NEW YORK-Nortel Networks Corp. and Sprint PCS affiliate Alamosa Holdings Inc. tapped the debt markets for a total of $1.65 billion last week, providing another reminder that telecommunications bond buyers recently have been rushing in where stock investors fear to tread.
The latest debt deals followed on the heels of a $1.75 billion offering that Lucent Technologies Inc. sold Aug. 1 after planning for a $1 billion issue of convertible preferred shares, hybrid securities with characteristics of debt and equity. And on July 25, a unit of Qwest Communications International Inc., which had planned for a $3 billion note issue, raised $3.75 billion after receiving offers to purchase nearly $12 billion.
Nortel Networks announced Aug. 8 it planned the private sale of $1 billion in senior unsecured notes that are convertible into common stock. Responding to investor demand, the company hiked the deal size to $1.5 billion before selling the issue of 4.25 percent notes due 2008 a day later.
Nortel Networks Corp., the parent company of Nortel, was created in May 2000 as part of the divestiture of Nortel by BCE, the Bell Wireless Alliance. Moody’s Investors Service Inc. had downgraded Nortel’s investment-grade, long-term debt rating to a low-tier Baa2 from a mid-tier A3 on Aug. 2 to “reflect the significant deterioration in purchases of Nortel products by telecom service providers, especially the emerging carriers.”
Standard & Poor’s Corp. assigned a low-tier, investment-grade rating of BBB to the issue to reflect “significant uncertainties about the company’s ability to return to profitability in light of the significant deterioration in the communications equipment sector.”
Although S&P said it expects Nortel’s “substantially lower” revenue expectations this year to continue into 2002, the rating agency also noted that Nortel experienced a 20 percent increase in wireless product revenues during the second quarter of this year, compared to the same period of 2000.
Alamosa Inc., a subsidiary of Alamosa Holdings, Lubbock, Texas, placed privately Aug. 7 a $150 million issue of 10-year senior notes paying 13.625 percent, Reuters reported.
However, in ratings release issued Aug. 10, Moody’s assigned a low-tier, speculative-grade rating of Caa1 to “the pending issue.”
“The ratings reflect the start-up nature of the business…the competitive nature of the wireless industry and its high financial leverage…In addition, now that much of Alamosa’s markets are built out, its focus will turn to customer acquisitions,” Moody’s said.
Although it upgraded the outlook from negative to stable on the Sprint affiliate’s debt, Moody’s also cautioned, “Alamosa has exhausted its debt capacity at this ratings level, given its state of development.”
