S&P downgrades Mitel

Standard & Poor's said it lowered the long-term corporate credit rating on Mitel Networks Corp. to B- from B, senior secured first-lien debt to B from B+ and senior unsecured second-lien debt to CCC from CCC+.

The outlook is negative.

"The downgrade reflects what we view as Mitel's weaker-than-expected revenue and EBITDA performance in the third quarter ended Jan. 31, 2009; significantly weaker credit metrics relative to our previous expectations; and our concerns that operating and credit metrics will remain pressured in the next several quarters owing to weak demand for telecom equipment from its small and midsize business customers," S&P analyst Madhav Hari said in a statement.

"The downgrade also reflect what we see as the company's weakened liquidity position; increased prospect of financial covenant violation in the next two quarters; and little future cushion to its debt leverage covenant, even with an expected near-term equity infusion by its sponsors," Hari added.

Ratings reflect very high debt leverage, focus on the small and midsize business telephony market, and concerns about lower sales as weakened economies lead business customers to defer telecom equipment purchases, the agency said.

Ratings also reflect strong competition from large industry players, weak historical operating performance and weakened liquidity, the agency said.

These factors are tempered the company's leading market position, management's ability to sustain profit margins despite lower revenues through proactive cost cutting, a healthy combined product portfolio and roadmap, and enhanced distribution scale, S&P said.

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