C), (3) the Weighted Average Rating Factor (WARF) transition since mid-2008, (4) the absolute increase in the percentage of Caa-rated assets since mid-2008, (5) whether a tranche is currently, or is expected on an upcoming payment date, to pay-in-kind (PIK), and (6) the concentration of structured finance securities, such as other CLOs, in the collateral pool. In addition to these parameters, which serve as guidelines for rating committees, Moody's is also individually assessing each transaction by taking into account additional deal performance information and certain qualitative factors such as deal-specific document features and structural protections. Moody's notes that the ratings of all CLO tranches affected by today's actions remain on review for possible downgrade. Moody's will continue to review these transactions with additional detailed deal analysis in Stage II -- which will commence in the second quarter of 2009. During Stage II, ratings on all CLO tranches may be subject to additional rating actions as necessary. http://www.anotherfp.com/newsite/story2.php?id=201 Standard & Poor's Ratings Services assigned its 'A' long-term rating to California's $4.0 billion various purpose general obligation (GO) bonds. At the same time, Standard & Poor's affirmed its 'A' long-term rating and underlying rating (SPUR) on the state's $45.6 billion of existing GO debt. Finally, Standard & Poor's affirmed its 'SP-2' short-term rating on the state's $5.0 billion revenue anticipation notes (RANs). The outlook is stable. The state has a large and diverse economy, in our opinion, with a gross state product that is equivalent to approximately 13% of the nation's gross domestic product. In addition, we believe the state's existing debt burden is both moderate and conservatively structured. "The 'A' long-term ratings and SPURs also reflects our view of several of the state's constitutional and statutory characteristics. We believe that some aspects of state governance, such as the controller's considerable discretion over cash management, strengthen the state's credit," said Standard & Poor's credit analyst Gabriel Petek. "On the other hand, we believe that other features, such as a requirement for a two-thirds supermajority vote of the legislature to pass a budget or raise taxes and the state's very active voter initiative process, can sometimes impede timely financial management practices and activities, as evidenced by the recent budget impasse." GO bond proceeds will fund capital projects throughout the state or repay projects that were previously financed with loans or commercial paper (CP). Although the protracted 2009 budget act negotiations significantly strained the state's credit, we believe that the simultaneous adoption of deficit reducing measures and a 2009-2010 budget help provide a level of stability during a difficult economic period. However, we also believe the state will continue to face fiscal uncertainty as a result of the budget act's reliance on voter approval and nonrecurring solutions to close the gap. Moreover, without voter approval of at least three of the six propositions on the May 19, 2009, ballot, the state's legislative analyst's office (LAO) estimates that the state could face $6 billion less in revenue during fiscal 2010. Even if the propositions are passed, accelerating job losses, recent equity market losses, and expectations of a delayed economic recovery could cause a shortfall in fiscal 2010, according to the LAO's forecast. http://www.anotherfp.com/newsite/story2.php?id=202 Standard & Poor's Ratings Services said today that it placed both its long- and short-term ratings on American Express Co. ('A/A-1') and its subsidiaries on CreditWatch with negative implications. The CreditWatch should be resolved within the next 90 days following our reassessment of the deepening recession on the company's prospects. The CreditWatch action reflects the firm's recent disclosure of escalating credit quality deterioration within the context of what we believe will be continuing macroeconomic weakness and pressures on the consumer. The U.S. unemployment rate continues to climb (currently 8.1%). Indeed, the most recent monthly data show acceleration of the unemployment rate with our own baseline assumptions, including a peak unemployment rate of about 10% in early 2010 and a worst case scenario that assumes unemployment at 11.8% in late 2010 (see "Economic Research: U.S. Risks To The Forecast: Even Gloomier," published March 18, 2009, on RatingsDirect). Further, housing prices continue to fall, adding to the consumers' loss of wealth. The CreditWatch also reflects certain company-specific considerations. Despite what we believe to have been an aggressive growth strategy related to its credit card loan portfolio during 2004–2007, American Express has seen its asset quality deteriorate at a pace that exceeds median levels for the industry. In addition, our ratings had incorporated American Express' historic peer-leading asset quality metrics, which was consistent with the performance of its prime charge card and network business. The pace of deterioration in the credit card loan portfolio has driven American Express' asset quality performance, specifically net charge-off levels, from historic peer-leading levels to its current peer-lagging position. As such, our review will focus on the credit card loan portfolio and the prospects for its performance in what we believe will be an increasingly challenging financial environment. American Express' charge card and network businesses also are feeling the impact of macroeconomic conditions, but to a lesser degree than its loan portfolio. We will be reassessing potential credit losses in an economic downturn deeper than we had anticipated at the time of our last rating action (see "American Express Co. Downgraded To 'A', Short-Term 'A-1" Affirmed; Ratings Off Watch," published Dec. 19, 2008, on RatingsDirect). We could resolve the CreditWatch listing and negative outlook if American Express can withstand the credit deterioration and resulting impact upon the company's earnings at the current rating level. Alternatively, the ratings could be lowered by more than one notch if asset quality measures continue to deteriorate and our loss expectations exceed those consistent with the current rating level. http://www.anotherfp.com/newsite/story2.php?id=203 Standard & Poor's Ratings Services said today it lowered its corporate credit and senior unsecured ratings on St. Paul, Minn.-based 3M Co. to 'AA-' from 'AA'. At the same time, we affirmed the 'A-1+' short-term credit rating. The outlook is stable. "The downgrade reflects a decline in still very strong debt-protection measures as a result of the weakened global economic environment that has trimmed EBITDA levels," said Standard & Poor's credit analyst Philip Schrank, "along with rising debt levels." With the recent issuance of about $1.7 billion of debt, which enhanced liquidity, and significant growth in its tax-adjusted unfunded pension liabilities, the company's total debt to EBITDA rose to 1.4x at year-end 2008 versus 0.8x in the previous year. "We do not expect any material deleveraging over the near term," added Mr. Schrank, "given the very difficult global economic outlook, which will continue to pressure profits, and the company's limited debt maturity schedule." However, it is our opinion that 3M will generate significant discretionary cash flow (after dividends and capital expenditures) over the next two years, a portion of which can be used to repay maturities and increase other post-employment pension (OPEB) funding. The company is likely to retain the majority of