Moody's Lowers Nortel Rating

Moody's Investors Service has lowered the ratings on long-term securities issued or guaranteed by Nortel

July 3, 2001

2 Min Read

NEW YORK -- Moody's Investors Service has lowered the ratings on long term securities issued or guaranteed by Nortel Networks Limited (senior unsecured to A3 from A2 and preferred stock to "baa1" from "a3") and has lowered the ratings of the company and its guaranteed US subsidiary for commercial paper to Prime-2 from Prime-1. The long term ratings remain on review for possible further downgrade. The rating changes reflect Moody's view that the conclusion of the current review will not result in a long term rating higher than an A3. However, the confirmation of the revised Prime-2 rating reflects our belief that extent of any further potential long term downgrade will be limited to the mid Baa level.The continuing review will focus on the ability of Nortel to address end markets that will be experiencing a more severe and protracted period of industry adjustment than had been recently envisioned. Moody's believes Nortel is taking critical aggressive action to address liquidity and cost structure. As a result, Nortel will be accelerating its cost reduction efforts, including an additional 10,000 workforce reduction and will be taking a number of one time charges, primarily non-cash to reflect the revised business outlook. To assure increased access to financing, Nortel has also entered an incremental $2 billion 364 day credit agreement, with a one year extension option. In addition, the company announced that it will be discontinuing the payment of dividends on its common stock after the current quarter. In its continuing review, Moody's will assess the cash flow implications of the current environment and the resultant financing requirements for Nortel, the company's ability to access various sources of liquidity to meet these needs and its ability to successfully execute the substantial incremental cost reduction program. In addition, Moody's will be evaluating the intermediate term prospects for an evolving telecommunications industry and Nortel's ability to remain a strongly positioned provider of telecommunications equipment. Among other things, Moody's will look to assess Nortel's position in its markets to better gauge exposure to segments where there may be a capacity glut in the end market vs. segments that are more likely to show long-term growth. Also, Moody's will review Nortel's exposure to capital-constrained emerging telecommunications carriers, both in terms of the ability of these carriers to stay in business and continue to purchase equipment from Nortel, as well as credit exposure Nortel might have with respect to its short-term and long-term receivables due from these companies. Moody's Investors Service Nortel Networks Corp.

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