Alcatel-Lucent Debt Rating Cut on Operating Pressures; Outlook Negative

­Standard & Poor's Ratings Services has lowered its ong-term corporate credit rating on Alcatel-Lucent to 'B' from 'B+'. A&P has also affirmed the 'B' short-term corporate credit rating. The outlook is negative. The recovery rating of '4' on Alcatel Lucent's senior unsecured debt is unchanged.

"The downgrade primarily reflects our expectation that the turnaround in Alcatel Lucent's operating performance, and notably a return to sustainable positive cash generation, could take several quarters," said Standard & Poor's credit analyst Patrice Cochelin.

We expect demand for telecom equipment to remain soft in the coming quarters, while competition among vendors, particularly from Europe and China, remains very intense. Combined with Alcatel Lucent's significant debt maturities in the next two years, these threats lead us to believe that Alcatel Lucent's large cash balances, which include the benefits of recent refinancing, could be rapidly depleted.

The main ratings support stems from S&P's assessment of Alcatel Lucent's near-term liquidity as adequate, following recent asset disposals and the convertible bond issue. The company's broad technology portfolio, client base, and geographic footprint also underpin the ratings.

The negative outlook primarily reflects S&P's expectation that Alcatel Lucent's turnaround efforts might take several quarters, and might result in further meaningful cash burn.

"We could lower the ratings further if the company's liquidity weakened materially, or if cash burn remained high," said Mr. Cochelin.

Meaningful improvement in Alcatel Lucent's margins and free operating cash flow generation in the next few quarters, combined with the maintenance of adequate liquidity, could support a return to a stable outlook.

Posted to the site on 10th November 2009