NEW YORK-Global telecommunications deregulation may be auspicious, but on behalf of bondholders, Moody’s Investors Service Inc. remains suspicious.
A day before negotiators at the World Trade Organization approved Feb. 15 a trail-blazing agreement to deregulate international telecommunications markets, the New York-based rating agency downgraded the long-term debt of British Telecommunications plc.
British Telecom’s proposed merger with MCI Communications Corp. is a pairing that analysts, including those from Moody’s, have said fits the model of large-scale corporate size needed for global competitiveness in a deregulated worldwide marketplace.
In dropping BT’s investment-grade rating on $6.6 billion in outstanding debt to Aa1 from Aaa, Moody’s said, “this action is prompted by [our] belief that the implications of the BT/MCI merger suggest BT will operate with higher levels of financial risk (and debt levels) in the future as it seeks to complete its global market strategies.”
While Moody’s said it has MCI’s $5.1 billion in outstanding debt and preferred stock under review for possible upgrade, it noted that further downgrades of British Telecom’s long-term debt also are possible.
“The ratings (of British Telecom) remain on review because of potential structural implications … relating to the merger … for BT’s public debt-holders which will not be resolved until the companies resolve the ultimate allocation of BT’s debt,” said the announcement by Richard Stephan, managing director, and Carlos Winzer, vice president of Moody’s European corporate ratings group.
Concert plc, as the merged company will be called, will serve 43 million customers in 70 countries. “In an industry that is becoming increasingly liberalized and global, the BT/MCI merger is a logical development that should enhance BT’s ability to offer global telecommunications solutions to corporate customers,” Moody’s said. “In addition, BT provides MCI with the financial strength and expertise of operating in a local market.”
