NEW YORK-In a preview of its second-quarter corporate debt outlook, to be published July 27, Standard & Poor’s Corp. said “the large loss announced in June by Nortel Networks Corp. and the downgrade of Lucent Technologies Inc. … to high-yield” status created a broad ripple effect on telecommunications issuers.
Before those developments, telecommunications debt categorized as high-yield, also known as speculative-grade or junk bonds, enjoyed favorable treatment in terms of the yield, or interest, investors demanded compared to similarly rated debt of comparable maturities issued by other kinds of companies.
“Up until this point, the high-yield market was bifurcated (into) the high-yield market and the high-yield telecommunications market,” Standard & Poor’s said.
Lucent, whose $3.7 billion in outstanding debt was downgraded to junk-bond status, was one of the two “most prominent fallen angels” during the second quarter, the rating agency said.
On the other end of the credit rating spectrum, “three of the seven rising stars during the second quarter were a result of Deutsche Telekom’s acquisition of VoiceStream Wireless Corp., Omnipoint Corp. and Powertel Inc.,” S&P said.
The second quarter nearly matched the first, in which a record was set for bond defaults. Some 40 issuers defaulted on $22 billion of rated debt. Telecommunications companies accounted for 18 percent of these, the most of any sector.
“The largest U.S. default was telecommunications company PSINet ($2.7 billion), and the largest default outside the United States was telecommunications issuer 360networks ($2.9 billion),” Standard & Poor’s said.
