Moody's Investors Service yesterday cut its ratings for Lucent Technologies two notches, saying the telecommunications equipment provider will suffer a longer and deeper downturn in demand for its products than Moody's had expected, delaying its return to profitability.
Moody's cut Lucent's senior unsecured debt rating to "B2", its fifth-highest "junk" grade out of 11, from "Ba3", and its preferred stock rating to "Caa2", its eighth-highest junk grade, from "B3". Moody's rating outlook is negative.
Downgrades ordinarily raise borrowing costs, and Moody's actions affect about $7.8 billion (€8.87 billion) of debt. "The most significant concern Lucent faces is the continued fall-off in aggregate customer demand," said Mr Robert Ray, a senior vice-president at Moody's. "Every time it seems like Lucent nears a bottom, the climate worsens."
Moody's also said that while Lucent complies with financial covenants in its bank agreements, weaker operating performance "will likely put pressure on the prospective compliance".
Responding to the downgrade, Lucent spokeswoman Ms Michelle Davidson said: "We report on those covenants quarterly, and we expect to continue to be in full compliance with those covenants this quarter as well."
