S&P LOWERS FEDERAL EXPRESS COMMERCIAL PAPER RATING TO "A-3'

S&P LOWERS FEDERAL EXPRESS COMMERCIAL PAPER RATING TO "A-3'

One day after after Federal Express Corp.'s announced a $240 million pre-tax charge for restructuring its European express delivery system, Standard & Poor's lowered FedEx's commercial paper rating to "A-3" from "A-2."

S&P said it was taking the action because of the increased near-term liquidity pressure, as shown by the $240 million charge, and continued ''substantial capital expenditure" requirements.While the restructuring will require moderate outlays for employee severance and the closure of facilities, these costs are expected to be recovered quickly through reduced international losses. S&P noted, however, the exact timing of that recovery will depend on the overall level of business erosion sustained in the European express delivery markets.

Following the restructuring, Federal Express' European operations mainly will provide direct intercontinental service to and from 16 major gateway cities and the United States, with all locations outside these gateways served under partnership arrangements with other international and local express carriers. All intracountry and intraregional service in Europe will be discontinued.

The restructuring is expected to sharply reduce the level of Federal Express' international losses over the intermediate term by concentrating traffic densities on their major European gateways, eliminating sizable fixed overhead and delivery costs across the United Kingdom and Europe.

"While international losses are expected to be reduced over the intermediate term, the rebound in Federal Express' credit measures will continue to be restrained by its heavy interest and aircraft-operating lease burden," S&P said.

"Should international losses fail to decline from anticipated levels due to a greater erosion in European business levels or continued further

weakening in worldwide heavyweight airfreight traffic, the rebound in Federal Express' credit measures will be further delayed, likely resulting in a rating change," S&P concluded.