the cash flow on the balance sheet to bolster liquidity and to partially offset its currently high (for the rating) debt leverage until it declines to the low-1x area. http://www.anotherfp.com/newsite/story2.php?id=199 Moody's Investors Service has downgraded MGIC Investment Corporation's senior unsecured debt rating to B3 from B2, and its convertible junior subordinated debt rating to Caa2 from B3. Moody's has also affirmed the Ba2 insurance financial strength ratings of Mortgage Guaranty Insurance Corporation and MGIC Indemnity Corporation (collectively "MGIC"). The outlook for the ratings is developing. According to Moody's, today's rating action reflects constrained financial flexibility at the holding company, MGIC Investment Corporation (MGIC Investment), coupled with the company's recent decision to defer the payment of interest on its convertible junior subordinated debt. While MGIC Investment currently has approximately $394 million in liquid assets, the company's bank credit facility (of which $200 million is currently outstanding) comes due in 2010, and an additional $200 million in senior notes mature in 2011. Moody's said that these upcoming payments, together with other debt service obligations and the current absence of unrestricted dividend capacity at MGIC, are likely to place additional strain on holding company liquidity over the next two years. The two notch downgrade of the convertible junior subordinated debt reflects MGIC's decision to defer its April 1, 2009 interest payment and the likelihood that the company will continue to defer interest payments for the next several quarters. While deferred interest payments are cumulative, the rating reflects the uncertainty of repayment, if at all, given MGIC's weak financial condition. Moody's stated that the developing outlook reflects both the potential for further deterioration in the insured portfolio of MGIC, as well as positive developments that could occur over the near to medium term, including the possibility of a greater than expected level of claims recissions, the potential for various initiatives being pursued at the US Federal level to mitigate the rising trend of mortgage loan defaults, and the possibility that the mortgage insurers gain access to government capital in a program similar to the U.S. Treasury's Capital Assistance Program. Moody's will continue to evaluate MGIC's ratings in the context of the future performance of the company's insured portfolio relative to expectations and resulting capital adequacy levels, as well as changes, if any, to the company's strategic and capital management plans. LIST OF RATING ACTIONS The following ratings have been downgraded, with a developing outlook: MGIC Investment Corporation -- senior unsecured debt to B3 from B2; junior subordinated debt to Caa2 from B3; provisional rating on senior unsecured debt to (P)B3 from (P)B2. The following ratings were affirmed, with a developing outlook: Mortgage Guaranty Insurance Corp -- insurance financial strength at Ba2; MGIC Indemnity Corporation -- insurance financial strength at Ba2. The last rating action related to MGIC was on February 13, 2008, when Moody's downgraded MGIC's insurance financial strength rating to Ba2 from A1. The principal methodology used in rating MGIC is "Moody's Global Rating Methodology for the Mortgage Insurance Industry" which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating MGIC can also be found in the Credit Policy & Methodologies directory. MGIC Investment Corporation, [NYSE: MTG] headquartered in Milwaukee, Wisconsin, is the holding company for Mortgage Guaranty Insurance Company, one of the largest US mortgage insurers with $227 billion of primary insurance in force at December 31, 2008. http://www.anotherfp.com/newsite/story2.php?id=194 Standard & Poor's Ratings Services today lowered its corporate credit rating and issue-level ratings on the Las Vegas Sands Corp. (LVSC) family of companies, including Las Vegas Sands LLC (LVSL), its Venetian Casino Resort LLC subsidiary (VCR), and affiliate VML U.S. Finance LLC. The corporate credit rating was lowered to 'B-' from 'B'. The ratings were removed from CreditWatch, where they were initially placed with negative implications on July 16, 2008. The rating outlook is negative. At the same time, we revised our recovery rating on LVSC's $250 million senior notes and LVSL's $5 billion senior secured credit facility to '3', indicating our expectation of meaningful (50% to 70%) recovery for lenders in the event of a payment default, from '2'. The issue-level rating on the facilities was lowered to 'B-' (at the same level as the 'B-' corporate credit rating on the company) from 'B+', in accordance with our notching criteria for a recovery rating of '3'. We also lowered the issue rating on the secured loan facilities at VML U.S. Finance LLC to 'B-' from 'B'. "The ratings downgrade reflects our concern around the company's ability to fund its development pipeline, while at the same time maintaining compliance with its credit facilities in the U.S. and Macau," said Standard & Poor's credit analyst Ben Bubeck. The company made significant revisions/reductions to its aggressive development plan in conjunction with a capital raise of more than $2.5 billion completed late in 2008 and has also initiated a cost-containment plan targeting $250 million in annual savings. Still, our projections for performance in 2009 and 2010 at the company's properties in the U.S., Macau, and Singapore, combined with additional spending requirements of more than $4.5 billion, translate into a liquidity shortfall absent potential asset sales in Macau. Our outlook for the Las Vegas properties calls for year-over-year EBITDA to decline in the mid-teens percentage area in 2009, followed by only a modest rebound in 2010, reflecting difficult economic conditions in the U.S. that are continuing to pressure visitation, room rates, and spend on the Las Vegas Strip. Our projections for the Macau properties contemplate an EBITDA decline in the high-single-digit percentage area across the portfolio this year, and only a low- to mid-single-digit percentage increase in 2010, driven by a continuation of weak visitation and spend trends due to tightened visa restrictions and weaker overall economic conditions, as well as increased competition. We assume that Sands Bethlehem opens as scheduled in May 2009, and ramps up to an EBITDA run rate of slightly above $100 million in 2010. We are also incorporating an expectation for the Marina Bay Sands in Singapore to generate about $825 million in EBITDA in 2010, which would approximate about a 15% return on investment. Under the scenario outlined above, the company would face a substantial liquidity shortfall in 2010, and would also likely violate covenants under its Macau credit facility by the September 2009 quarter, absent the sale of noncore assets in Macau. However, our 'B-' corporate credit rating also incorporates the expectation that the company is successful in selling at least one of the three noncore Macau assets for sale, which include the Four Seasons Apartments and the malls at the Venetian Macau and Four Seasons Macau. A further lowering of the rating would likely occur absent progress in completing the sale of one or more of these assets over the next several months. The rating downgrade also reflects the fact that we expect the company to continue to be required to fund equity cure payments (to the extent permitted) over at least the next several quarters in order to remain in compliance with covenants within its bank facilities. The company elected to contribute $50 million to U.S. operations in the September 2008 quarter and $20 million to Macau operations in the December 2008 quarter under the equity cure provisions in each credit agreement. The consistent reliance on equity cure provisions--rather than just cash flow generated from operations--to maintain compliance with bank facilities is not consistent with the previous rating. http://www.anotherfp.com/newsite/story2.php?id=195 Standard & Poor's Ratings Services said today that it lowered its counterparty credit ratings on Providence, R.I.