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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
http://www.lightreading.com
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whose 12/4/2012 | 8:08:32 PM
re: Nortel Bonds: Not Quite Junk Last post - just thought I'd let you know that I do like engineers - some ones, and a lot of zeros.
whose 12/4/2012 | 8:08:32 PM
re: Nortel Bonds: Not Quite Junk How's this for a title for an article -

"Light Reading - Not Quite Journalism"

or,

"Light Reading - Not Quite Write"

down, boys, pun intented...
Scott Raynovich 12/4/2012 | 8:08:26 PM
re: Nortel Bonds: Not Quite Junk whose--yes, watch out for that "intigrity."
whose 12/4/2012 | 8:08:24 PM
re: Nortel Bonds: Not Quite Junk Hey Scott,

you're the type of person who'll laugh at someone's lisp aren't you...
gardner 12/4/2012 | 8:08:23 PM
re: Nortel Bonds: Not Quite Junk Hey Scott,you're the type of person who'll laugh at someone's lisp aren't you...

And evidently you are the sort who goes to a gunfight armed with a knife (and after you picked the fight). If you are going to challenge someone's writing style or content you can expect them to defend themselves. What could possibly make you think that you can call someone a bad journalist and expect no response? Language is the weapon with which you defend what you say here. Learn to use it well or suffer the consequences of your lack of mastery. If you can't write well at least don't whine when it becomes obvious to others. If you really have something to say it's worth saying well, otherwise why bother?
russ4br 12/4/2012 | 8:08:22 PM
re: Nortel Bonds: Not Quite Junk I didn't write the headline, but I did write the story. (Phil Harvey)

= = = = = =

Phil,

Say, who is the creative genius that comes up with these great LR headlines?

russ
photonic 12/4/2012 | 8:08:22 PM
re: Nortel Bonds: Not Quite Junk
Steve,

Stop patting your own back too much. It may break one day.

It is not that we don't get the financial side. It is just that we don't get it with your pathetic one-sided coverage that relies too much on outside analysts.

The whole article was filled with what some analysts had to say. What was so cool about it? I guess it shows that you guys don't get it and have to rely on others to explain you what it means.

I would do much better in understanding the financial side of thing by reading the reputed financial journals and magazines.

But, keep doing the tech stuff though.
Scott Raynovich 12/4/2012 | 8:08:22 PM
re: Nortel Bonds: Not Quite Junk Yo,

I wrote it. Sometimes other editors write them. In general, we try not to be boring.

La_Face 12/4/2012 | 8:08:20 PM
re: Nortel Bonds: Not Quite Junk Scott

What a stunning headline it is too! LMAO.

L_F
Scott Raynovich 12/4/2012 | 8:08:18 PM
re: Nortel Bonds: Not Quite Junk Actually we write headlines with these three criteria in mind:

* accuracy
* entertainment
* economy (of words)

Seems this headline meets all these criteria. Moody's said it's likely the bonds will go to "Triple B," which is one notch above junk status. Another important fact: Nortel bonds are now trading at 86 cents to the dollar of their original price on the open market. That means the market is already trading them as if they're junk bonds. If anything, the headline is conservative.

Cheers,

Scott
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