DJ CNBC's FABER REPORT: Full Transcript Of Report
04 Apr 14:12
The following report was aired Wednesday on CNBC by reporter David Faber:
Perhaps it's no surprise that rumors of a bankruptcy filing by Lucent have
finally reached those on Wall Street who likely can't read a balance sheet but
are good at spreading a bad story.
For months now, high-yield bond and distressed debt investors who do read
balance sheets have been telling me that a bankruptcy filing by Lucent, as
unthinkable as it might seem, was a slight possibility.
Their opinions have been based on what had been a deteriorating financial
position at Lucent coupled with a deteriorating business. But they emphasized
that a bankruptcy was only a possibility if Lucent failed to improve on the
$1.7 billion operating loss it suffered in its first fiscal quarter.
Lucent has vigorously denied the bankruptcy rumors which conspired to drive
the stock down as much as 25% at one point today. A spokesman terming the
rumors "ridiculous," while Lucent's CFO said it has the resources and
flexibility to finance its turnaround plan.
On the face of it, Lucent's balance sheet appears to support that contention.
With the IPO of Agere, Lucent has effectively rid itself of roughly $3
billion in debt; $2.5 billion in debt went over to Agere's balance sheet, while
proceeds from the sale of 90 million shares of Agere were used to pay down $515
million of commercial paper. That leaves Lucent with $4 billion in credit lines
from banks and $3 billion in public market debt.
Lucent also has extended credit to its customers to finance their equipment
purchases. While the numbers date from the end of last year, they aren't
believed to have changed much. Lucent was owed $1.8 billion by these customers
at year end. It has also guaranteed another $740 million in the debt of these
customers.
With the financial health of those customers in severe decline, Lucent is not
expected to collect all that it has loaned or guaranteed.
In fact, rumors of Winstar's financial troubles have called into question
Lucent's $700 million in loans to that company. Getting that money back is a
valid concern, but Lucent is thought to have been reserving against these loans
for some time.
Assuming that Lucent has drawn down all of its credit lines and collects only
half of what it's owed under vendor financing, the company could still be
expected to substantially clean up its balance sheet with a successful sale of
its fiber optics business.
As I reported last week, bids for that business are due on April 17. And
today, people close to the sale process tell me they believe Lucent will
receive at least $6 billion cash for the business. That would go a long way to
erasing bankruptcy rumors.
But what will truly calm the market is if Lucent shows that it is turning
around its business. While the company had $3.8 billion in cash at year-end,
the question remains how much of an operating loss it will have for the March
quarter, and therefore how quickly that cash is disappearing, used up by losses
and capital expenditures.
Lucent has been cutting costs aggressively. But no one who follows telecom
equipment believes the market for its products has improved since last quarter.
So while those who analyze balance sheets tell me they don't believe Lucent
is a bankruptcy, they aren't ready to buy its stock.
(END) DOW JONES NEWS 04-04-01
02:12 PM |
