Lucent Technologies raised US$1.75 billion in a securities offering Wednesday, providing it with a sizable injection of cash after months of seeking to dispel concerns about its liquidity.
The convertible preferred stock, which was acquired by a mix of investors from large hedge funds to institutions, will pay an annual coupon of 8 percent. The securities also allow their holders to buy Lucent's common stock at about US$7.48 a share, a 22 percent premium to Wednesday's closing price of US$6.13.
Lucent sold about US$750 million more of the securities than it had anticipated. "This is a major vote of confidence in our restructuring efforts," said Kathleen Fitzgerald, a Lucent spokeswoman.
Show of support
The sale shows how hard it is for many communications companies to raise cash in conventional equity and debt markets. But the transaction is also an important show of support in Lucent from investors who are betting its financial performance will improve.
At a meeting at Lucent's headquarters in Murray Hill, New Jersey, on Wednesday, nearly 200 representatives from the group of 20 or so banks that are Lucent's principal creditors applauded news of the deal when it was provided by Henry B. Schacht, Lucent's chief executive.
Lucent is negotiating with the banks so it can take a large revamping charge this quarter without violating the covenants of a US$4 billion financing agreement reached earlier this year. The company's success with the securities deal should help it in talks with the banks and with its overall turnaround efforts, investors said.
"This is a home run," said Sandra Durn, manager of the Pimco Convertible Bond Fund. "It's expensive, but probably not that much more than a high-yield deal, and it plays into the view that management is doing the right things."
Hit by a steep decline in the market for communications equipment, Lucent has cut jobs, spun off divisions and is seeking to reduce costs.
Last week, the company reported a loss of US$3.25 billion for the most recent quarter and, despite the transaction on Wednesday, concern over Lucent's financial situation persists.
Moody's Investors Service followed the example of Standard & Poor's on Wednesday and lowered its ratings on Lucent's long-term debt, to Ba3 from Ba1, and said its ratings outlook for the company remained negative. Moody's cited uncertainties in markets for Lucent's products as a main cause for concern.
Lucent, which is redirecting its energies to focus on established wireless and fixed-line customers, expects to return to profitability by the end of next year, but even with cash from the securities sale and from the sale of factories and other parts of the company, Moody's said these efforts "do not address the company's excessive cost structure or its product-offering situation."
Concern shrugged off
Investors appeared to shrug off these concerns Wednesday, however. Shares in Lucent declined US$0.57, or 8.5 percent, to US$6.13, but much of the selling was said to come from hedge funds that were selling Lucent's common stock short as they sought to acquire the convertible preferred stock.
Lucent may sell an additional US$250 million of the securities, increasing the size of the deal to US$2 billion, people close to the transaction said.
The security has a five-year no-call provision, which means Lucent cannot force the conversion of the security into common stock during that time. It may be converted to cash after three, six, nine or 15 years. In addition, Lucent may use common stock instead of cash to pay the 8 percent coupon.
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