–based Textron Financial Corp. (TFC), captive finance company of Textron Inc. (Textron; BBB-/Developing/A-3), to 'BB+/B' from 'BBB/A-2'. At the same time, we removed the ratings on TFC from CreditWatch, where they were placed with negative implications on Jan. 30, 2009. The outlook is developing, incorporating the possibility that we could downgrade, upgrade, or affirm the rating. The main factor in the two-notch downgrade was our assessment of the stand-alone credit profile of Textron Financial. "We have lowered our stand-alone rating on TFC's creditworthiness to 'BB' from 'BBB-' because we expect its credit quality to grow worse and the company to become less diverse as it moves toward being a captive aircraft and golf equipment lender," said Standard & Poor's credit analyst Jeffrey Zaun. "We have also considered the parent's significant support of TFC by designating the finance company as strategically important to the parent and incorporating one notch of support to the finance company." Although we had anticipated credit quality deterioration at TFC and had factored it into the previous rating, our outlook on the economy and TFC's aircraft lending business has dimmed. We believe credit quality at TFC will continue to suffer from both a weak economy and dislocation due to the finance company's exit from noncaptive businesses. Our concerns are only partially offset by management's proactive stance amid poor economic and capital market conditions. http://www.anotherfp.com/newsite/story2.php?id=196 Standard & Poor's Ratings Services said today that it lowered its long-term counterparty credit rating on J.G. Wentworth LLC (Wentworth) to 'CC' from 'CCC+'. At the same time, we lowered the rating on Wentworth's $325 million senior secured bank loan to 'CC' from 'CCC+' and revised the recovery rating to '6' from '4'. The ratings on Wentworth remain on CreditWatch with negative implications, where they were placed Nov. 26, 2008. We will update this CreditWatch listing within 90 days. "The downgrade reflects the company's severely weakened financial position as the standstill agreement with warehouse lender Deutsche Bank nears expiration (March 20, 2009)," said Standard & Poor's credit analyst Rian M. Pressman, CFA. This standstill agreement has allowed Wentworth to continue operating its core structured settlement rediscounting business to a limited degree, while delaying any further margin calls on its $250 million warehouse facility. (The standstill agreement pertains to the $16.9 million margin call from fourth-quarter 2008. Deutsche Bank granted the standstill agreement following additional cash and collateral contributions by Wentworth and a $52 million reduction in warehouse indebtedness.) Negotiations to extend the standstill agreement are ongoing; however, the outcome of such discussions is uncertain. In the worst case, the warehouse lender could provide a notice of default, which we believe could lead to a cross-default on Wentworth's other debt, including the senior secured bank loan. In addition, Wentworth's ability to continue operations is limited without further financial assistance from private equity owners JLL Partners. Despite a significant reduction in headcount, the cash flow generated from Wentworth's ongoing business does not fully offset operating expenses, including debt service (estimated at more than $6 million due at the end of March). http://www.anotherfp.com/newsite/story2.php?id=197 Standard & Poor's Ratings Services said today that its ratings and outlook on New York-based Alcoa Inc. are unchanged by the company's recent announcement that it plans to enhance its liquidity during the cyclical downturn through several actions. These include: -- The issuance of 150 million shares of common stock, with expected proceeds of about $860 million; -- The issuance of $250 million convertible notes due 2014; -- The reduction of its quarterly dividend to $.03 per share from $.17 per share, preserving more than $400 million of cash annually; and -- Enhanced operational efficiencies, including reduced capital spending, and procurement efficiencies to enhance performance and improve its cost structure. At the same time, we assigned a 'BBB-' rating to Alcoa's proposed $250 million convertible notes due 2014. The notes will be issued under the company's shelf registration for well-known seasoned issuers filed on March 10, 2008. The ratings are based on preliminary terms and conditions. Alcoa will use proceeds of the proposed notes offering, in combination with the equity issuance, to repay outstanding short-term debt, which includes borrowings under its 364-day revolving credit facility, and for general corporate purposes. Overall, we view these steps, along with the earlier sale of its Rio Tinto stake for around $1 billion, to improve liquidity and reduce short-term borrowings positively, particularly considering the current uncertain economic environment and very weak aluminum markets. In addition, in our view, these actions reduce the likelihood that the company will need to borrow additional funds during 2009 to fund its operations and planned capital spending (including the final phase of its Brazilian investment). Moreover, they demonstrate the company's commitment to the current 'BBB-' rating, which incorporates our expectations that Alcoa will continue to reposition its businesses and balance sheet to capitalize on improved market conditions when they occur. Still, continued high debt levels, which total about $15.8 billion after adjusting for postretirement obligations and operating leases, and weak markets continue to be key rating factors. With ongoing low aluminum prices, anemic demand, and steady increases in inventories, along with a lack of visibility into when markets might improve, the company's credit metrics will likely remain below our expectations for the rating, deteriorating further from weak 2008 year-end measures of adjusted debt to EBITDA of 4.2x and adjusted funds from operations to total debt around 10%. Without improved end markets and prices, Alcoa may be unable to improve credit metrics sufficiently in the next couple of years to return them to levels acceptable for the ratings. At the current ratings, we would expect adjusted debt to EBITDA in the 3.0x area and adjusted funds from operations to total debt in the 25% to 30% range. http://www.anotherfp.com/newsite/story2.php?id=198 Fitch Ratings has downgraded Hovnanian Enterprises, Inc.'s (NYSE: HOV) Issuer Default Rating (IDR) and other outstanding debt ratings as follows: --IDR to 'CCC' from 'B-'; --Senior secured revolving credit facility to 'B+/RR1' from 'BB-/RR1'; --Senior secured notes to 'B+/RR1' from 'BB-/RR1'; --Senior unsecured notes to 'CC/RR5' from 'B-/RR4'; --Senior subordinated notes to 'C/RR6' from 'CCC/RR6'; --Series A perpetual preferred stock to 'C/RR6' from 'CCC-/RR6'. Fitch's Recovery Rating (RR) of '1' on HOV's secured revolving credit facility and senior secured second and third-lien notes indicates outstanding (90%-100%) recovery prospects for holders of these debt issues. The 'RR5' on HOV's senior unsecured notes indicates below average (10%-30%) recovery prospects for holders of