Rating%20Trends%20and%20Outlook%20Telecom,%20Media%20and%20Technology

1
Rating Trends and OutlookTelecom, Media
andTechnology

• Moodys 2002 Corporate Finance Credit Outlook
• Investor Briefing
• New York, January 15, 2002

2
The U.S. Team

• Investment Grade
• Bob Konefal, MD
• Bob Ray, SVP, Telecom
• Dennis Saputo, SVP, Telecom
• Jim Veneau, VP, Telecom
• Neil Begley, SVP, Media
• Glenn Eckert, VP, Media
• Rick Lane, SVP, Technology
• John Moore, AVP, Technology

• Leveraged Finance
• Mike Rowan/Tom Marshella,MDs
• John Page, VP, Telecom
• Marcus Jones, VP, Telecom
• Russ Solomon, SVP, Media
• Chris Padgett, SCO, Media
• Howard Sitzer, VP, Technology

3
Investment Grade Telecom Outlook

• RBOCs/ILECs Key Ratings Drivers
• Outlook Stable
• Stable revenue generation
• Modest competitive threats
• Accelerating 271 entry i.e. increased customer
  retention
• SBC and Verizon negative outlooks are event
  related

4
Investment Grade Telecom Outlook

• Long-Distance Key Ratings Drivers
• Outlook Negative
• Wireless substitution and competing technologies
• Accelerating 271 competitive entry
• Revenue generating ability of value-added services

5
Investment Grade Telecom Outlook

• Wireless Key Ratings Drivers
• Outlook Stable
• Cash flow growth
• 2G to 3G migration paths and related capex
  requirements
• Demand and applications for 3G services are
  unknown
• Nextwave settlement (i.e. spectrum issues)

6
High Yield Wireless Outlook
How long can Cellular/PCS subscriber growth
continue? Slowing economy / Heightened
competition / Maturing market Effect on
Profitability Will the tower companies execute
well? International expansion US lease up
rates Wireless consolidation Who? When?
Affiliates into sponsors Regional footprints
into national Additional transatlantic?
7
Investment Grade Media Outlook

• Cable System Operators Outlook stable
• DBS pressure, new product rollouts continue (not
  without potholes).
• Love is in the air?
• Publishing/Broadcasting Outlook negative
• Newspapers (ad sensitive) under heavy economic
  pressure.
• Trade publishing weak but sensitive to consumer
  spending.
• TV stations/nets and cable nets (ad sensitive)
  also under economic pressure and high contractual
  content costs.
• Radio (ad sensitive) under pressure, local
  market sensitivity.

8
Investment Grade Media Outlook

• Diversified Outlook Stable
• Event risk still evident but wider use of equity
  for materially larger acquisitions.
• Balance sheets strong - helps to maintain
  ratings through down cycle.
• Ad agencies Sports Music Film/TV Production
  Other Outlooks mixed
• All impacted by the economy either directly or
  indirectly.
• Outlook depends on economic sensitivity vs.
  contractual revenues.
• Contractual revenues will also be affected if
  contraction is protracted and as contracts
  turnover.

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High Yield Media Outlook

• Pay TV Stable/Developing
• - operationally sound, but balance sheets
  strained
• - industry maturing --gtgt more system
  rationalization and heightened competition
• - new products/services have impact
• - further margin erosion likely
• Theatrical Exhibition Stable/Negative
• - recaps largely complete structures tighter
  but still highly leveraged with limited financial
  flexibility
• - now playing The De-Screening of America
• - renewed consolidation likely

10
High Yield Media Outlook

• Advertising-Driven Media Mostly Negative, but
  Mixed
• - prolonged economic slowdown
• - ad market slow to recover
• - local at risk
• - rising costs
• - higher margin/cheaper media better
  positioned
• - regulatory relief --gtgt renewed consolidation
• Radio Broadcasting Outdoor Advertising Stable
• TV Broadcasting Negative
• Publishing Negative
• Trade Show Operators Negative

11
Investment Grade Technology Outlook Cautious

• 2001 -- Annus Horribilis
• Worst Probably Over But Pace of Recovery
  Uncertain
• Recent Upturn More Seasonal than Fundamental
• Excess Production Capacity
• Weak Demand and Lack of Killer App
• Geographic Economic Weakness
• Lack of Business Visibility
• 2002 Capex Revenues Down Again, Inventory Burn
  off
• Signs of Improvement ? - Utilization, Commodity
  Pricing
• Balance Sheet Liquidity and Low Leverage Remain
  Critical
• 2002 -- Annus Mirabilis ? Challenging Recovery

12
Investment Grade Technology

• Semi Equipment and Semiconductors - Stable
• excess capacity, pricing pressure ? tough year
  again
• Component Distributors - Negative
• weak order patterns, excess inventory, leverage
• Electronic Manufacturing Services - Negative
• high leverage, declining returns, demand
• Office Equipment - Negative but Mixed
• weak economy, intense pricing
• End Systems - Mixed
• hardware pressured, services low cost key

13
High Yield Technology Outlook

• SEMICONDUCTORS Outlook Stable
• Adequate liquidity, substantial debt leverage,
  Over-capacity in back end
• DISK DRIVES Outlook Stable
• Strong consumer PC purchases, Lengthening
  corporate refresh cycle, Consolidation
• SYSTEMS Outlook Stable
• Apple still only 5 of market, but substantial
  cash SGI cash constrained but near-term benefits
  from government spending
• ELECTRONICS MANUFACTURING SERVICES Outlook
  Negative
• Caution over Tier One results for 2002H1 based on
  weakness in telecommunications, over-capacity
  Second tier grappling with bank covenant
  compliance

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High Yield Technology Outlook

• NETWORKING Outlook Stable
• CIENA, Juniper Networks solid balance sheets,
  Offsets weakened sales
• IT DISTRIBUTION
• Sales contraction addressed by lower receivables,
  inventory funding Narrow margins persist, but
  balance sheets vastly improved Tech Data
  performance exceeding Ingram

15
Non-Guaranteed Subsidiaries

• Teleglobe, ATTC and Genuity unique -- NOT a
  Moodys policy change
• Key features
• strong parent/VERY weak non-recourse sub
• existing ratings rely on strategic importance --
  still true given poor performance/prospects of
  sub?
• will parent provide additional capital if
  potentially negative ROI on new ?
• Trigger to reviews -- growing discomfort