Moody's puts Ciena on review for downgrade

Moody's placed Ciena Corp.'s debt under review for possible downgrade, including the Ba3 rating on its $690 million 3.75% convertible senior notes due 2008.

The review is prompted by the collapse in demand for Ciena's next generation optical networking products, having led to an operating loss in fiscal first quarter and further loss expected in fiscal second quarter, combined with overall uncertainty in the market for telecom equipment and prospects for profit recovery, Moody's said.

The review will take into account the impact of Ciena's latest announced restructuring plans on both the expense structure and balance sheet, and the implications of continuing costs of operations on cash flow. Also under scrutiny is the impending merger with ONI Systems Corp. In particular, the review will attempt to gauge how the current surplus of bandwidth in the long-haul transport market will affect Ciena's business model.

On March 26, Ciena announced a realignment of its operations, including cutting about 650 employees, closing facilities and writedown of excess inventory. Charges associated with the restructuring are estimated to range from $325-360 million.

There also are likely to be charges associated with the company's pending merger with ONI Systems Corp., expected to close in fiscal third quarter.

Ciena's balance sheet and cash position remain formidable, with cash equivalents and marketable investments estimated to be about $1.6 billion. Last 12 months EBITDA of $208 million would have provided 8 times pro forma interest requirements, assuming all the $150 million 4.5% Cyras Systems convertible subordinated notes are tendered for purchase on April 30.

After accounting for the tender, restructuring charges and anticipated fiscal second quarter losses, Moody's expects capitalization to be comprised of about 70% equity and 30% debt.

S&P cuts Adelphia to CCC+

Standard & Poor's lowered its corporate credit rating on Adelphia Communications Corp. toCCC+ from B, based on concerns that the delay in the filing its 10K coupled with the formal SEC investigation into its accounting further exacerbates Adelphia's already weakened financial profile.

The rating remains on watch with developing implications.

Adelphia missed filing its 10K within the 15-day extension from the SEC, and we do not know when the 10K will be filed, S&P credit analyst Richard Siderman said. As a result of missing this deadline, the company jeopardizes its ability to sell publicly registered securities as well as maintain the listing of its stock on the Nasdaq.

The immediate concern is that Adelphia's continued delay in filing its 10K could impair its ability to meet covenants related to some of its debt issues or bank credit facilities, the S&P analyst said. Also, the presence of material adverse event language in subsidiary credit agreements heightens risk.

Prerequisites for a potential upgrade are formidable and include the ability to obtain audited statements needed to allay concerns regarding possible covenant violations, more surety that the 8.75 times debt-to-cash flow covenant test applicable to parent debt issues can be met during 2002 and satisfactory resolution of the SEC probe.

Importantly, the sale of assets and debt reduction would be key in determining the magnitude of a potential upgrade. For S&P to provide any rating, Adelphia will need to provide adequate financial information, particularly in regard to its off-balance-sheet activities.

The company was downgraded on April 8 due to concerns regarding the impact of the $2.3 billion in co-borrowings by Adelphia subsidiaries and certain companies owned by the Rigas Family.

S&P cuts WorldCom to BBB

Standard & Poor's lowered its long-term corporate credit rating on WorldCom Inc. to BBB from BBB+ as the company lowered 2002 revenue and EBITDA guidance due to the economy and enterprise customers' weaker demand for voice and data services.

The rating remains on watch with negative implications.

Although the decline in revenue guidance is about 4.5% to 6.0%, the EBITDA decline is a significant 12% to 17% due to fixed operating costs, specifically line costs, S&P credit analyst Rosemarie Kalinowski said.

WorldCom reduced capital expenditures for the year by $1 billion to offset the $1 billion decline in EBITDA guidance, but S&P anticipates enterprise demand prospects in the telecom industry will be extremely difficult in 2002 and into the first half of 2003, thereby placing additional pressure on WorldCom's ability to increase cash flow and reduce debt to EBITDA below the 2.5 times area by the end of the year.

Furthermore, pressure on the company's stock price affects its financial flexibility to issue new equity that could be used to reduce debt.

S&P says Lucent outlook still stable

Standard & Poor's said Lucent Technologies Inc.'s announcement of quarterly earnings and that it had met the financial conditions necessary to complete the spin-off of its 58%-owned Agere Systems Inc. will have no effect on its ratings or outlook. S&P currently has a B+ corporate credit rating on Lucent with a stable outlook.

Lucent's ratings continue to reflect challenging market conditions and the company's improved liquidity, in addition to its efforts to restore profitability, S&P said.

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