DBRS Places Nortel’s B (low)/Pfd-5 (low) Ratings Under Review with Negative Implications
DBRS has today placed its B (low) ratings on Nortel Networks Corporation, Nortel Networks Limited and Nortel Networks Capital Corporation (collectively, Nortel or the Company) and its Pfd-5 (low) preferred share ratings on Nortel Networks Limited Under Review with Negative Implications.
This review follows the Company’s Q3 2008 results released today that were below DBRS’s expectations. The Company indicated that its 2008 results will likely be around the low end of its previous guidance range (revenue to decline by around 4% and management operating margin to improve by around 125 basis points versus 2007). However, it also indicated that, given the challenging operating environment, its 2008 results could potentially be even lower. Today’s announcement is the second time the Company has lowered expectations for 2008. The first time was in September 2008. (See DBRS press release dated September 17, 2008.)
As such, DBRS expects that its review will focus on two factors. Firstly, Nortel’s business risk profile in an operating environment that continues to weaken as a result of macroeconomic factors and increasing competitive forces impacting demand in the telecom equipment sector. DBRS plans to review the appropriateness of its B (low) Issuer Rating, which previously held a Stable trend. DBRS will also review the appropriateness of its recovery ratings.
In this context, DBRS plans to examine Nortel’s (a) revised operating expectations and the impact on its financial performance given the likelihood of a sustained economic downturn; (b) the resulting impact of its cumulative cost-cutting actions announced to date and (c) the impact of the Company’s current plan to sell its Metro Ethernet Networks (MEN) business.
In addition, DBRS will focus on how these and other factors impact the Company’s liquidity position for 2008, 2009 and beyond. The Company expects cash levels to end 2008 at $2.4 billion, which is below DBRS’s original expectation.
Secondly, DBRS expects its review will result in Nortel’s Pfd-5 (low) preferred share ratings moving to D. This move follows the Company announcement today that it plans to suspend its preferred share dividend payments going forward. This suspension will follow the Company’s previously announced November 12, 2008 dividend payment on its Series 5 preferred shares (cumulative) and its Series 7 preferred shares (non-cumulative).
Note:
All figures are in U.S. dollars unless otherwise noted.
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Ratings
| Issuer | Debt Rated | Rating Action | Rating | Trend | Recovery Rating | Notes | Published |
|---|---|---|---|---|---|---|---|
| Nortel Networks Limited | Issuer Rating | UR-Neg. | B (low) | -- | -- | Nov 10, 2008 | |
| Nortel Networks Capital Corporation | Senior Unsecured Notes | UR-Neg. | B (low) | -- | RR4 | Nov 10, 2008 | |
| Nortel Networks Corporation | Convertible Notes | UR-Neg. | B (low) | -- | RR4 | Nov 10, 2008 | |
| Nortel Networks Limited | Notes & Long-Term Senior Debt | UR-Neg. | B (low) | -- | RR4 | Nov 10, 2008 | |
| Nortel Networks Limited | Class A, Redeemable Preferred Shares | UR-Neg. | Pfd-5 (low) | -- | RR6 | Nov 10, 2008 | |
| Nortel Networks Limited | Class A, Non-Cumulative Redeemable Preferred Shares | UR-Neg. | Pfd-5 (low) | -- | RR6 | Nov 10, 2008 |