S&P Lowers Nortel Networks Rtgs
18 Jul 16:40
Following is a press release from Standard & Poor's:
NEW YORK (Standard & Poor's CreditWire) July 18, 2001--Standard & Poor's
today lowered its ratings on Nortel Networks Ltd. (Nortel) and units Nortel
Networks Inc. and Nortel Networks Capital Corp. (see list below). The ratings
were simultaneously removed from CreditWatch negative, where they had been
placed June 15, 2001.
The outlook is negative.
At the same time, Standard & Poor's harmonized its 'P-3(High)' Canadian
national scale and double-'B'-plus global scale ratings on Nortel's preferred
shares with those of the Canadian Bond Ratings Service (CBRS). The CBRS
preferred share ratings on Nortel have been withdrawn and are superceded by the
harmonized Standard & Poor's ratings (see list). This action resolves the
pending harmonization of the CBRS preferred share ratings on Nortel.
On Oct. 31, 2000, Standard & Poor's and CBRS announced that they had combined
operations in Canada. A process is under way to harmonize all ratings assigned
by CBRS with the Standard & Poor's framework, which includes the translation of
all ratings onto the Standard & Poor's global ratings scale. All new debt issue
ratings on Nortel will be based on the harmonized issuer credit rating. Ratings
harmonization announcements do not constitute upgrades or downgrades of ratings
assigned by CBRS, nor do they signify any changes in an issuer's underlying
credit quality, unless explicitly indicated.
The rating changes announced today on Nortel reflect the expected
deterioration in financial performance that was announced by Nortel on June 15,
as well as the outcome of the harmonization process. The downgrade of the
ratings on Nortel reflects significant uncertainties about the company's
ability to return to profitability in light of substantial deterioration in the
communications equipment sector. Standard & Poor's anticipates the reduction in
demand to bemore severe and protracted than had been previously expected,
resulting in slower overall market growth and slower demand for Nortel's
products into 2002.
Ratings had been placed on CreditWatch in June 2001 following the company's
announcement that it expected revenues to decline substantially and that it had
had a net loss from operations of about $1.5 billion for the second quarter.
The company has also announced that it expects to write down about $12 billion
in intangible assets from certain acquisitions made during the previous 18
months.
In light of substantially lower revenues expected for 2001, which Standard &
Poor's believes could continue into 2002, Nortel has implemented a number of
cost-reduction and related measures designed to return operations to close to
break-even by the end of the current fiscal year.
The ratings reflect Nortel's market position as a leading telecommunications
equipment supplier and its position as the world leader in the provision of
high-speed optical equipment, with a 48% market share at year-end 2000. Ratings
also consider the degree of competition in the industry; Nortel's broad
geographic coverage and product portfolio diversification; and the extent of
the ongoing investment required to fund Nortel's growth, which includes the
provision of customer financing.
In the first quarter of 2001, Nortel maintained revenues of $6.2 billion,
similar to levels in 2000. However, the composition of revenues changed
substantially, with optical intercity products declining by 30%, offset by a
38% increase in wireless products. In addition, the company recorded an
operating loss of $385 million and reported a net loss of $2.6 billion in the
quarter ended March 31, 2001.
Given the difficult industry conditions, the company has aggressively
implemented a series of actions designed to align costs, to focus on customer
profitability, and to deemphasize non-core, low-growth areas. These actions
include a significant employee reduction, a reduction in capital expenditures
for 2001, and improvements in working capital management. Programs that had
been implemented as of July 18, 2001, are expected to result in cost savings of
about $875 million per quarter beginning in the third quarter of 2001.
OUTLOOK: NEGATIVE
Standard & Poor's believes the decline in telecommunication spending is
broader and more severe than had been previously anticipated. In this context,
Standard & Poor's expects Nortel to achieve close to break-even net earnings
from continuing operations by the end of 2001. Should this target not be met
ratings could be lowered, Standard & Poor's said. -- CreditWire
RATINGS LOWERED AND REMOVED FROM CREDITWATCH NEGATIVE
Nortel Networks Ltd. TO FROM
Corporate credit rating BBB/A-2 A/A-1
Senior unsecured debt BBB A
Shelf registration:
Senior unsecured debt prelim. BBB prelim. A
Commercial paper (Canadian scale) A-2 A-1(Mid)
Commercial paper (global scale) A-2 A-1
Nortel Networks Inc. Commercial paper
(Guaranteed by Nortel Networks Ltd.) A-2 A-1
Nortel Networks Capital Corp. Senior unsecured debt
(Guaranteed by Nortel Networks Ltd.) BBB A
Shelf registration:
Senior unsecured debt prelim. BBB prelim. A
(Guaranteed by Nortel Networks Ltd.)
RATINGS ASSIGNED
Nortel Networks Ltd. RATING
C$100 million class A preferred stock BB+
(Canadian local) P-3(High) C$400 million class A
preferred stock BB+
(Canadian local) P-3(High) C$350 million class A
preferred stock BB+
(Canadian local) P-3(High)
(END) DOW JONES NEWS 07-18-01
04:40 PM |
