Alcatel Senior Debt Ratings Cut to `Baa2' by Moody's (Update2)
By Jad Mouawad
Paris, Feb. 18 (Bloomberg) -- Alcatel SA, a French phone equipment maker, had its senior debt rating cut one notch by Moody's Investors Service on concern increasing competition and slumping demand are pushing down prices for its products.
The rating was downgraded to ``Baa2,'' two notches above junk, from ``Baa1,'' the credit agency said in a statement. It confirmed its short-term ``Prime-2'' rating as well as its ``negative'' outlook.
Moody's cited a rise in price competition for its downgrade as well as a drop in spending from Alcatel's customers. The credit agency also cut Ericsson AB's long-term debt one notch to ``Baa2.''
Increased competition within the equipment sector ``could significantly erode any gains (Alcatel) makes through cost reduction because it will erode profit margins,'' said Chavan Bhogaita, an analyst at Bear Stearns. ``The problem for Alcatel and its competitors alike is the lack of any evidence the downturn has reached the bottom.''
The maker of network gear is trimming costs by a fifth so the company can break even on quarterly sales of less than 5 billion euros. Alcatel is shedding about a third of its workers and selling nearly half its factories. It cut debt to 2.7 billion euros at the end of last year, below a 4 billion-euro forecast.
``If market conditions continue to deteriorate more than expected, Alcatel's ratings could come under further pressure,'' Bhogaita said. ``Current bond spreads do not price in this further downside, hence we continue our sell recommendation on Alcatel bonds.''
Bonds Fall
Alcatel's bonds fell. Its 1.2 billion euros of 7 percent bonds maturing in 2006 yield about 7.67 percent. That's 3.16 percentage points more than German government debt of similar maturity. That premium rose about 50 basis points today, according to BNP Paribas prices.
Some bondholders ``got too optimistic due to the progress on the debt reduction,'' said Stephan Michel, credit analyst at Barclays Capital. ``You have to look beyond that -- Alcatel's going to continue to lose money and probably get worse. The prospects are grim.''
European phone companies have slashed spending to pay off debt after spending a combined $100 billion in 2000 to acquire high-speed wireless licenses.
The cut comes a week after Alcatel's short-term credit rating was reduced one notch to ``A-3'' by Standard & Poor's. Alcatel's ``BBB'' long-term corporate credit and senior unsecured debt ratings were affirmed by S&P.
Alcatel shares fell 6 cents to 16 euros, erasing earlier gains. The stock has lost 68 percent of its value in the past 12 months. |
