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Technology Stocks : Lucent Technologies (LU)
LU 2.550+2.4%Dec 1 3:59 PM EST
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To: GVTucker who wrote (21019)10/22/2002 5:56:45 PM
From: bofp  Read Replies (2) of 21876
 
GV,

Your message is not as well considered as your usual contribution. Lucent's pension was 17% or $5.2B OVERFUNDED at the end of FY01. While performance over the last 12 months was likely in the range of -20% or so, LU's expected obligation likely also declined with the divestments and force reductions over the same timeframe. Indeed, leaving the 9% return assumption aside for the moment, LU's pension fund obligation may not be underfunded AT ALL, much less severely underfunded in billions of $$ as you have unequivocably stated.

A shift in the return assumption will likely be necessary and will probably push LU into an underfunded position, but it is not likely to result in a $billion payment obligation. Moreover, companies are not expected to make good on their pension obligations immediately. Usually payments are amortized over several years, making it extremely unlikely that LU's pension position would ever throw it into bankruptcy.

As to the undrawn bank line of credit - while LU would have been in default of EBITDA covenants in 3Q, it is not clear why LU did not negotiate new terms. Many speculate that LU wishes to have the flexibility to buy in shares of their put-able convertible preferred issue - currently trading at less than 30 cents on the dollar - and didn't believe that it needed that particular tranche of bank credit.

IMHO The biggest threat to existing shareholders is the dilution of the convertible NOT involuntary bankruptcy.
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