Markets & Finance

AT&T Rating Placed on CreditWatch Negative


Standard & Poor's Ratings Services said on Apr. 23 that it placed AT&T Corp.'s (T) 'BBB+' long-term corporate credit rating on CreditWatch with negative implications due to concerns regarding the continued weakness in the company's business segment and the segment's long-term prospects. Simultaneously, the company's 'A-2' short-term corporate credit and commercial paper ratings were affirmed and are not on CreditWatch.

Standard & Poor's does not anticipate that any potential downgrade of the long-term rating will be more than one notch. Bedminster, N.J.-based AT&T Corp. provides domestic and international long distance, regional, local, and Internet communications services.

As of March 31, 2003, total debt outstanding was about $18.1 billion, while net debt was about $12.0 billion.

"Business segment revenue growth has been affected during the past year by the soft economy and competitive pricing pressures," said Standard & Poor's credit analyst Rosemarie Kalinowski.

In the first quarter of 2003, business revenues declined 2% compared with the fourth quarter of 2002 and declined 1.4% compared with the first quarter of 2002. In addition, operating margin declined to 9% from 13% in the first quarter of 2002 despite increased cost control initiatives. The revenue decline reflects the continued weakness in retail demand and information technology spending, partially offset by strong growth in wholesale and Internet protocol and enhanced services. Competitive pressures from other large long distance service providers are adversely affecting AT&T Corp.'s ability to maintain pricing in contract renewals.

The decline in the consumer services segment revenues continued as expected due to the impact of wireless substitution and increased regional Bell operating company (RBOC) entry into the market. AT&T's revenue for this segment declined 7% in the first quarter of 2003 compared with the fourth quarter of 2002 and about 18% compared with the first quarter of 2002. Aggressive marketing of local services bundled with long-distance services will be required to halt the rate of decline as the RBOCs continue to increase their long-distance market share.

AT&T Corp.'s debt reduction measures continued in the first quarter of 2003.

Standard & Poor's expects to meet with company management within the next few weeks. Resolution of the CreditWatch will be focused on Standard & Poor's assessment of the long-term growth prospects for the business segment. From Standard & Poor's RatingsDirect


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