{"id":3059,"date":"2008-09-17T20:02:57","date_gmt":"2008-09-18T00:02:57","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=3059"},"modified":"2008-09-17T20:02:57","modified_gmt":"2008-09-18T00:02:57","slug":"ntlprf-ntlprg-dbrs-changes-trend-to-stable","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=3059","title":{"rendered":"NTL.PR.F \/ NTL.PR.G : DBRS changes trend to "Stable""},"content":{"rendered":"

DBRS<\/a> has announced:<\/p>\n

has today changed the trend for the B (low) Issuer Rating and Pfd-5 (low) preferred share ratings of Nortel Networks Limited, Nortel Networks Corporation, and Nortel Networks Capital Corporation (collectively, Nortel or the Company), to Stable from Positive.<\/p>\n

The rating action follows Nortel\u2019s announcement today that: (1) a sustained and expanding economic downturn will pressure the Company\u2019s operating and financial performance, (2) the Company will undergo further restructuring and cost reduction initiatives, and (3) the Company intends to explore a divestiture of its Metro Ethernet Networks (MEN) business.<\/p>\n

DBRS had placed Nortel on Positive trend in July 2008. At the time, DBRS expected the Company could reasonably grow revenue in the low single-digit range, achieve gross margins comfortably above 40%, and grow and sustain operating margins above 8% (see separate press release dated July 14, 2008). DBRS had expected Nortel\u2019s Enterprise Solutions and MEN businesses to be the primary drivers of expected operating improvement.<\/p>\n

In light of Nortel\u2019s revised business outlook, DBRS expects that the time horizon in which the Company can comfortably achieve these operating metrics has extended beyond what may be reasonable for the trend to remain Positive. Despite expected improvements in the gross margins (which are expected to remain above 40% at the end of the year), DBRS now anticipates that revenue growth and operating margin improvements will fall well short of previous expectations.<\/p>\n

For the full year of 2008, DBRS now expects Nortel\u2019s revenue to decline by just under 4% on a year-over-year basis, to roughly $10.6 billion, and operating margins are expected to remain well below 8% at the end of the year. DBRS expects Nortel\u2019s liquidity to deteriorate slightly from historic levels, with the Company\u2019s overall cash position declining to roughly $2.7 billion at the end of 2008.<\/p>\n

With respect to its MEN business, while the impact of a divestiture on the Company\u2019s consolidated financial and business risk profiles may be moderate, DBRS notes that exiting this business will remove the Company from a higher-growth segment, expected to be a partial driver of the Company\u2019s overall operating improvement.<\/p>\n

DBRS expects the long-term trend to remain Stable until DBRS can gain comfort on: (1) the relative mix in terms of the competitive and economic forces affecting the Company\u2019s ability to achieve its long-term financial targets, (2) the impact on the Company\u2019s financial and business risk profiles following any divestiture of the Company\u2019s MEN business, and (3) Nortel\u2019s long-term strategy to achieve meaningful and sustainable operating improvements in an intensely competitive and challenging operating environment.<\/p><\/blockquote>\n

Nortel prefs got hammered today, but not as badly as the stock<\/a>:<\/p>\n

Nortel, based in Toronto, fell $2.62, or 49 percent, to $2.68 at 4 p.m. in New York Stock Exchange composite trading, the biggest decline since July 1980, according to Bloomberg data.<\/p><\/blockquote>\n

The stock price has led to suggestions that a takeover is in order<\/a>:<\/p>\n

“The most likely option is that it will be acquired, either before or after a financial crisis,” suggested Duncan Stewart, president of Duncan Stewart Asset Management.<\/p>\n

Stewart added that a deal might come before third-quarter earnings are released.<\/p><\/blockquote>\n

These issues were last mentioned on PrefBlog on March 10 in connection with their price differential<\/a>:<\/p>\n

NTL.PR.F closed today at 11.40-59, 10\u00d77<\/p>\n

NTL.PR.G closed today at 10.00-48, 15\u00d710<\/p><\/blockquote>\n

Today,<\/p>\n