these debt issues. HOV's exposure to claims made pursuant to performance bonds and the possibility that part of these contingent liabilities would have a claim against the company's assets were considered in determining the recovery for the unsecured debt holders. The 'RR6' on HOV's senior subordinated notes and preferred stock indicates poor recovery prospects (0%-10%) in a default scenario. Fitch applied a liquidation value analysis for these RRs. The downgrade reflects the current very difficult U.S. housing market and Fitch's expectations that the housing environment remains challenging for the remainder of the year and perhaps into 2010. The sharply contracting economy and impaired mortgage markets are, of course, contributing to the housing shortfall. The ratings changes also reflect persistent negative trends in HOV's operating margins, further deterioration in credit metrics and erosion in tangible net worth from non-cash real estate charges and operating losses. Cash flow from operations will sharply decline or be slightly negative in 2009 and likely will be negative in 2010. Real estate impairments should moderate this year, but will persist so long as home prices decline and the sales absorption rate shrinks. HOV generated $476.3 million of cash from operations during the latest 12 months (LTM) from Jan. 31, 2009 and ended the quarter with $842.6 million of cash on the balance sheet. HOV has no major debt maturities until January 2010, when $100 million of senior subordinated notes become due. The next maturity after that is in April 2012. During 2008 HOV accessed the capital markets to improve its liquidity position. In May 2008 the company issued $600 million of 11 1/2% senior notes due 2013. In mid 2008 HOV issued 14 million shares of common stock at a price of $9.50 per share and realized net proceeds of $126 million. Most recently, HOV issued an aggregate principal amount of $29.3 million of 18% senior secured notes (third-priority lien) due 2017 in exchange for certain of the company's senior unsecured notes in a private exchange offer. The senior unsecured notes exchanged in the transaction totaled $71.4 million. The debt exchange was an opportunistic transaction for HOV that allowed the company to reduce debt by approximately $42.1 million and extend the maturity of $29.3 million of current debt to 2017. During the first quarter of 2009 the company repurchased $53 million of face value of unsecured senior and senior subordinated notes for $15 million in cash. Since the end of the first quarter, HOV purchased about $240 million of face value of unsecured senior notes and $75 million of face value of unsecured senior subordinated notes for approximately $105 million in cash. This resulted in approximately a $210 million gain and a corresponding increase in stockholders' equity. Ratings for HOV are influenced by the company's execution of its business model, land policies and geographic, price point and product line diversity. HOV has been an active consolidator in the homebuilding industry which had contributed to above average growth during the seven years ending in 2005, but had kept debt levels somewhat higher than its peers. Above average leverage was also related to the company's delay in braking its internally generated expansion during the earlier stages of the housing contraction. Significant insider ownership aligns management's interests with HOV's long-term financial health. Future ratings will be influenced by the economy and broad housing market trends as well as company-specific activity, such as land and development spending, general inventory levels, speculative inventory activity (including the impact of high cancellation rates on such activity), gross and net new-order activity, debt levels and especially free cash flow trends and uses and the company's cash position. http://www.anotherfp.com/newsite/story2.php?id=192 Standard & Poor's Ratings Services said today that it assigned its 'AAA' rating to Pfizer Inc.'s (NYSE:PFE)senior unsecured notes issued under a Rule 415 shelf registration. The issuance will consist of benchmark offerings of 3-, 6-, 10-, and 30-year maturities. These notes, and all other long-term ratings on Pfizer, remain on CreditWatch where they were placed with negative implications on Jan. 26, 2009. The proceeds will be used to fund the pending $68 billion acquisition of Wyeth (A+/Watch Pos/A-1) of which about $22.5 billion will be funded with borrowings. "Financially, the additional borrowings needed to fund the acquisition weaken credit measures from the essentially unleveraged position of the past few years; pro forma for this acquisition, we believe that funds from operations to debt and debt to EBITDA will average 111% and 0.6x over the next three years," said Standard & Poor's credit analyst David Lugg. These values are well within the guidelines for a minimal financial risk profile (see A Closer Look At Industrials Ratings Methodology, published Nov. 13, 2006, on RatingsDirect.) Although we believe the addition of Wyeth's products to Pfizer's portfolio would improve the company's overall diversification and reduce its reliance on best-seller Lipitor, we believe it would only modestly reduce the proportion of revenues exposed to generic competition through 2011. In our view, Pfizer may need to take other actions to mitigate the expected revenue and earnings losses. Accordingly, given the additional leverage and continuing challenge of medium-term patent expirations on important products, we expect to lower the rating, likely to the 'AA' category, if the company completes the acquisition as planned. http://www.anotherfp.com/newsite/story2.php?id=193 Standard & Poor's Ratings Services said today that it lowered its long-term counterparty credit ratings on Trinity Plus Funding Co. LLC and Trinity Funding Co. LLC to 'AA+' from 'AAA'. Standard & Poor's also said that it affirmed its 'A-1+' short-term ratings on these companies. The outlook is stable. "These rating actions follow our downgrade yesterday of General Electric Capital Corp. (GECC), a financial services unit of General Electric Co., to 'AA+' from 'AAA'," explained Standard & Poor's credit analyst Bob Roseman. "GECC guarantees the GIC and hedge contract payment obligations of both companies, so the ratings are directly linked to the rating on GECC." http://www.anotherfp.com/newsite/story2.php?id=190 Standard & Poor's Ratings Services today said it lowered its counterparty credit rating on MGIC Investment Corp. (MGIC Investment) to 'CCC' from 'BB+'. We also lowered our preferred convertible debt rating on MGIC Investment to 'C' from 'B+'. At the same time, we removed these ratings from CreditWatch, where they had been placed with negative implications on Dec. 5, 2008. The outlook is negative. Standard & Poor's also lowered its counterparty credit and financial strength ratings on MGIC Investment's U.S. subsidiaries--Mortgage Guaranty Insurance Corp. and MGIC Indemnity Co. (collectively referred to as MGIC)--to 'BB' from 'A-'. The ratings remain on CreditWatch with negative implications. We also lowered our counterparty credit and financial strength ratings on MGIC Australia Pty Ltd. (MGIC Australia) to 'BBB-' from 'A-'. We removed these ratings from CreditWatch, where they had been placed with negative implications on Dec. 5, 2008. The outlook is negative. The investment-grade ratings on MGIC Australia reflect its good capitalization and the regulatory limitations on its parent's ability to repatriate capital. "These rating actions follow MGIC Investment's recent announcement that it elected to defer interest on its $390 million subordinated convertible debt