NEW YORK, Feb 12 (Reuters) - Lucent Technologies Inc.'s credit ratings were cut on Monday to a notch above junk status by Moody's Investors Service and Standard & Poor's, after the telecommunications equipment giant posted a $1.02 billion first quarter operating loss.
The downgrades mean Lucent cannot tap the $1.6 trillion market for commercial paper, a kind of short-term debt that is a big source of funding for many companies.
Moody's said its downgrades reflected Lucent's "significant operational difficulties." S&P said its downgrades reflect the belief that Lucent will incur "substantial operating losses" in the near- to intermediate-term.
The company, "had lost its way in pursuit of growth," said Bruce Hyman, an S&P director, in a Monday conference call.
Shares of Lucent, which is based in Murray Hill, N.J., closed down 56 cents, or 3.65 percent, at $14.80 on the New York Stock Exchange. Volume topped 16.2 million shares. The shares have fallen 80 percent from their 52-week high of $75.25, set last March 1.
Lucent's 7.25 percent notes maturing in July 2006, were bid on Monday to yield about 3.75 percentage points more than similar maturity U.S. Treasuries, 0.35 to 0.40 more than on Friday. Their yield to maturity is about 8.6 percent.
MAY TAP CREDIT LINES
Moody's cut Lucent's senior unsecured debt rating two notches to "Baa3" from "Baa1," and its short-term debt rating to "Prime-3" from "Prime-2."
S&P cut its equivalent ratings to "BBB-minus" and "A-3" from "BBB-plus" and "A-2."
The new ratings are the agencies' lowest investment grades. The long- and short-term ratings have fallen four and two notches each in fewer than two months, a steep drop for a big company. The agencies' rating outlooks are negative, meaning conditions are present that may make further cuts possible.
Downgrades ordinarily raise corporate borrowing costs. A downgrade to junk status would force Lucent investors not permitted to own junk to sell.
A spokeswoman for Lucent, Michelle Davidson, said the company will draw on credit lines if it needs short-term cash.
"If the need arises, we will borrow from our existing credit lines," she said.
Lucent has $4 billion of credit lines. It is amending a five-year, $2 billion revolving credit line and negotiating $4.5 billion of 364-day lines of credit. It plans to use these in part to take out another existing $2 billion line.
The expected $6.5 billion of credit lines will "help meet our cash flow needs," Davidson said.
As of Dec. 31, Lucent had $5.03 billion of debt maturing in one year, up from $3.48 billion at the end of September, the company said in a January filing with the Securities and Exchange Commission.
The downgrades mean Lucent cannot tap the $1.6 trillion market for commercial paper, a kind of short-term debt that is a big source of funding for many companies.
Moody's said its downgrades reflected Lucent's "significant operational difficulties." S&P said its downgrades reflect the belief that Lucent will incur "substantial operating losses" in the near- to intermediate-term.
The company, "had lost its way in pursuit of growth," said Bruce Hyman, an S&P director, in a Monday conference call.
Shares of Lucent, which is based in Murray Hill, N.J., closed down 56 cents, or 3.65 percent, at $14.80 on the New York Stock Exchange. Volume topped 16.2 million shares. The shares have fallen 80 percent from their 52-week high of $75.25, set last March 1.
Lucent's 7.25 percent notes maturing in July 2006, were bid on Monday to yield about 3.75 percentage points more than similar maturity U.S. Treasuries, 0.35 to 0.40 more than on Friday. Their yield to maturity is about 8.6 percent.
MAY TAP CREDIT LINES
Moody's cut Lucent's senior unsecured debt rating two notches to "Baa3" from "Baa1," and its short-term debt rating to "Prime-3" from "Prime-2."
S&P cut its equivalent ratings to "BBB-minus" and "A-3" from "BBB-plus" and "A-2."
The new ratings are the agencies' lowest investment grades. The long- and short-term ratings have fallen four and two notches each in fewer than two months, a steep drop for a big company. The agencies' rating outlooks are negative, meaning conditions are present that may make further cuts possible.
Downgrades ordinarily raise corporate borrowing costs. A downgrade to junk status would force Lucent investors not permitted to own junk to sell.
A spokeswoman for Lucent, Michelle Davidson, said the company will draw on credit lines if it needs short-term cash.
"If the need arises, we will borrow from our existing credit lines," she said.
Lucent has $4 billion of credit lines. It is amending a five-year, $2 billion revolving credit line and negotiating $4.5 billion of 364-day lines of credit. It plans to use these in part to take out another existing $2 billion line.
The expected $6.5 billion of credit lines will "help meet our cash flow needs," Davidson said.
As of Dec. 31, Lucent had $5.03 billion of debt maturing in one year, up from $3.48 billion at the end of September, the company said in a January filing with the Securities and Exchange Commission.
