S&P cuts Lucent

Standard and Poor's lowered Lucent Technologies Inc.'s senior secured and unsecured debt to B from B+ and convertible preferreds to CCC from CCC+ following Lucent's reduced outlook for revenues.

The outlook remains negative.

Lucent said sales in the September quarter would be about 20%-25% below the $2.95 billion in the June period.

The negative outlook reflects S&P's belief that plans to return to net profitability by the September quarter may not be achieved, in light of accelerating stresses.

Due to the continued decline in revenues, Lucent plans to take another restructuring charge. Earlier cost-reductions had been targeted to permit net income breakeven on quarterly revenues below $3.5 billion, by the September quarter.

Financial flexibility remains sufficient for intermediate-term operational needs, with $5.4 billion cash at June 30, S&P said. In addition, it currently has full availability in its $1.5 billion revolver that matures February 2003.

If Lucent cannot achieve a cost structure that permits a return to profitability, ratings could be lowered.

Moody's puts Lucent on review

Moody's Investors Service placed the ratings of Lucent Technologies Inc. on review for possible downgrade, including the convertible preferreds at Caa2.

In addition to Lucent's warning about lower revenues, Moody's noted the company warned of a material decline in operating performance with pretax EPS loss, excluding special charges, nearly doubling from the prior quarter, from 24c to 45c.

While the company expects to be in compliance with covenants in its undrawn $1.5 billion credit facility at the end of this quarter, weakened performance puts pressure on its ability to continue to comply with the terms, Moody's said.

The review will focus on Lucent's ability to materially reduce its cost structure and cash burn rate, renegotiate bank facilities, maintain or improve market share and limit vendor finance exposure.

The review will also consider the impact of weaker performance and cash restructuring costs on liquidity.

Moody's noted that the revised breakeven target is still higher than the expected revenue levels for the current quarter. Therefore, the company could rely on a recovery in revenues to achieve its target of profitable operations by the end of fiscal 2003.

Fitch cuts Lucent

Fitch Ratings downgraded Lucent Technologies Inc.'s senior unsecured debt to B- from B+ and convertible preferreds to CCC- from CCC+. The outlook remains negative.

Lucent already has significant cash obligations from previous restructurings, potential funding for its pension plan in fiscal 2003 and to fund operations, resulting in a significant cash burn rate for the next 12-18 months.

Lucent's liquidity requirements will continue to be affected by execution risks surrounding the restructuring and weak end-market conditions, Fitch said.

In conjunction with cost savings from restructuring, product line consolidation and top line growth are the most important factors for the return to profitability.

Moody's cuts Unocal ratings

Moody's Investors Service downgraded Unocal Corp.'s ratings, including the convertible preferreds to Baa3 from Baa2, in response to the expected completion of its acquisition of the minority interest in Pure Resources Inc. that it does not already own.

The outlook is stable.

The purchase will be funded with the issuance of 12 million shares of common in exchange for the Pure Resources shares.

The $400 million of new equity will benefit Unocal's balance sheet. However, Moody's downgrade of Unocal's long-term ratings reflects the incremental leverage implication of the $570 million of Pure Resources debt assumed.

Moody's confirms Prudential

Moody's Investors Service confirmed the ratings of Prudential Financial Inc. and affiliates, including the convertible preferreds at A3. The outlook remains stable.

Moody's cited improvement in expenses and a solid capital position at Prudential Insurance Co. of America that has provided a cushion from the effects of recent equity market volatility and credit losses.

Heavy equity market-orientation of operations and diminished profitability, partially attributable to an increase in realized credit losses, heightens the importance of capital adequacy, particularly over the near term, Moody's said.

Continued stability in the outlook will principally depend on whether Prudential limits stockholder dividends. However, Moody's will evaluate this standard in the context of market conditions, demonstrated earnings power and its economic and regulatory capital position.

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