offering," said Standard & Poor's credit analyst James Brender. "When an issuer elects to exercise its option to defer interest, it is our policy to lower the rating on that obligation to 'C'." "The downgrade of MGIC reflects the company's recent poor operating results and our concern that rising unemployment could delay MGIC's recovery," said Mr. Brender. The group reported net losses of $519 million and $1.7 billion in 2008 and 2007, respectively. The unfavorable results reflect a significant increase in delinquent insured mortgages because of the sharp decline in home prices. MGIC's delinquency rate increased to 12.4% as of Dec. 31, 2008, from 6.1% on Dec. 31, 2006. Under certain stress scenarios for the housing and job markets, we believe MGIC could report a net loss in 2011. The ratings on MGIC reflect its recent poor operating results, primarily because of weak underwriting of loans insured in 2006 and 2007, as well as an extremely challenging environment for all mortgage insurers. These negative factors are offset partially by MGIC's significant claims-paying resources and Standard & Poor's belief that the current difficulties will improve the long-term fundamentals of the mortgage insurance industry. http://www.anotherfp.com/newsite/story2.php?id=191 Standard & Poor's Ratings Services today lowered its long-term ratings on General Electric Co. (GE) and units, including General Electric Capital Corp. (GECC), by one notch to 'AA+' from 'AAA'. We affirmed the 'A-1+' short-term credit ratings. The outlook is stable. The main factor in the downgrade was our assessment of the stand-alone credit profile of financial services unit GECC, which we now view as 'A', compared to the 'A+' we had indicated before. "We believe that GECC is under increasing earnings pressure, due to the recent sharp deterioration in general economic conditions around the globe," said Standard & Poor's credit analyst Robert Schulz. "This will result, in our opinion, in rising credit losses across key segments of GECC's finance portfolio. Still, we believe that GE's industrial-based cash generation capabilities remain fundamentally strong--even in the face of enormous global economic headwinds--and that it will generate growing cash balances from current levels over the next two years. We do not anticipate that GE will benefit from any meaningful earnings or cash flow from GECC through 2010." We believe that GE's industrial businesses will generate about $2 billion in discretionary cash flow (after dividends) in 2009 and a significantly greater amount in 2010, aided by the 68% reduction in the common dividend that the company recently announced. The ratings on GE continue to reflect our view of its excellent business risk profile, its significant cash flow and liquidity, its strong corporate governance, and management's commitment to maintaining very high credit quality. In our view, the company has a track record of managing its businesses (including its financial services unit GECC) in a variety of difficult markets, and a demonstrated ability for these businesses to earn solid profits and generate substantial cash, even in very tough economic conditions. We expect GE's commitment to maintaining very high credit quality, the still-solid prospects for many of its business segments (despite economic weakness), and the company's ample financial flexibility should continue to support the ratings at the current level and the stable outlook. However, we could reexamine our outlook if, for example, we came to believe that GE would fail to generate discretionary free cash flow (after dividends) of around $2 billion in 2009 and significantly more in 2010 and retain a very substantial portion of this cash-�??we would view a portion of this cash as available to support GECC. In light of the recent sharp reduction in the dividend, this would likely require net earnings below $9 billion in 2009, which we believe could occur if revenues fell more than 5%, if industrial gross margins fell 100 basis points or more, and GE had little success in managing working capital in 2009. We would also review the outlook or rating if we came to expect that GECC would report significant losses for an extended period of time, if the company shifted its financial policies, or if strategic shifts in GE's portfolio of businesses were to jeopardize the company's excellent business risk profile. http://www.anotherfp.com/newsite/story2.php?id=186 Standard & Poor's Ratings Services said today it affirmed its 'A' ratings and underlying ratings (SPURs) on California's $45.6 billion in general obligation debt. The outlook remains stable. At the same time, Standard & Poor's affirmed its 'SP-2' short-term rating on the state's $5 billion revenue anticipation notes. The affirmation follows the adoption of the 2009 budget act that addresses a $41.6 billion budget deficit spanning the remainder of fiscal 2009 and fiscal 2010. The rating reflects our view of the state's: -- Large and diverse economy with a gross state product equivalent to approximately 13% of U.S. gross domestic product; and -- Conservatively structured and moderate existing debt burden. "Also reflected in the rating is our view of several of the state's constitutional and statutory characteristics," said Standard & Poor's credit analyst Gabriel Petek. "We believe that some aspects of state governance, such as the controller's considerable discretion over cash management, serve to strengthen the state's credit." "On the other hand, we believe that other features, such as a requirement for a two-thirds supermajority vote of the legislature to pass a budget or raise taxes, and the very active voter initiative process in the state can sometimes impede timely financial management practices and activities," Mr. Petek said. Although the protracted 2009 budget act negotiations significantly strained the state's credit, we believe that the adoption of both gap closing measures and a 2009-2010 budget simultaneously help provide a level of stability during a difficult economic period. However, in our view, the need for electoral approval of several critical measures leaves the state vulnerable despite early budget passage. http://www.anotherfp.com/newsite/story2.php?id=187 Fitch Ratings has placed the ratings of holding company MGIC Investment Corp. (MGIC Investment) and its subsidiaries Mortgage Guaranty Insurance Corp. (MGIC) and MGIC Australia Pty Ltd (MGIC Australia) on Rating Watch Negative. Mortgage Guaranty Insurance Corp. MGIC Australia Pty Ltd --Insurer Financial Strength 'A-' MGIC Investment Corp. --Long-Term Issuer Default Rating 'BBB-'; --$200 million 5.625% senior notes due Sept. 15, 2011 'BBB-'; --$300 million 5.375% senior notes due Nov. 1, 2015 'BBB-'; --$390 million 9% convertible junior subordinated debentures due 2063 'BB'. Today's rating action results from MGIC Investment's decision to defer interest payments on its $390 million convertible junior subordinated debentures due 2063. The 'BB' rating assigned to the convertible junior subordinated debt reflected Fitch's view of MGIC Investment's liquidity pressures and the risk that MGIC Investment would exercise its option to suspend payments. Notwithstanding, the announced deferral on $390 million of MGIC Investment's debt obligations is an indicator of the increasing financial pressure facing the company and the mortgage insurance sector as a whole. Fitch notes that MGIC Investment's liquidity remains adequate to meet intermediate term needs, with approximately $394 million of cash held at MGIC Investment as of Dec. 31, 2008. This level of cash serves to mitigate the risk of breaching certain covenants on the company's $200 