04.12.2012 21:07
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Alcatel-Lucent -- Moody's downgrades Alcatel-Lucent's CFR to B3; negative outlook

Approximately EUR4.6 billion of rated instruments affected

Frankfurt am Main, December 04, 2012 -- Moody's Investors Service has today downgraded Alcatel-Lucent's corporate family rating (CFR) and probability of default rating (PDR) to B3 from B2. Concurrently, Moody's has downgraded Alcatel-Lucent's senior debt ratings to Caa1, with a loss given default assessment of 5 (LGD5, 75%), from B3, LGD5 (75%). In addition, the rating agency has downgraded to Caa2, LGD5 (79%), from Caa1, LGD5 (77%), the ratings on two convertible bonds issued by Lucent Technologies, Inc., before its 2006 merger with Alcatel, and guaranteed by Alcatel-Lucent on a subordinated basis. The outlook on all ratings remains negative.

RATINGS RATIONALE

"Today's one-notch downgrade of Alcatel-Lucent's CFR was driven by our expectation that in 2012 the company will not be able to cut its cash burn materially below the 2011 level of approximately EUR620 million as adjusted by Moody's," says Roberto Pozzi, a Moody's Vice President -- Senior Analyst and lead analyst for Alcatel-Lucent. Alcatel-Lucent's previous B2 rating had been partly based on Moody's assumption that the company's cash burn would be no more than EUR300 million for 2012, as adjusted by Moody's. "This inability to reduce cash burn reflects (1) a contraction in Alcatel-Lucent's revenues of around 7% year-on-year in the first nine months of 2012, and (2) continued weakness in the company's gross profit margins, which necessitates renewed restructuring efforts," adds Mr. Pozzi.

Moody's also considers that significant uncertainty remains about Alcatel-Lucent's ability to significantly reduce its free cash outflows in 2013 and move towards break-even thereafter. The rating agency notes that the company has been consuming cash from operations since the 2006 merger between Alcatel and Lucent Technologies, Inc. and that its cash burn increased to EUR885 million in the 12 months to September 2012 from approximately EUR620 million as of FY2011 on a Moody's adjusted basis.

Usually Alcatel-Lucent's cash flow is back-ended, so that the only cash-generative quarter of any one year is Q4. In 2012, Moody's expects that Alcatel-Lucent's fourth-quarter cash flows will only partly offset the company's cash consumption in the third quarter (EUR360 million as reported by the company) and that the company's cash consumption during the second half of 2012 will remain negative. Moreover, Alcatel-Lucent has implemented new cost-saving measures, which are aimed at generating additional cost savings of EUR750 million in 2013. However, although these may eventually strengthen the company's operating cash flows, Moody's cautions that its past efforts have been absorbed by deteriorating macro environment and price pressure in the market, which continues unabated given similar cost-cutting measures by competitors. Also, despite increasing communication traffic flows, there is currently no visibility with regard to a recovery in demand for telecommunication equipment. Because of this and telecom operators' currently restrained investment strategies (except for some operators in the Americas), Moody's believes that revenue contraction in the industry could continue for several quarters.

Alcatel-Lucent's liquidity profile is good based on the availability of around EUR4.7 billion in cash and marketable securities at end of September 2012. After consideration of cash needs for operations (typically estimated by Moody's at 3% of sales, or around EUR500 million) and about EUR1.2 billion cash and marketable securities held in countries subject to exchange controls, the liquidity well covers upcoming debt maturities of around EUR860 million in the next 12 months to June 2013 including the US$765 million (EUR619 million as reported in the company's third-quarter 2012 results) 2.875% Series B convertible bonds due in 2025, with a 15 June 2013 put option and leaves headroom for potential cash consumption in operations. The EUR837 million revolving credit facility matures in April 2013 and is currently undrawn. The facility has a financial leverage covenant related to cash flow/net debt with reasonable headroom as a result of the net cash position currently reported.

Alcatel-Lucent's next large debt maturities are its 6.375% bonds due in April 2014, with EUR462 million currently outstanding and the EUR1.0 billion 5% Oceane due in January 2015. Given the scale of Alcatel-Lucent's cash consumption and the company's upcoming debt maturities, Moody's considers that cash and short-term securities balances are not as comfortable as they appear at first glance. Alcatel-Lucent's liquidity could be bolstered by increased royalty collections, such as those resulting from the company's agreement with RPX or from own efforts, or proceeds from potential business exits, but overall its options for further asset monetisation appear to be decreasing.

The negative outlook on Alcatel-Lucent's rating reflects the company's ongoing cash burn relative to its substantial, but finite, liquidity. With an outlook for declining sales in 2012, Moody's considers that Alcatel-Lucent's management will be challenged to cut costs fast enough to curb cash consumption and to realise opportunities for asset monetisation.

WHAT COULD CHANGE THE RATINGS DOWN/UP

Negative pressure on the B3 rating would increase if (1) the company's operating margin, as adjusted by Alcatel-Lucent, fails to trend towards the mid-single-digits in percentage terms in 2013, with further tangible improvements thereafter; (2) Alcatel-Lucent fails to maintain its negative free cash flow below EUR500 million on a last 12 month basis throughout 2013, as adjusted by Moody's; (3) the company's debt/EBITDA fails to improve towards 6.0x as adjusted by Moody's; or (4) the company fails to improve its liquidity position through asset disposals and/or refinancing well ahead of its debt maturities in 2013-14. Rating pressure could ease and the outlook on the rating stabilise if all the above conditions are met, with particular regard to an improvement in free cash flow generation.

Although currently unlikely, upward rating pressure would require Alcatel-Lucent to (1) generate significant positive free cash flow on a last-12-months basis, as adjusted by Moody's; (2) sustain sales growth; and (3) achieve an operating margin, as adjusted by Alcatel-Lucent, in the mid-single digits in percentage terms.

PRINCIPAL METHODOLOGY

The principal methodology used in rating Alcatel-Lucent was Global Communications Equipment Industry rating methodology published in June 2008. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the US, Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Paris, France, Alcatel-Lucent is one of the world leaders in providing advanced solutions for telecommunications systems and equipment to service providers, enterprises and governments. The company reported sales of EUR6.8 billion in H1 2012.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following : parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Roberto Pozzi Vice President - Senior Analyst Corporate Finance Group Moody'sDeutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Matthias Hellstern Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Deutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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Analysen zu Alcatel-Lucent

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09.01.2014Alcatel-Lucent kaufenMorgan Stanley
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07.01.2014Alcatel-Lucent kaufenBarclays Capital
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27.08.2013Alcatel-Lucent kaufenDeutsche Bank AG
10.07.2013Alcatel-Lucent kaufenDeutsche Bank AG
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30.08.2013Alcatel-Lucent haltenCitigroup Corp.
05.08.2013Alcatel-Lucent haltenCitigroup Corp.
31.07.2013Alcatel-Lucent haltenCredit Suisse Group
23.09.2013Alcatel-Lucent verkaufenHSBC
31.07.2013Alcatel-Lucent verkaufenExane-BNP Paribas SA
21.06.2013Alcatel-Lucent verkaufenSociété Générale Group S.A. (SG)
20.06.2013Alcatel-Lucent verkaufenExane-BNP Paribas SA
12.06.2013Alcatel-Lucent verkaufenUBS AG
Um die Übersicht zu verbessern, haben Sie die Möglichkeit, die Analysen für Alcatel-Lucent nach folgenden Kriterien zu filtern.

Alle: Alle Empfehlungen
Buy: Kaufempfehlungen wie z.B. "kaufen" oder "buy"
Hold: Halten-Empfehlungen wie z.B. "halten" oder "neutral"
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