Alcatel-Lucent Rating Cut Moody’s Cites Low Profitability for Move MARKETPLACE By Bloomberg

By Rudy Ruitenberg

Alcatel-Lucent, the largest maker of telecommunications equipment in the world, had its corporate credit rating cut one step by Moody’s, to three levels below investment grade, because of lower- than-expected profit margins.

Moody’s Investors Service said Wednesday that it had cut the rating on Alcatel-Lucent’s debt to Ba3 from Ba2.

The cut brought the Moody’s rating in line with that of the Standard & Poor’s Ratings Services, which lowered the company’s grade to a comparable BB- in December 2006. Last month, Alcatel- Lucent, based in Paris, reported a third straight quarterly loss, reduced its 2007 sales forecast and announced cuts of an additional 4,000 jobs on top of 12,500 reductions announced earlier.

“The company’s profitability and cash generation has fallen behind Moody’s expectations from the time of the merger of Alcatel and Lucent,” Wolfgang Draack, an analyst at Moody’s, said in a statement.

Alcatel bought Lucent Technologies last year in an attempt to fend off competition from Ericsson and the Chinese equipment suppliers Huawei Technologies and ZTE. When they announced the merger plan in April 2006, Alcatel and Lucent said the combination would allow them to cut costs and increase sales. The shares have fallen almost 45 percent so far this year.

The company has euro 1.1 billion, or $1.6 billion, of 4.38 percent bonds that mature in February 2009. On Wednesday the yield rose 12 basis points to 6.26 percent.

Sales this year will be about unchanged from 2006 assuming constant exchange rates, from a previous forecast of “flat to slightly up,” the company said last month.

Originally published by Bloomberg News.

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