million bank line by providing MGIC Investment with the ability to pay off the credit facility prior to a potential financial covenant breach (primarily risk-in force to capital limits) or at its due date in 2010. Under such a scenario, MGIC Investment would still maintain about $200 of cash at to service its other debt. Fitch expects to resolve the Rating Watch Negative on the ratings of the holding company and its subsidiaries following a review of the company's liquidity and capital plans in conjunction with an updated review of the operating environment for mortgage insurance companies. MGIC Investment is a holding company and through its wholly owned subsidiary MGIC is a leading provider of mortgage insurance in the U.S. As of Dec. 31, 2008, MGIC maintained U.S. risk in force net of reinsurance of $54.5 billion and consolidated U.S. statutory capital of $3.7 billion for a risk to capital ratio of 14.7:1. http://www.anotherfp.com/newsite/story2.php?id=188 Fitch Ratings has today downgraded Swiss-based healthcare company Roche Holding Ltd's (Roche) senior unsecured rating and Long-term Issuer Default rating (IDR) to 'AA-' (AA minus) from 'AA' and changed the Outlook to Negative from Stable. This follows Roche's agreement to acquire the outstanding publicly held shares in Genentech, which Roche does not already own (44.1%) for USD95 per share in cash or a total of USD46.8bn. The Short-term IDR was affirmed at 'F1+'. "The Genentech acquisition will provide Roche with economies of scale in terms of R&D and marketing and an opportunity to simplify the structure of the combined entity," says Britta Holt, a Director in Fitch's Retail, Consumer and Healthcare team. "However, the transaction will significantly reduce the group's debt protection measures, and any improvements in its credit profile will take some time." The Negative Outlook reflects the risk of a slower-than-expected de-leveraging process for example due to integration problems. Following the cash and debt-financed acquisition, Fitch expects the company's lease-adjusted net debt/EBITDAR to rise to above 2x in 2009 (FY08: minus 1x, i.e. net cash position) but should reduce rapidly thereafter given the group's high cash generation capacity (CHF5bn free cash flow in 2008). Roche expects the combined entity to generate annual pre-tax cost synergies of USD750m-USD850m. Synergies shall be driven by a reduction of the complex organisational structure and elimination of duplicate functions and processes in areas such as late-stage development, administration and support. The special committee of Genentech's Board of Directors has approved the transaction and recommends that Genentech shareholders tender their shares in Roche's offer. Roche's tender offer remains subject to the condition that the majority of public shareholders tender their shares. The expiration date for the offer is 25 March 2009. As of 11 March 2009, approximately 2.9m shares have been tendered pursuant to the offer. http://www.anotherfp.com/newsite/story2.php?id=189 Standard & Poor's Ratings Services said today that its rating and outlook on United Technologies Corp. (UTC; A/Stable/A-1) are not affected by the company's weaker earnings guidance for fiscal 2009. UTC reported yesterday that, amid contracting markets worldwide, its revenues and earnings will be lower than previously anticipated. In response, the company is increasing restructuring activity and cost-reduction efforts. Standard & Poor's also believes that the company's operating performance could remain under some downside pressure in 2010 given the long-cycle nature of certain UTC businesses. UTC's credit measures, recently weakened by significant underfunded pension obligations, will therefore likely be stretched for the rating. Nevertheless, we continue to believe that the combination of solid cash flow generation (with discretionary cash flows after dividends expected to be in excess of $2.0 billion in 2009), ample liquidity, and management's indication that it is meaningfully curtailing share repurchase activity remain supporting factors for the 'A/A-1' ratings. http://www.anotherfp.com/newsite/story2.php?id=183 Standard & Poor's Ratings Services said today that it lowered its counterparty credit, financial strength, and financial enhancement ratings on Channel Reinsurance Ltd. to 'BB+' from 'AA-'. The outlook is negative. Standard & Poor's also said that it subsequently withdrew the ratings at the company's request. "The downgrade reflects our view that Channel Re is effectively in runoff," explained Standard & Poor's credit analyst David Veno. We do not expect that MBIA Insurance Corp.--its sole source of business, which itself faces diminished business prospects given the recent restructuring by MBIA Inc.--will cede Channel Re any new business. In addition, Channel Re's 2005–2007 vintage direct RMBS, CDO of ABS, and other structured exposures are subject to potential continued adverse loss development, which could erode capital adequacy. We believe the company also faces the prospects of lower earnings and the runoff of an insured portfolio that, with time, could become less diverse. The negative outlook reflected Standard & Poor's view that the company's 2005–2007 vintage direct RMBS, CDO of ABS, and other structured exposures are subject to potential continued adverse loss development that could erode capital adequacy. http://www.anotherfp.com/newsite/story2.php?id=184 Standard & Poor's Ratings Services today lowered its corporate credit rating on Fleetwood Enterprises Inc. to 'D' from 'CCC-' following the company's Chapter 11 filing. Concurrently, we lowered our rating on the company's trust preferred securities to 'D' from 'C'. On March 10, 2009, Fleetwood filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. While Riverside, Calif.-based Fleetwood is a market leader in the recreational vehicle (RV) and factory-built housing industries, both of the company's end markets are weak. RV shipments fell 33% in 2008 due to negative consumer sentiment and tight credit. Similarly, manufactured housing shipments contracted by 14%, extending a decade-long recession for that industry. As a consequence of these conditions, as well as previous attempts by the company to restructure manufacturing operations, Fleetwood's revenues were 40% lower in the 12 months ended Oct. 26, 2008, than in the prior year. Fleetwood posted an $83 million net loss for the 12-month period and had a $91 million discretionary cash flow deficit. Fleetwood intends to close its travel trailer business and will seek buyers for its motor home and manufactured housing businesses. Management believes that it has sufficient cash ($23 million on Jan. 25, 2009) to operate these businesses in the interim, but the company is seeking debtor-in-possession financing to supplement liquidity. Additionally, the company announced that it has the right under Chapter 11 to revisit the Dec. 12, 2008, exchange of $79 million of 5% convertible notes for a new series of 14% senior secured notes and 11 million common shares. The right to reconsider the exchange offer expires within 90 days from the offer's effective date. Standard & Poor's withdrew its rating on the 5% notes after the exchange offer was completed and after another $20 million of the original $100 million principal amount was exchanged for 20 million common shares. http://www.anotherfp.com/newsite/story2.php?id=185 Moody's Investors Service has downgraded to Ca from Caa1 the insurance financial strength ratings of Syncora Guarantee Inc. ("SG" -- formerly XL Capital Assurance Inc.) and Syncora Guarantee (U.K.) Ltd. In the same rating action, Moody's downgraded the provisional