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Lucent tots up $1.75 B from convertible stock

Wed, 08/01/2001 - 8:00pm
Anne Kerven

Lucent got a boost from an unexpected $1.75 billion in its convertible preferred stock offering yesterday. The stock, priced at $1,000 a share, drew about $750 million more than targeted, despite Lucent's lowered ratings from Standard & Poor's, and Moody's.

Observers say buyers include mutual fund managers, pension funds and other institutions, who will get an annual dividend rate of 8 percent. The shares are convertible into Lucent common stock at a conversion premium of 22 percent, meaning how much the common stock prices need to rise before the shares can be converted and allow a profit. The dividend is slightly higher than average and the conversion premium lower than most.

Lucent says it has certain rights to redeem the shares starting in August 2006, while as of August 2004, holders can exercise certain rights to require Lucent to redeem the shares. The shares have a mandatory redemption by Lucent in 30 years, it says.

The sale shows support for Lucent's future, observers say. The company is negotiating ways to take a $7 billion to $9 billion charge in its next quarter without violating covenants on other loans, and the sale should give it some leverage.

Lucent apparently was undaunted by its lowered ratings from S&P Tuesday and Moody's yesterday. S&P cut Lucent's long-term corporate credit, senior secured bank loan and senior unsecured note ratings from BB+ to BB- and kept it on CreditWatch with "negative implications." Moody's yesterday cut its ratings on Lucent's long-term debt from Ba1 to Ba3, and was eyeing it for further downgrade.

S&P noted, however, that Lucent's status would return to stable if it amended the covenants and was able to take the charge. For its part, Moody's noted it would confirm the Ba3 rating if Lucent's convertible stock offering succeeded and if it did negotiate the amendment with bankers. If those events occur, however, the rating outlook would be negative, Moody's says.

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