Bloomberg News

Alcatel-Lucent Bonds Drop to 1-Month Low as Margin Target Missed

July 17, 2012

Alcatel-Lucent SA (ALU)’s bonds fell to the lowest in a month after France’s largest communications- equipment supplier said it will miss a profit margin target amid waning demand for phone gear.

Alcatel-Lucent’s 500 million euros ($612 million) of 8.5 percent high-yield bonds due 2016 dropped 3.8 cents to 94.94 cents on the euro as of 3 p.m. in London, the lowest since May 13, data compiled by Bloomberg show. The price drop pushed the yield to a two-month high of 10.3 percent.

The company, which earlier this year predicted its 2012 operating profit margin would rise, cited a “difficult macro- economic environment” as it reported a second-quarter operating loss of about 40 million euros ($49 million) today. Moody’s Investors Service cited the Paris-based company’s inability to “generate positive free cash flows from continuing operations” this year when it downgraded the company in May by one level to B2.

Investors demand a yield premium of 1,050 basis points to buy Alcatel-Lucent’s 2016 bonds instead of benchmark German government debt, Bloomberg data show. That compares with a spread of 716 basis points for bonds in Bank of America Merrill Lynch’s Euro Non-Financial High Yield Constrained Index.

The cost of insuring Alcatel-Lucent’s debt with credit- default swaps jumped 14 percent to 1,550 basis points, the highest since June 26. A basis point on a credit-default swap protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros annually.

Alcatel-Lucent plans to give more details when it reports full second-quarter earnings on July 26, said Simon Poulter, a spokesman for the company. Alcatel-Lucent was formed in 2006 from the merger of Alcatel SA and Lucent Technologies.

To contact the reporter on this story: Mehreen Khan in London at mkhan108@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net


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