senior unsecured shelf rating of Syncora Holdings Ltd. ("Syncora") to (P)C from (P)Ca and the rating of Twin Reefs Pass-Through Trust ("Twin Reefs") to C from Ca. The outlook for SG's insurance financial strength ratings is developing. Moody's ratings on securities that are guaranteed or "wrapped" by a financial guarantor are generally maintained at a level equal to the higher of a) the rating of the guarantor (if rated at the investment grade level), or b) the published underlying rating (and for structured securities, the published or unpublished underlying rating). For further information please see Moody's recently published special comment entitled: Assignment of Wrapped Ratings When Financial Guarantor Falls Below Investment Grade (May 6, 2008); and Moody's November 10, 2008 announcement entitled: Moody's Modifies Approach to Rating Structured Finance Securities Wrapped by Financial Guarantors. Today's rating action was prompted by the large loss reserve and credit impairment charges taken by the company on its mortgage-related exposures during 4Q2008, which have resulted in a $2.4 billion statutory deficit at SG as of December 31, 2008. Moody's said that the company's capital position is now below minimum statutory capital regulations under New York law, which heightens the risk of regulatory action. Moody's notes that SG is attempting to reach a comprehensive settlement with its bank counterparties on certain exposures, including most of the company's insured ABS CDOs. The company also intends to repurchase wrapped RMBS securities from investors through a tender offer. In Moody's opinion, if the company is unable to reach such settlements in the near term, the company could be placed into rehabilitation or liquidated by the New York regulator. Moody's said that the developing outlook reflects the possibility of both positive and negative pressure on SG's insurance financial strength ratings. Moody's notes that most of Syncora's bank counterparties have signed a non-binding letter of intent to commute certain ABS CDO exposures. To the extent Syncora is able to commute these exposures under terms that are consistent with those outlined in Syncora's recent SEC filings, SG's insurance financial strength ratings could be confirmed or upgraded. If, however, the company is unable to execute a settlement that improves its capital adequacy profile, the insurance financial strength ratings would likely be downgraded to C. The downgrades of the ratings on Syncora's debt and preferred stock reflect the absence of dividend capacity at SG and the subordination of these instruments to policyholder claims. Moody's anticipates that any improvement in SG's capital adequacy profile achieved through the commutation or termination of troubled mortgage-related exposures will have minimal impact on the credit profile of the holding company over the near to medium term. LIST OF RATING ACTIONS The following ratings have been downgraded, with a developing outlook: Syncora Guarantee Inc. -- insurance financial strength to Ca from Caa1; Syncora Guarantee (U.K.) Ltd. -- insurance financial strength to Ca from Caa1. The following ratings have been downgraded: Syncora Holdings Ltd. -- provisional rating on senior debt to (P)C from (P)Ca; provisional rating on subordinated debt to (P)C from (P)Ca; and preference shares to C from Ca; Twin Reefs Pass-Through Trust -- contingent capital securities to C from Ca. The last rating action related to Syncora was on October 24, 2008, when Moody's downgraded SG's insurance financial strength rating to Caa1 from B2. http://www.anotherfp.com/newsite/story2.php?id=179 Moody's Investors Service has downgraded the senior debt rating of Phoenix Companies, Inc. (Phoenix; NYSE: PNX) to Ba2 from Ba1, and the insurance financial strength (IFS) rating of the company's life insurance subsidiaries, led by Phoenix Life Insurance Company, to Baa2 from Baa1. The outlook on all the ratings is negative. The rating action concludes the review for possible downgrade that was effected on February 19, 2009. Moody's said the rating downgrade is based primarily on the suspension of sales of Phoenix's products by the company's primary distribution partner, a major property and casualty writer with an extensive nationwide distribution system, as well as the rating agency's expectation that additional distributors may well follow suit. In addition, Phoenix has also announced that a second major distribution partner is also suspending sales of Phoenix's annuity products. The primary distributor suspending sales of Phoenix's products accounted for 27% of the company's life sales, and more than half of all of its annuity sales. Moody's commented that the actions of these two distributors, plus potential similar actions of other Phoenix distributors, means that Phoenix's new sales of both life and annuity products are very likely to substantially decline in 2009 from 2008 levels, and remain at a much lower level for the foreseeable future. Moody's also stated that Phoenix's financial flexibility will be constrained by having only one source of funds available to the holding company, its primary operating company, Phoenix Life. Phoenix Life's capitalization will also be pressured by continuing investment losses in the most challenging investment environment experienced in decades, which will further diminish the financial flexibility of the group. In addition, the company's future earnings will be driven primarily by the runoff of its existing inforce business, and it will need to carefully manage its expenses in the face of reduced future sales. Based on the composition of its investment portfolio, Phoenix is likely to experience near term higher levels of economic losses on its real-estate and structured securities, including RMBS (jumbo-Prime, Alt-A and subprime securities) and CMBS investments given the rating agency's revised losses for these asset classes, as well as rising corporate default rates as a result of the recession. In addition, ongoing rating migration in the investment portfolio will increase required regulatory capital, further depressing the risk-based capital (RBC) level of Phoenix Life. Moody's stated that the negative outlook reflects the challenges the company will face in reorienting its business strategy in terms of future sales, especially in a difficult business environment. Phoenix will be attempting to implement business strategies for which it may have relatively limited expertise, and for which there are few successful examples. It is also very important for the company's long-term success that it be able to maintain existing client relationships, especially with clients that have relationships that are of substantial size. Somewhat offsetting these negatives, the rating agency said, are Phoenix's significant existing block of permanent life insurance to affluent individuals and businesses, the very long term maturities of its debt obligations, and modest cash needs at the holding company. Moody's stated that given the negative outlook on Phoenix's ratings, it is unlikely that the company's ratings would experience upward rating pressure, but the outlook could return to stable if: 1) Phoenix Life's capital levels are successfully stabilized at approximately current levels, 2) Phoenix Life has a large enough statutory net gain from operations in 2009 to be able to adequately support holding company obligations, 3) persistency rates on the company's existing policies remain consistent with current levels, and 4) gross investment losses in 2009 are less than $125 million. Conversely, the ratings could be downgraded further if: 1) the NAIC RBC level declines