Canadian telecommunications equipment provider
Nortel Networks Corp.(NT.N) (NT.TO) on Tuesday,
and warned it may cut the long-term ratings again.
Brampton, Ontario-based Nortel, announced on
June 15 that it plans to slash 10,000 jobs, on top of
20,000 cuts announced in April. The world's largest
telecom equipment supplier also warned it would take a
$19.2 billion second-quarter loss, one of the largest ever
by any company.
Moody's cut the senior unsecured debt of one notch
to "A3," its seventh highest investment grade, from
"A2," and said the rating could fall to the mid "triple-B"
level.
The rating agency also cut Nortel's commercial
paper ratings to "Prime-2" from "Prime-1."
Downgrades ordinarily raise corporate borrowing
costs. Moody's said its actions affect $6.6 billion of
debt.
The commercial paper downgrade is significant
because the Securities and Exchange Commission blocks
money market funds from investing more than 5 percent
of their assets in debt carrying less than "Tier 1" ratings
-- "Prime-1" from Moody's and "A-1" or higher from
Standard & Poor's. Commercial paper is unsecured
corporate debt maturing in 270 or fewer days.
Nortel did not immediately return calls seeking
comment.
Moody's said it will review Nortel's ability to cut
costs and obtain cash, its exposure to young,
cash-strapped emerging telecoms that buy equipment
from it, and Nortel's ability to remain "strongly
positioned" in a telecom equipment sector suffering from
a "severe" and "protracted" adjustment period. The
company last month halted dividend payments and said
it couldn't predict its performance this year.
All leading credit rating agencies last month cut their
ratings for Lucent Technologies Inc. (LU.N), the largest
U.S. telecom equipment supplier, to "junk" status.
Nortel's bonds already trade like junk bonds. Its
6.125 percent notes maturing in February 2006 were bid
before the downgrade at 86.5 cents on the dollar, with a
yield to maturity of 9.84 percent.
S&P warned last month it may cut Nortel's "A"
long-term and "A-1" short-term ratings, with the
long-term corporate credit rating likely falling to the
"triple-B" category. Its ratings are roughly equivalent to
Moody's old ratings.
Shares of Nortel closed Tuesday on the New York
Stock Exchange unchanged at $9.10. They have fallen
87 percent in the last year. They traded late Tuesday on
the Toronto Stock Exchange at $13.83, down 17 cents. |
