Moody’s Downgrade Will Prove Costly to Ailing BT

The two-notch move will cost the firm more than $25 million annually.
Ed ZwirnMay 10, 2001

British Telecommunications Plc has had its credit rating cut by Moody’s Investors Service, Reuters reports.

The late Thursday afternoon move came after the firm announced a 5.9 billion pound ($8.4 billion) rights issue and plans to split into two entities: “Future BT” and “BT Wireless.”

In addition to increasing future borrowing costs, the two-notch downgrade, to Baa1 from A2, will wind up costing BT at least $25 million annually. Issuing its $10 billion bond issue in December 2000, the firm was forced to promise a 25 basis point “step up,” or coupon increase, for each “notch” either Moody’s or Standard & Poor’s downgraded the debt below A3/A-minus.

Last week, S&P cut BT’s long-term debt to A-minus, from A.

According to the report, Moody’s also cut BT’s short-term rating to Prime 2, from Prime 1. This along with S&Ps roughly equivalent cut, to A2 from A1, will also make it more difficult or costly for the firm to borrow short term.

In August 2000, both ratings agencies had downgraded BT debt four notches, to A (S&P) and A2 (Moody’s), causing the firm to postpone borrowing plans until it hit the market with the December offering.

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