The credit-default swap spread on Lucent Technologies tightened about 30 basis points last week after two major telecommunication deals involving the New Jersey-based company convinced investors the industry is finally making good on its promise of wireless network upgrades, said Srini Dhulipala, v.p and trader at Morgan Stanley.
Cingular announced on Nov. 30 plans to upgrade its 3G high-speed wireless data network and chose Lucent as one of three companies to provide the technology. Last week, Sprint also announced upgrade plans and awarded Lucent a contract to assist. On the back of that, hedge funds, proprietary desks and dealers bought protection, which tightened Lucent's spread on five-year CDS to 185bps from 215bps the previous week.
"I think [Lucent] will continue to trade heavily," said Dhulipala, adding the spread may tighten even further. "People need to realize it's going to be a net-cash product," he said.
Moody's Investors Service rates Lucent B2 and Standard & Poor's puts it at B with a positive outlook. New York-based S&P analyst Bruce Hyman said the recent deals Lucent has made should be favorable for its business, but will not drive a ratings move. "We need to see sustained financial performance," he said, adding although these new deals will stimulate profits, steady growth is more elusive. In addition, he said, "there is a substantial technology evolution going on in this industry and that could change the playing field pretty dramatically in the next couple of years."
