Lucent Looks for More Cash
The proceeds will be used for general corporate purposes. "The redeemable convertible preferred stock will be offered to qualified institutional buyers in reliance on Rule 144A and outside the United States in reliance on Regulation S under the Securities Act of 1933," according to a company statement. In other words, Lucent is trying to raise additional funds by selling a convertible bond to institutional investors, who have the option to later convert the bonds into Lucent stock. This could ultimately dilute the ownership of current Lucent shareholder base.
Lucent made this announcement after Standard & Poors cut its ratings on the company's bonds for the third time this year.
Lucent is running out of options and time as it tries to get its business back on course. The company has nearly exhausted its borrowing power with banks, and its bonds are trading at new lows. Company executives last week said they plan to renegotiate the terms of their credit with bankers in order to fund further restructuring.
Last week the company announced on its quarterly conference call that it was cutting 20,000 more jobs, selling its fiber optic unit for $2.75 billion and taking a $7 billion to $9 billion charge for the quarter (see Lucent's Hopes Dimming). It also mentioned it may delay the spinoff of component company Agere Systems (NYSE: AGR).
Steve Levy, an equities analyst with Lehman Brothers, is confident that Lucent will be able to sell the additional shares and keep itself out of bankruptcy court.
"I have no question that Lucent should be able sell the entire convert," he says. "I don't think the company even comes close to bankruptcy. The timing of the S&P downgrade is unfortunate and ironic, but not incrementally troublesome to me at all. I strongly disagree with their concerns.
- Marguerite Reardon, Senior Editor, Light Reading