Lucent debt downgraded

Standard & Poor’s lowered its credit rating on Lucent Technologies to “junk” status, citing “significant uncertainties about [Lucent’s] ability to continue to improve its operating profitability and cash flows to anticipated levels,” according to an S&P report.

The agency cut Lucent’s corporate credit and senior unsecured debt ratings to “BB+” from “BBB-” and lowered the company’s commercial paper rating to “B” from “A-3.”

Besides making it more difficult for Lucent to raise new money, the downgrade to junk status lowers the trading value of Lucent’s $3.8 billion in long-term debt and forces the company to pay a higher interest rate on its $4 billion credit line.

Although Lucent has no immediate plans to tap the debt markets with a new offering, it needs to raise $2 billion in non-operating cash by the end of September to satisfy the requirements of the Agere Systems spinoff.

S&P said difficult market conditions, including deteriorating levels of demand for telecom equipment, combined with Lucent’s “uncertain progress” in reducing costs, will delay Lucent’s return to profitability until the first half of fiscal 2002. The company also remains exposed to a subpar vendor finance portfolio, S&P said.

“While Lucent has ample near-term liquidity, expected to be bolstered by the fiber sale or other transactions, operating cash flows are expected to remain materially negative over the next few quarters,” the report said.

On news of the rate cut, Lucent shares declined about 7% in morning trading.

Separately, Lucent said it expects to get “good value” from the possible sale of a 2.5G mobile network it built for One.Tel, a bankrupt Australian operator. Lucent is One.Tel’s largest creditor and has submitted $674 million in claims against the company. On Wednesday, the Australian Securities and Investment Commission moved to protect creditors by freezing the assets of One.Tel’s founders.