Lucent in danger of credit downgrade

(Telephony) The falling price of the Agere IPO and the revised terms of Lucent Technologies’ agreement with underwriter Morgan Stanley could force Standard & Poor’s to reduce Lucent’s debt rating to junk status.

The key issue is whether Moran Stanley is willing to hold $1.6 billion of Lucent debt while the company restructures. If Morgan Stanley demands repayment, Lucent could be forced to draw on a bank-credit facility, prompting a review by credit-rating agency Standard & Poor’s.

Lucent’s credit rating is not affected by the continued delay in pricing for the Agere IPO, according to a bulletin issued by Bruce Hyman, an analyst at Standard & Poor’s. Current ratings on Lucent anticipate the IPO occurring on March 31, the report states. Hyman writes that Lucent’s proceeds would be substantially unchanged from the $5 billion--$2.5 billion of which is debt that the Agere unit will assume--identified in the initial registration statements.

However, “if Lucent’s net proceeds are materially lower than anticipated, or if the IPO is delayed beyond March 31, it will trigger a review of Lucent’s ratings,” Hyman said.

Originally, Morgan Stanley was supposed to be repaid the $1.6 billion out of the proceeds of the Agere IPO, but the reduction in the share-price range and a cancelled share swap means Morgan Stanley could be left holding a large chunk of Lucent commercial paper. Under the latest agreement, Morgan Stanley has the option of retaining 90 million shares in an “overallotment,” but at the current estimated price that would not cover the total $1.6 billion.

Lucent cut the price of the Agere IPO in half last week to $6 to $7 per share and raised the number of shares offered to 600 million from 500 million. At the midpoint of the price range, therefore, the IPO would gross $4.2 billion--down from previous estimates of about $7 billion--and produce net proceeds of about $3.75 billion, according to Lucent’s amended S-1 filing with the Securities and Exchange Commission.

According to recent media reports quoting Morgan Stanley, the Agere IPO could price as early as this evening and begin trading on Wednesday.

“If they had any brains at all, they wouldn’t bring this deal to market,” said Ted Moreau, analyst at Robert W. Baird & Co.