A pair of sell-side analysts say Lucent Technologies' bondholders are too optimistic in the wake of that company's much discussed $1.9 billion convertible preferred offering. Basil Chaltas, portfolio manager at Lincoln Capital Management in Chicago, says he likes the deal because it provided the company with more financial liquidity while protecting the place of straight bondholdes within the capital structure. Still, Chaltas says he did not add to his position over concerns about Lucent's business plan. Last Thursday, the Lucent 7.25% notes of '06 traded up to $86. On July 30, before the deal was announced, they were at $80.
Mark Altherr, an analyst at Credit Suisse First Boston says the $1.9 billion raised was not nearly enough. "They still have additional liquidity needs, and barring a good third-quarter earnings report, I'd expect [bond] prices to retest recent lows."
Ed Oppedisano, an analyst at Deutsche Banc Alex. Brown, notes that the company still has to undertake a $7-9 billion restructuring program, and has only $4 billion available in bank credit facilities to draw upon. He says these lines are set to expire early in 2003. He continues that operating losses last quarter were $1.8 billion. He believes the '06 notes "could settle back into the $70's when the euphoria subsides."