and remains below 300%, 2) persistency rates on the company's existing policies substantially decline, or 3) the company's gross investment losses exceed $250 million. The followings ratings have been downgraded with a negative outlook: Phoenix Companies, Inc. -- senior unsecured debt rating to Ba2 from Ba1; Phoenix Life Insurance Company -- insurance financial strength to Baa2 from Baa1, surplus notes to Ba1 from Baa3; PHL Variable Insurance Company -- insurance financial strength to Baa2 from Baa1. Phoenix is an insurance organization headquartered in Hartford, Connecticut. As of December 31, 2008, Phoenix reported total assets of about $26 billion and shareholder's equity of approximately $865 million. The last rating action on Phoenix occurred on February 19, 2009 when Moody's downgraded Phoenix's ratings and left then on review for possible further downgrade. The principal methodology used in rating Phoenix was Moody's Global Rating Methodology for Life Insurers, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory. Moody's insurance financial strength ratings are opinions of the ability of insurance companies to punctually pay senior policyholder claims and obligations. http://www.anotherfp.com/newsite/story2.php?id=180 Standard & Poor's Ratings Services today said it has revised its outlook on The Goodyear Tire & Rubber Co. (NYSE:GT) to negative from stable and affirmed its 'BB-' corporate credit rating. At the same time, we lowered our issue-level ratings on the company's unsecured debt to reflect revised post-default recovery expectations. "The outlook revision reflects our view that tire demand will continue to decline as economic conditions deteriorate worldwide," said Standard & Poor's credit analyst Lawrence Orlowski. In the fourth quarter, Goodyear's sales fell about 20% from those of a year earlier, caused primarily by decreased auto production volumes. Double-digit sales declines occurred in all four geographic segments; the Europe, Middle East, and Africa (EMEA) region showed the largest decline, falling 26% year over year. In light of the sharp fall-off in tire demand in the fourth quarter, which shows no signs of quickly reversing, we believe 2009 revenue will decrease by more than 10% and margins to compress further in 2009. Although less than 20% of Goodyear's sales are tied to the original equipment (OE) market, we believe production volume declines, particularly at the U.S. automakers, are having a disproportionate effect on the company. Industry volumes for the consumer OE segment were off 33% in North America and 23% in EMEA in the fourth quarter, and we expect continued sharp declines in 2009. And although demand in the replacement market typically provides stability to the company's sales, we believe the ongoing economic decline is influencing consumers to delay routine tire purchases. Consumer replacement volumes were off 13% in North America and 10% in EMEA. Furthermore, freight shipments have fallen off, adversely affecting truck demand. Consequently, commercial OE volumes were down 20% in North America and 35% in EMEA. Commercial replacement volumes were down 23% in North America and 27% in EMEA. The company has responded to the economic downturn by cutting production, seeking manufacturing efficiencies, and controlling spending. Nevertheless, we expect North American and European operations to generate weak segment operating margins unless replacement demand rebounds solidly. Akron, Ohio-based Goodyear has an aggressive financial risk profile, characterized by weak earnings in North America and a highly leveraged capital structure. However, we currently expect some improvement in tire replacement demand in 2010, which, coupled with cost savings, would lead to substantial improvement in credit measures. The company has a weak business risk profile, which reflects tough global tire industry conditions and the company's high fixed-cost structure. These factors more than offset the company's business strengths, including its position as one of the three largest tire manufacturers in the world, good geographic diversity, strong distribution channels, and a well-recognized brand name. The tire industry is characterized by excess production capacity, leading to intense competition from large, diversified global players and more focused regional competitors. Fixed-capital and R&D requirements are high, and raw material prices are volatile. Goodyear's management continues to strengthen the company's business model despite these issues by focusing on high-value-added products, reducing exposure to low-margin segments, tapping growth in emerging markets, reducing structural costs, and improving both the balance sheet and liquidity. During 2009, the company is expected to make global pension contributions of $350 million to $400 million. Given the dramatic decline in the financial markets during the year, underfunded pension obligations at year-end and pension expenses have risen; however, the company does not expect to increase cash contributions for its pensions substantially until 2010. Total pension and other unfunded postretirement obligations add about $3.3 billion to debt. This amount did not decline significantly from that in 2007 because the rise in unfunded pension obligation more than offset the funding of the Voluntary Employees' Beneficiary Assn. (VEBA) account in 2008 that reduced the other postretirement employee benefit (OPEB) liability by $1.1 billion. Still, postretirement health care payments are expected to fall below $70 million in 2009, compared to $216 million paid out in 2008. The negative outlook reflects our expectation that Goodyear's credit measures will worsen during the next year as economic conditions continue to deteriorate, thereby reducing global tire demand. Under its cost-savings program, the company expects to reduce its cost structure by an additional $700 million in 2009 by improving labor productivity, rationalizing production, and sourcing raw materials in low-cost countries. However, we believe such improvements may prove insufficient to counteract declining consumer and commercial tire demand. Furthermore, we are concerned that, as raw materials prices fall, the company's flexibility to maintain or raise prices might be impeded by industry overcapacity and competitors' pricing actions in light of weak demand. In addition, if the stock market continues to decline, unfunded pension liabilities could climb, requiring the company to make higher contributions in 2010 and beyond. We could lower the rating during this year if, for example, we believed Goodyear's revenues were on track to fall more than 15% for all of 2009, gross margins were to move below 16%, and prospects for demand recovery in 2010 appeared minimal. We could also lower the company's corporate credit rating if we believed that, longer term, adjusted debt to EBITDA would not improve to about 4x or FFO to debt would not rise to 15% or higher on a sustained basis. These scenarios would most likely be caused by declines in revenues of more than 15% in most of Goodyear's markets this year, lower margins, and no prospects for recovery in 2010. We could revise the outlook back to stable or to positive if demand and profitability in North America and demand in Europe begin to rebound and credit measures start to reflect this, although this seems unlikely during 2009. We could ultimately raise the ratings if the company sustained FFO to debt at or above 25% and adjusted debt to EBITDA of less than 3.5x. A gross margin of 22.5% and a 15% rise in revenue versus 2008 levels could result in FFO to debt above 25%. http://www.anotherfp.com/newsite/story2.php?id=181