Moody’s Investors Service is trying to head off a crisis at the proverbial pass.

On Monday, the credit rating agency warned investors to be on the look out for possible credit disasters in the short-term debt market. However, Moody’s was quick to point out that few companies are defaulting now.

The reason for its concern: Moody’s says there has been an increase in the number of U.S. companies issuing lower-rated debt.

Moody’s has already gone on record forecasting an 8.4 percent default rate for junk bond issuers by September 2001 from 5.13 percent for the 12 months ending this past Sept. 30.

“The growth of issuance in emerging market countries and Europe, as well as the continued presence of issuers in the ‘Not Prime’ rating category, suggests that investors should still be keenly aware of the CP (commercial paper) market’s potential credit risks,” analyst Alexandra Berthault was quoted in a wire service report.

Commercial paper is unsecured corporate debt, usually high quality, maturing in 270 days or fewer.

In the past five years, only one issuer— Mercury Finance Co.—has defaulted even though the market for U.S. commercial paper has increased by 130 percent over the last five years to $1.54 trillion.

However, 14 issuers have defaulted since 1994 outside the U.S., according to Moody’s.

Why will defaults suddenly rise? For one thing, the growing number of U.S. industrial companies issuing new debt rated “Prime-3,” Moody’s lowest investment grade, or “Not Prime.” The number of new “Prime-3” ratings has doubled since 1998.

In fact, Moody’s points out that liquidity concerns were responsible for Xerox Corp.’s recent decision to draw on a $7 billion line of credit rather than issue more commercial paper.

Phew!!! Cisco Beats Estimates

Call it the sigh of relief heard ’round the financial world.

Cisco Systems, one of the fastest-growing and most dependable technology companies, said after the markets closed Monday that first quarter earnings came in, as usual, one penny more than analysts had forecasted.

The largest maker of networking products said earnings came to $1.36 billion, or $0.18 per share, for its fiscal first quarter ended Oct. 28, compared to $814 million, or $0.11 per share in the year-ago quarter. The results excluded the effects of acquisition charges and other items.

Analysts had expected Cisco to earn $0.17 per share.

Revenues soared 66 percent to $6.52 billion.

S&P Cuts AT&T’s Ratings

Standard & Poor’s cut AT&T’s credit ratings and warned that more cuts could come in the future.

The announcement comes less than two weeks after the telecommunications giant announced plans to split itself into four companies and at the same time that it is trying to secure a $25 billion one-year line of credit from a number of banks.

S&P cut its long-term corporate credit and senior unsecured debt ratings two notches to “single-A,” its sixth highest investment grade, from “AA-minus.”

It cut AT&T’s short-term corporate credit and commercial paper ratings one notch to “A-1” from “A-1-plus,” its highest rating.

S&P is also keeping the ratings on review for another possible cut. If AT&T doesn’t cut its debt load, S&P said, a rating cut will “likely” precede the breakup.

Levitt to Decide on Auditor Independence

Securities and Exchange Commission Chairman Arthur Levitt said the Commission will consider adoption of rules governing auditor independence at an open meeting on November 15, 2000 at 10 a.m.

In his statement, he said in part: “After four days of public hearings, almost 3,000 comment letters, and months of discussions with those in the accounting profession, the time has come for the Commission to act. In recent weeks, much progress has been made. The rhetoric has died down and honest ideas have been exchanged. The Commission’s staff has heard the specific concerns of all of the Big 5 firms and the AICPA. I believe the final rule will reflect, to a great extent, those concerns. And we are still talking with those who continue to have reservations.

“I know some would prefer that the Commission postpone consideration of this issue for six months. While I respect the views of those in Congress and in the profession who believe the SEC should defer its rulemaking, I believe delay will not serve the interests of America’s investors. Delay will not add to areas of agreement or resolve areas of difference.

“I am hopeful all of the profession will join the Commission in ensuring that public confidence in the numbers continues to be the wellspring of healthy, vibrant markets.”

Take the Money and Run

It looks like a couple of foreign financial giants are going to shell out a little more money for acquisitions they recently agreed to make.

The reason: Employees at the targets chose to exercise stock options and sell stock for cash now rather than wait around for the new company’s stock.

UBS AG said its purchase of U.S. brokerage PaineWebber Inc will now cost it $11.8 billion as opposed to the $10.8 billion figure it announced in July.

The price of Credit Suisse Group’s acquisition of Donaldson, Lufkin & Jenrette has risen to $12.2 billion from $11.5 billion when it was announced in late August.

From the CFO.com Briefcase

• VoiceStream Wireless Corp., which is being acquired by Germany’s Deutsche Telekom said its third-quarter loss widened as high costs to build its network offset strong subscriber growth.

• Bill Gates plans to sell Microsoft Corp. stock valued at $135.4 million, according to an SEC filing. Gates plans to unload two million shares of common stock. The filing shows that the last time Gates sold Microsoft stock was on Sept. 8, when he sold one million shares for $69.7 million. In the past three months, Gates has sold 10 million shares for $702.4 million, the filing showed. A Foundation named after Gates and his wife, Melinda, has sold 22.865 million shares for $1.6 billion.

• EarthLink Network said Monday its Chief Executive Garry Betty has submitted a filing to sell 65,000 shares of common stock. The shares will be sold at a loss as part of a personal tax planning strategy to offset other calendar year gains.

• Burst Media Inc., an online advertising firm withdrew its planned $50 million initial public offering because of volatile market conditions.

• CIT Group Inc. issued $1.3 billion in global notes, said joint-lead manager Lehman Brothers. Credit Suisse First Boston Corp. was the other joint-lead manager. The company initially planned to issue $1 billion worth of paper.