Nortel Bonds: Not Quite Junk

Moody's Investors Service, a major Wall Street credit rating firm, lowered its ratings for Nortel Networks Corp. (NYSE/Toronto: NT) on Tuesday and hinted that it might lower ratings again within a month (see Moody's Lowers Nortel Rating).

After Nortel's June 15 regress report, where the company said it is expecting quarterly net losses of $19.2 billion and is cutting an additional 10,000 jobs, Moody's determined that Nortel's current credit rating would "not be sustainable," according to Robert Ray, a senior vice president at Moody's (see Nortel's Nuclear Winter).

The agency cut Nortel's rating for senior unsecured debt to A3 from A2. It cut Nortel's preferred stock rating to baa1 from a3; and it lowered the rating for Nortel's commercial paper -- short-term unsecured corporate debt -- to Prime-2 from Prime-1.

The commercial paper downgrade is significant, because as the economy becomes more tumultuous, investors look more to issuers that have a superior ability to repay debt. "Investors have shied away from the Prime-2 market recently, and there's a lot less money invested there," says Ray. "That's not to say that a company the size of Nortel can't issue commercial paper, but it'll probably be more expensive [to do so]."

Tuesday's ratings cuts might be just the beginning. Moody's added that Nortel's long-term ratings remain on review for possible further downgrade. Moody's expects to know the extent of Nortel's credit rating changes in the next month or so, Ray says.

The takeaway from this announcement is that, in general, Wall Street is losing confidence in Nortel's ability to repay debt, given the turmoil the company's in right now. This may mean that borrowing money will be more expensive for Nortel going forward.

Nortel says the rating cut was "not unexpected."

"This will not have a significant impact on our business," says Tina Warren, a Nortel spokeswoman. "We are making continuing progress with our alignment plan, and we are confident that our ratings will remain solidly within investment grade."

Despite its problems, though, Nortel certainly isn't on the same level as Lucent Technologies Inc. (NYSE: LU), whose credit rating slipped to "junk" status. And it hasn't had to file for bankruptcy protection, like bond issuers such as WinStar Communications Inc. and 360networks Inc. (Nasdaq: TSIX; Toronto: TSX.TO).

- Phil Harvey, Senior Editor, Light Reading
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LightCycle 12/4/2012 | 8:07:25 PM
re: Nortel Bonds: Not Quite Junk > way to bring prosperity back to telecom markets.
> Strangely enough as I have heard the Chinese
> Infrastructure providers are already deploying the
> Luminous RPR in 10 cities providing a 100BT access
> in the cost of T1 here in USAGǪGǪ..Time we learn!!!!

If only things were as simple as we hear or read.

The Service Provider looking to deploy the Luminous stuff (and its not in full deployment mind you) is a "CLEC" hoping to differentiate themselves from the incumbent (and from all reports, not having much success).

Sub-rates services, E1 TDM, and Voice is what brings the revenue in, not 10BaseT (however unfortunate it may be).

Customers understand the benefits of ethernet in the last mile, but they're not willing to pay anywhere near what one could hope for, because it is deemed as a "Internet" service where tarrifs have traditionally been artificially low!
packeteer 12/4/2012 | 8:07:39 PM
re: Nortel Bonds: Not Quite Junk Does anyoneone know the per port cost of the DMS250? Looking to compare it to the cost of a packet tandem. TDM ports seem to be dropping like mad. Either port cost or whole system w/ capacity would help.
Metadata123 12/4/2012 | 8:07:43 PM
re: Nortel Bonds: Not Quite Junk "Metadata123

As you claimed in a previous posting to be among the ranks of Nortel Presidents and VP's I can only assume that are no longer with Nortel with an attitude like yours - I fail to see anything positive that you could contribute."

Me or my attitude is an irrelevant issue. What we have is the systematic dumbing down of a significant technology company. The recent appointments of morons to leadership roles is an insult to the several technology and business contributors in NT. Yohe, Schilling, Khatod, and Ross are a few examples of Roth's determination to take this company into the sewer with him.
With leadership like that, one cannot expect anything more from NT. I cannot believe that Canadian investors continue to tolerate this.
annoyed 12/4/2012 | 8:07:45 PM
re: Nortel Bonds: Not Quite Junk Metadata123

As you claimed in a previous posting to be among the ranks of Nortel Presidents and VP's I can only assume that are no longer with Nortel with an attitude like yours - I fail to see anything positive that you could contribute.
Off course YOU as a VP or president are completely without blame for any of the current problems - its good that you are perfect unlike all the other people you mentioned.

photonic 12/4/2012 | 8:07:49 PM
re: Nortel Bonds: Not Quite Junk
Mr. and Ms. Fair and Balanced LR Editors,

When a class action lawsuit was filed against CSCO, you folks weng gangbusters with endless scathing reports.

