Convertible offering boosts Lucent

Although its debt was downgraded by three ratings agencies last week, Lucent Technologies took a significant step in its recovery by selling $1.9 billion in convertible stock, according to analysts.

Securing the financing should help the troubled vendor as it renegotiates a critical $4 billion credit facility before it proceeds with a restructuring plan to cut an additional $2 billion in annual expenses and eliminate as many as 20,000 jobs.

Investor demand helped Lucent almost double its planned convertible-stock sale, giving it enough cash to satisfy any liquidity needs for its restructuring, said Steve Levy, managing director of Lehman Brothers. “This cash gives them the flexibility to do this restructuring faster,” Levy said.

Kenneth Leon, telecom equipment analyst with ABN AMRO, agreed but noted Lucent has yet to provide clear visibility as to whether it is going to become profitable again.

“The vital signs look good, which means having cash to stay in business,” he said. “But getting the company rejuvenated to generate higher revenues, even before market conditions get better — that's the key.”

Rashad Barajakly, vice president and equity analyst for Williams Capital Group, echoed these concerns and maintained a “hold” rating on Lucent.

“We want to see another quarter of improvement before we put a lot of the balance-sheet issues to rest,” he said.

Lucent sold convertibles because it is shut out of the traditional bond market. Moody's, Standard & Poor's, and Fitch last week all downgraded Lucent's debt — already considered “junk” — and indicated further downgrades are being considered.