Printer Friendly

BELLSOUTH TELECOM DEBT DOWNGRADED TO 'AA+' BY FITCH -- FITCH FINANCIAL WIRE --

 BELLSOUTH TELECOM DEBT DOWNGRADED TO 'AA+' BY FITCH
 -- FITCH FINANCIAL WIRE --
 NEW YORK, April 15 /PRNewswire/ -- The debenture issues of BellSouth Telecommunications, Inc., (Southern Bell Telephone and Telegraph Co. and South Central Bell Telephone Co.), are lowered to 'AA+' from 'AAA' by Fitch. Approximately $6 billion in debt is affected by the downgrade. BellSouth Telecommunications (BellSouth Telecom) was formed from the merger of South Central Bell and BellSouth Services with Southern Bell. The credit trend is stable. The debt is removed from FitchAlert negative, where it was placed on Feb. 19.
 The downgrade reflects the company's uncertain prospects for sustainable improvement in credit quality. Based on Fitch's analysis of expected financial performance, the recovery in financial protection measurements is not anticipated to reach levels consistent with Fitch's 'AAA' telephone standards. Moreover, the decline in credit quality measures over the past three years is not consistent with the stable, predictable financial performance expected of 'AAA' rated companies.
 Despite material improvement in earnings and interest coverage this year, Fitch expects some pressure on financial protection measures as current regulatory plans undergo review over the next several years. The lower debt rating also reflects the uncertain economic outlook for the region and the gradual growth in competition for previously sheltered revenue streams.
 While the company's cash flow and capital structure are above- average, other financial protection measures have weakened considerably. Earnings and pretax interest coverage have remained below the exceptional levels required for the 'AAA' rated telephone companies. In a riskier environment, consistently strong credit quality measures are necessary for the 'AAA' rating.
 Pretax interest coverage declined to about 4.2x (times) in 1991 from 4.6x in 1990, and return on average equity was 12.5 percent, down from 14.0 percent in 1990. The company's debt ratio remained strong at 38.8 percent at year-end 1991, only slightly weaker than the 38.5 percent at year-end 1990.
 Strong economic growth is important for optimal performance under the alternative regulatory plans. Although Fitch anticipates gradual improvement in the regional economy, it is unlikely that growth in demand for telephone services will be as rapid or robust as in recent years.
 Earnings and credit quality will benefit this year from the early retirement of about 4,100 management employees during 1991. Although these staff cuts will help boost earnings, the company's current union contract expires in August. The company's cost control efforts will be challenged by wage increases in the new contract. In addition, the demand increases anticipated for next year will be accompanied by some increase in operating costs. While BellSouth provides a high level of service quality, the staff reductions, the company's network configuration, and the expected increase in demand may strain its ability to improve the quality of service. Several regulatory plans require the attainment of certain service quality goals. Improvement in service quality also is important for competitive reasons.
 Despite the earnings flexibility built into the regulatory plans, state regulation will remain a source of concern. Recent actions by state regulators to authorize or consider authorizing toll competition will further pressure profit margins. In the absence of local rate increases, earnings and credit strength therefore will depend on BellSouth Telecom's continuing efforts to reduce operating costs.
 BellSouth Telecommunications, a subsidiary of BellSouth Corp., is headquartered in Atlanta.
 -0- 4/15/92
 /CONTACT: Timothy Cain of Fitch, 212-908-0587/
 (BLS) CO: BellSouth Telecommunications Inc.; BellSouth Corp. ST: Georgia IN: TLS SU: RTG


KD -- NY067 -- 8696 04/15/92 12:25 EDT
COPYRIGHT 1992 PR Newswire Association LLC
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:PR Newswire
Date:Apr 15, 1992
Words:580
Previous Article:HERITAGE FINANCIAL SERVICES VOTES TWO-FOR-ONE STOCK SPLIT; DECLARES REGULAR QUARTERLY DIVIDEND
Next Article:PIONEER SAVINGS BANK ANNOUNCES STOCK SPLIT


Related Articles
SOUTHERN BELL, SOUTH CENTRAL BELL 'AAA' DEBT FITCHALERT NEGATIVE -- FITCH FINANCIAL WIRE --
PMI-INSURED "SUPER-SENIOR" MORTGAGE DEBT AFFIRMED, OFF FITCHALERT -- FITCH FINANCIAL WIRE --
/C O R R E C T I O N -- Fitch Investors Service/(Correction Notice)
Fitch IBCA: Market Turmoil Impact on Global Financial Institutions - Fitch IBCA -.
Fitch Dwngrs BellSouth Capital Funding And BellSouth Telecom.
Fitch Downgrades Brasil Telecom's International Ratings to 'BBB-'; Removed from Watch Negative.
UAE's ability to support banks weakened.
Credit rating of top UAE institutions downgraded.

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters