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Moody's Cuts Corning

Moody's downgrades Corning's debt ratings, affecting about $5B of debt securities; outlook is negative

July 30, 2002

3 Min Read

NEW YORK -- Moody's Investors Service has downgraded both the long-term and short-term debt ratings of Corning Incorporated (Corning). The rating outlook is negative. At the same time, the rating agency has assigned a B1 rating to Corning's proposed $500 million Mandatory Convertible Preferred issue. The rating actions reflect the rating agency's concern that the recovery in the company's telecommunications operations will be delayed until well into 2003, as end users of its products have continued to dramatically scale back capital expenditures. While recognizing Corning's leadership position in the markets it serves and its current strong liquidity position, the rating agency noted that the rapid fall off of business in the telecommunications sector continues to curtail internal cash generation, prolonging its cash burn rate. At the same time, Corning's debt protection measures are weak and will remain so over the near-to-intermediate-term. Moody's said that the implementation of further pre-tax cost initiatives of approximately $645 million, spread over the second and third quarters, represents management's resolve to "rightsize" its cost structure in an environment of declining revenues, however further actions may be required if falling revenues don't stabilize. The rating agency noted that the issuance of $500 million of mandatory convertible preferred securities, if successful, will enhance liquidity and provide some equity cushion as the company weathers the current weakening environment in fiber, cable and photonic demand. These securities have a conversion premium of 18-22%, and must be converted into Corning's stock at the end of three years. In addition, in order to enhance marketability, approximately $100 million of the proceeds will be used to buy treasuries that will be held in escrow for the payment of the preferred dividends. The remaining $400 million will be available to Corning for general corporate purposes. Ratings lowered: Corning Incorporated -- senior, unsecured notes, debentures, and IRS to Ba2 from Baa3; to (P)Ba2 from (P)Baa3 for senior, unsecured securities and to (P)B1 from (P)Ba2 for preferred stock issued pursuant to its 415 universal shelf registration; senior, unsecured long-term debt rating for bank revolving credit facility to Ba2 from Baa3; and short-term debt rating to Not Prime from Prime-3. Corning Finance B.V. -- to (P)Ba2 from (P)Baa3 for senior, unsecured securities issued pursuant to its 415 universal shelf registration, guaranteed by Corning. Oak Industries Inc. -- $100 million 4.875% convertible subordinated debt, guaranteed by Corning to Ba3 from Ba1. Rating assigned: Corning Incorporated -- B1 for Mandatory Convertible Preferred securities Corning credit metrics have weakened and may deteriorate further. For the latest twelve month period ending June 30, 2002, Corning had an operating loss of about $685 million before impairment and restructuring charges of about $1.45 billion, down significantly from an operating profit of about $860 million for the twelve months ended June 30, 2001. Meanwhile, for the same two periods, interest coverage deteriorated to -5.2x from 7.05x, and leverage rose to about 46% from 42%, mainly due to net losses developing in the telecom sector. Corning Inc. Moody's Investors Service

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