Cash Crunch At Lucent, AMERCO Prompt S&P Downgrades

  • 20 Oct 2002
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Standard & Poor's has lowered Lucent Technologies' corporate credit rating from B to B- and placed the company on watch with negative implications, following the announcements of a $1 billion restructuring charge, a cancelled $1.5 billion revolver and downsizing plans. The downgrade also reflects S&P's concern over the Murray Hill, N.J., communications supplier's ability to raise positive cash flow over the coming year due to the continued industry slump. "The [communications] industry is extremely challenged," said S&P analystBruce Hyman, adding that he doesn't foresee any significant revival for Lucent until 2004.

Lucent cancelled its undrawn revolver to prevent default under its covenants and currently is negotiating a smaller facility, which is expected to be around $500 million. The company also repurchased $100 million in real estate in order to prevent default under its lease terms. Although Lucent recently announced that it would cut 10,000 more jobs to further reduce expenses, S&P stated that the continued cash consumption rate is a source of concern for the company's future finances. Lucent's cash balance was about $4.4 billion as of Sept. 30-- about $1 billion below the June 30 level. If Lucent continues to burn cash at such a rapid rate, its cash flow could diminish completely, Hyman said. "Something has got to give," he added.

* S&P also lowered its corporate credit rating for AMERCO from BB+ to BB- and maintained its negative watch because of the company's failure to complete a $275 million debt offering. Proceeds from the offering were meant to pay down $100 million of debt that matured last Tuesday.

The Reno, Nev., company indicated that it had enough funds to pay off the debt, but S&P projects that the payment will likely limit the company's cash flow. The rating agency cited AMERCO's weakened finances over the past few months, including a bank facility that was reduced from $400 million to $205 million and a $76 million equity contribution to its insurance subsidiary in order to meet regulatory requirements. AMERCO also has $175 million of debt maturing in May 2003.

Although AMERCO's insurance subsidiary and its U-Haul International truck rental business have been negatively affected by falling profits and investment write-downs, S&P acknowledged recent improvements in profitability and cash flow, as well as U-Haul's leading position in consumer truck rentals.


Other Ratings Actions*
GenTekCCDowngraded to DS&P
Land O'LakesBa2Downgraded to B1Moody's
MirantBa1Downgraded to B1Moody's
UbiquiTel OperatingB-Downgraded to CCC+S&P
* Thurs, Oct. 10 through Wed, Oct. 16
  • 20 Oct 2002

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Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 Bank of America Merrill Lynch (BAML) 6,415 22 12.84
2 Citi 5,781 17 11.57
3 BNP Paribas 3,530 14 7.06
4 Credit Suisse 2,783 8 5.57
5 Rabobank 2,633 4 5.27

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Rank Lead Manager Amount $m No of issues Share %
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1 Citi 99,251.11 279 13.17%
2 Bank of America Merrill Lynch 90,895.27 265 12.06%
3 Wells Fargo Securities 72,661.39 222 9.64%
4 JPMorgan 52,367.24 169 6.95%
5 Credit Suisse 41,885.89 127 5.56%