Moody's Investors Service today assigned a Baa1 rating to the proposed $500 million bonds of P&O Princess Cruises plc, a new company to be formed by the planned de-merger of the Princess Cruise business from the Peninsular and Oriental Steam Navigation Company in the fourth quarter of 2000. The rating outlook for P&O Princess is stable. Holders of existing P&O bonds will be offered the ability to exchange their securities for the proposed P&O Princess bonds. According to P&O, bondholders who do not agree to the exchange will no longer benefit from cash flows and asset of P&O Princess' cruise business. In a related action, Moody's downgraded to Baa1 from A3 its rating for the outstanding notes of P&O and left this rating under review for possible further downgrade. The Baa1 rating assigned to the debt of P&O Princess is based on the company's strong market position and brand recognition in the cruise industry and its international diversification strategy. It also reflects the potential for further growth due to shifts in demographic patterns favorable to the cruise line industry. The rating also reflects the expectation that without the stabilizing effects of the logistics and real estate businesses the company will be more exposed to potential downturns caused by over-capacity in the competitive and capital-intensive cruise industry.