Nortel’s Credit Rating Unchanged

Dominion Bond Rating Service recently put out a research report in the wake of Nortel’s completion of a $2-billion debt refinancing. DBRS is maintaining its unsecured rating of Nortel at B (low), reflecting:

“heightened concerns about Nortel’s ability to improve operating performance despite implementing a strategy to improve its competitive position over the medium term. DBRS’s concerns are predominantly attributable to revenue and margin pressures resulting from customer consolidation and the increasing presence of emerging-market vendors in the wireline and wireless segments, both of which negatively impacted Q1 2006 results.”

Among Nortel’s many challenges, DBRS said it is concerned competition within the telecom equipment market is still fierce, particularly from low-cost competitors such as China’s Huawei Technologies Co. and ZTE Corp.

“This could have an adverse affect on Nortel’s ability to maintain profitability despite the implementation of cost reduction initiatives. In addition, recent consolidation amongst more established telecom vendors could put Nortel at a significant disadvantage in terms of size and scale, and could limit strategic initiatives that Nortel could otherwise potentially contemplate with other telecom vendors.”