Alcatel-Lucent SA (ALU) started a sale of convertible bonds and bought back old debt as part of the French telecommunications network-equipment maker’s strategy of reducing financing costs.
Alcatel-Lucent is selling 550 million euros ($719 million) of bonds that can be converted into or exchanged for shares on July 1, 2018, with the figure rising to as much as 630 million euros should an over-allotment option be exercised before the start of July. The bonds have an interest rate of 4.25 percent to 5 percent, the Paris-based manufacturer said today in a statement.
Credit-default swaps for Alcatel-Lucent tumbled as much as 6.1 percent, the most in five months, to 657 basis points and were down 2.2 percent at 9 a.m. in London. The swaps fell last week to the lowest level since August 2011 after the manufacturer announced a cost-reduction strategy, which will include unspecified “adjustments” to its global workforce of 72,000 employees.
“This is very much in line with their plan of re-profiling near-term debt, which they discussed last week when they unveiled their shift plan,” said Robert H. Jaeger, an analyst Societe Generale SA in London. “They will remain opportunistic with regard to further refinancing opportunities.”
Chief Executive Officer Michel Combes outlined a three-year plan a week ago to sell more than 1 billion euros of assets and cut spending to restore profit after seven years of restructuring and two changes in CEO failed to revive earnings. Alcatel-Lucent has credit ratings of B3 at Moody’s Investors Service and B- at Standard & Poor’s, both six steps below investment grade.
Each bond in the new sale can be converted into one new or existing Alcatel-Lucent share, and they can be exchanged for stock when the shares rise 30 percent to 37 percent from the current price, the manufacturer said.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point on a contract protecting 10 million euros of debt for five years is equivalent to 1,000 euros a year.
Alcatel-Lucent shares fell as much as 4.8 percent to 1.29 euro and were trading down 3.5 percent at 10:03 a.m. in Paris, the fifth consecutive day of declines. That pared the stock’s gain this year to 30 percent, valuing the company at 3.04 billion euros.
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