Troubles mount for Nortel : Moody’s downgrades, while New York Stock Exchange warns of delisting

Nortel Networks Corp. has taken another hit as Moody’s Investors Service has downgraded the beleaguered company’s ratings.
The investor service company said Monday that it has moved Nortel’s’ probability of default rating from B2 to Caa2 and the group’s corporate family rating has also been downgraded from B3 to Caa2. The service also reduced the company’s senior unsecured rating from B3 to Caa2 and its preferred share rating from Caa3 to Ca.
The ratings change affects $4.5 billion of debt and preferred share instruments, according to Moody’s.
The Canadian giant’s speculative grade liquidity rating remains in good standing, but the uncertain business environment caused the rating outlook to remain negative, according to Moody’s.
The rating actions were prompted because the ongoing adverse business conditions will continue for a prolonged period of time, and the company is unlikely to return positive free cash flow in the short term.
“In turn, the risk of default has increased,” according to Moody’s.
Moody’s said that recent reports of the company seeking legal counseling regarding bankruptcy protection “corroborate this perspective and support ratings repositioning.”
In response to the ratings downgrade, Nortel announced that its operating subsidiary Nortel Networks Ltd. obtained a 30-day waiver from Export Development Canada to permit continued access to its EDC performance-related support facility. The waiver applies to EDC’s right under the facility to suspend or terminate support resulting from the ratings downgrade. Nortel said it will work with the EDC during the next 30 days to potentially put in place a permanent waiver.
Last week, the Wall Street Journal reported that the company had sought legal counsel regarding protection from its creditors in the event of a bankruptcy filing. The company was also notified last week that the company’s stock could be de-listed from the New York Stock Exchange.
The company must inform the NYSE how it plans to get its stock back above $1. For 30 days, company shares have been trading below $1. On Monday, the company’s stock was down to 33 cents.
For the third quarter, Nortel posted a loss of $3.4 billion.