Europe: Alcatel-Lucent high yield bonds, shares firm on reports of Nokia tie-up

Alcatel-Lucent 8.5% notes due 2016 are slightly firmer this morning on the back of news reports that Nokia is considering a tie-up with the company, according to sources. The bonds are variously quoted, with some desks marking them between 111.75-112, while others have a bid-offer spread of 112/114, sources added. Various reports suggest a combination between the Finnish mobile hardware group and Alcatel-Lucent’s mobile-phone networks business.

Alcatel-Lucent shares are up 5.68% so far today, while Nokia’s shares are up 0.76%. Five-year CDS referencing Nokia is currently at a market mid-price of 220, having tightened from around 517 prior to announcing its asset sale to Microsoft earlier this month. Five-year CDS referencing Alcatel-Lucent is quoted at around 440, which is tighter from the 500-550 quotes seen in August.

Neither company has issued an official statement regarding a potential tie-up, but market analysts note that broadly speaking, the combination would make strategic sense.

Nokia is currently rated B+ watch positive, B1 developing, and BB- rating watch positive at Standard & Poor’s, Moody’s, and Fitch, respectively. All three agencies currently view Nokia’s divestment of its devices and services business to Microsoft as positive for the credit. On Sept. 2, Microsoft agreed to pay Nokia €3.79 billion cash for the business, plus an additional €1.65 billion in cash to license Nokia’s patents.

Meanwhile, Alcatel-Lucent is undergoing a corporate restructuring via its “Shift Plan,” to cut costs and generate cash through asset sales. It is rated B- stable and B3 outlook negative at S&P and Moody’s, respectively. On Sept. 3, S&P upgraded the issue rating on Alcatel’s unsecured notes to CCC+ following its partial repayment of secured debt. – Sohko Fujimoto

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