Moody's rates Lucent liquidity SGL-2

Moody's Investors Service assigned an SGL-2 speculative-grade liquidity rating to Lucent Technologies Inc.

Moody's said the SGL-2 rating reflects Lucent's highly liquid balance sheet, with approximately $5 billion of cash pro forma for its recent $1.6 billion convertible note offering, which is expected to cover potential cash uses over the next 12-15 months including the continuing cash burn, the expected redemption of debt and preferred securities and potential cash outlays for the convertible preferred stock put and lawsuit settlements in mid 2004.

If Lucent's high level of cash burn continues, liquidity could resurface as a concern in the future and cause a downward revision in the liquidity rating, although Moody's recognizes Lucent's considerable cost-cutting efforts should moderate the burn rate.

Despite Lucent's operating difficulties since late 2000, the recent issuance of $1.6 billion in senior convertible debt marks Lucent's third equity-linked capital market issue in the past two years, each of which has raised in excess of $1.6 billion, Moody's said. The latest issue has provided the company with a substantial liquidity cushion in advance of potentially large calls on its cash.

The weak operating environment for telecom equipment sales and cash costs of restructuring have resulted in huge cash burn rates. In the first half of fiscal 2003, net cash used in operations exceeded $1 billion. While the cash burn rate is expected to ease as the outlays for restructuring costs diminish and the benefits of prior cost reduction efforts are realized, the ability to moderate operating losses will depend on a stabilization of revenues at or around current levels, Moody's added. Due to the uncertain near term outlook for telecom equipment spending, cash burn could continue well into the future.

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