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Marconi falls on rating cut
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September 6, 2001: 9:27 a.m. ET
Woes mount for UK telecom company Marconi as credit rating slashed
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LONDON (CNN) - Marconi shares continued to crumple after credit rating company Standard & Poor's cut its rating on the company's bonds to junk status.
Shares of the UK telecoms equipment maker slumped 13.8 percent on Thursday after S&P lowered its verdict on the firm's bonds. That followed Marconi's second profit warning in two months, released earlier this week.
S&P's ratings indicate their analysts' view of the risk that a given company will be unable to redeem its bonds, which are tradable debt securities. A lower rating means the bonds are seen as relatively more risky.
The S&P downgrade put Marconi's debt in the junk-bond bracket, a class many investment funds are unwilling to own. Many money managers are forced to sell a company's bonds if they fall into this category.
The risk attached to Marconi's ability to redeem its bonds was judged to have grown after the company's borrowings jumped to nearly £4.5 billion and profit evaporated. S&P's lowerd its rating on the company's long-term debt to "BB".
Marconi's 6.375 percent euro-denominated bonds, due to expire March 2010, changed for just 50 percent of their face value on Thursday following the S&P cut, traders said.
Shares in Marconi, which this week also ousted its chief executive and chairman and cut 2,000 jobs, are now worth less than three percent of last year's peak value. The stock looks certain to be kicked out of the London market's benchmark FTSE 100 index later this month.
Worsening picture
S&P joined other analysts in casting doubt on Marconi's ability to reach its target of cutting debt by up to £3.2 billion by March.
The credit rating agency said in a statement: "Given that Marconi's revised year-end debt guidance assumes substantial cash inflows from non-core asset sales, working capital reduction and operational profits, there is a risk that year-end debt could materially exceed forecasts."
Earier this week, Marconi admitted it would make a loss in the six months ending September 30, a statement that was accompanied by the resignation of Chief Executive George Simpson and Chairman Roger Hurn.
Shares of telecom operators and makers of network equipment have dived in value over the past year amid the global economic downturn, reflecting concern about huge debts racked up via of high levels of investment in future telecom services.
Investors are increasingly wary about the profitability of the services the companies are hoping to introduce. For equipment makers, that could lead to cuts in planned investments by their customers, the network operators. 
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