Alcatel-Lucent risks losing its B2 credit rating, due to its poor third quarter results.
Ratings firm Moody’s yesterday began reviewing the equipment vendor’s ranking in a move that could affect some $5.9 billion of debt securities. Moody’s will focus on whether Alca-Lu can return to profitability, improve operating margins to the mid-single digit range, and generate positive cash flow.
Moody’s notes the firm burned through €1 billion ($1.28 billion) of cash in the nine months to end-September – bad news when the vendor also has €2.1 billion of debt due to mature between June 2013 and January 2015.
Alca-Lu suffered a fraught third quarter, recording a loss of €146 million – it’s second in succession – on a 2.8% decline in revenue year-on-year. The firm is reportedly considering asset sales to help improve its position in 4Q12 and beyond.
"Today's announcement reflects our growing concerns about Alca-Lu’s lack of improvement during the third quarter of the year, as well as our diminished expectations in terms of the group's operating profitability and cash flow generation for the second half of 2012 as a whole," Roberto Pozzi, a Moody's vice president, senior analyst, and lead analyst for Alca-Lu, explains.