Nortel debt rating nearly junk, says Moody's

Credit rating agency analysts at Moody's have slashed Nortel Networks' credit rating to just one notch above 'junk'.

And a Moody's spokesman warned that Nortel's debt ratings could sink even lower due to the ongoing slump in the telecoms markets.

But Moody's noted that Nortel was not in a bad way and had a "a solid liquidity position", $3.5bn in cash, no on-balance sheet short-term debt and a strong position with the banks.

The decision to downgrade Nortel came after Lucent Technologies told the market that its quarterly sales were down still further and that it would not be profitable until next year.

Weak demand and long haul carriers slashing budgets, which represented a substantial percentage of Nortel's revenue, resulted in a material cutback in its spending plans, at least for this year.

Moody's did not believe that a recovery in the telecoms equipment markets would happen for some time, as major providers would have to cut prices to attract the bigger carriers.

The agency will review the credit rating when Nortel cuts costs and has started to generate cash. It also said it would look at Nortel's ability to "accurately identify and satisfy the equipment needs of its customer base".

Shares in Nortel fell six per cent in afternoon trading on the back of the news.