Now similar lawsuits are filed against RBAK and SCMR. Where is your journalistic integrity and "fair and balanced" approach?

Get back to work and write similar scathing reports.

read4me 12/4/2012 | 8:07:49 PM
re: Nortel Bonds: Not Quite Junk LR does appear to be parital to the companies that advertise on their site. Although they try to appear "neutral" I think we all know that business is business.
LR is not in the business of pleasing these companies, they are in the business of making money!
To all the posts that disagree, try sending the same negatives to other such online pubs and see what you get!

toyopta 12/4/2012 | 8:07:51 PM
re: Nortel Bonds: Not Quite Junk I derived great benefit from reading LR, and I can't disagree more with the LR bashing that has been going on in this thread, so much so, that I registered to post a reply, my first ever to this message board.

Glad to see that someone else came up first with the above subject line, I voice my wholehearted support.

Metadata123 12/4/2012 | 8:07:54 PM
re: Nortel Bonds: Not Quite Junk For every one of those whiners who blindly support Nortel and its incompetent management, there are thousands off loyal LR readers who salute you for calling it like it is and congratulate you on your excellent analysis of NortelGs financial predicament. At 86 cents on the dollar the market has rated NT bonds as junk, regardless of what LRGs headline pointed out.

Nortel seems to continue its own merry path to self-destruction with every passing day. Increasingly we are left with brownnosers who have neither the talent nor the experience to deal with the commoditization of the telecom equipment vendor. The internal morale is plummeting like a rock as even more incompetents get pushed to higher levels of management.

Even after countless appeals from various sources, Roth continues to employ the most incompetent of them all including cabinet members like Yohe, Schilling, Khatod and Ross. By not letting these individuals get the pink slips they deserve, he is sending the worst possible message to shareholders, customers, and employees. At this rate, it appears that the light at the end of tunnel is a freight train G except this time there is no light.
tjq 12/4/2012 | 8:08:01 PM
re: Nortel Bonds: Not Quite Junk Its unfortunate that ALL infrastructure providers like Nortel and Alcatel, , Fujitsu, Marconi, Lucent etc and everyone else is in deep trouble. On the service providers side the backbones & long hauls have been invested to the hilt with no or little access to the market (enterprise, SOHO and homeusers to users of that band-width). Unfortunately the Service providers always considered building the off & on ramps (Metro Area Networks) to their backbones somebody else's responsibility and that somebody was the CLEC's who didn't have the funding to deploy the expensive SONET gear, and the likes of NORTEL and similar's did not offer a economical alternate for MAN access and kept hawking SONET gear.... Fortunately this down turn has created far more economical alternate to SONET networks...like RPR for metro space, that will be the only way to bring the back-bone bandwidth access to the users. Luminous Networks claims that not only is it's equipment 4 times more fiber efficient, but cost 75% less to maintain and operate. It is Carrier class Switches using Ethernet to carry TDM Voice, Video and Data traffic with scalability from T1-100BT-GigE to lamdaGs off the same very switch. They have eliminated the ATM/SONET layers out of the standard service provider equation of IP/ATM/SONET/Fiber.....

High time the service providers and Infrastructure providers look at the technology and learn how to make telecommunications boom return. The time now is to built Metro Area Networks in good old simple, easy to use way to bring prosperity back to telecom markets. Strangely enough as I have heard the Chinese Infrastructure providers are already deploying the Luminous RPR in 10 cities providing a 100BT access in the cost of T1 here in USAGǪGǪ..Time we learn!!!!
youAREtheweakestlink! 12/4/2012 | 8:08:03 PM
re: Nortel Bonds: Not Quite Junk Ahhh yes - another spineless LR-devotee...you can always tell that it is either Saunders or one of his mindless devotees when you see the word "whining"

I love supposed "independent" readers who defend LR tactics. It's like going out of your way to defend the National Inquirer. Gardner - whether you are a member of the LR staff or just a friend or family - you are soooo transparent.

Gardner - I think I've seen you on LR's sister site:


>>>What would you say if Nortel demanded an apology from LR for saying their company basically sucks??!!

Where did they say the company "sucks" as you put it? If you read the article carefully you would know that what they really said was that the new bond rating would probably be the next step up from junk bonds. They did not say that Nortel was junk or that they "suck" (to use your word). Learn to read and most of all, grow up. Whining every time someone reveals the slightest bit of unflattering information about the company you work for (or have foolishly invested your life savings in) is annoying to the adults who might be reading this.
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