SOUTHERN BELL, SOUTH CENTRAL BELL 'AAA' DEBT FITCHALERT NEGATIVE -- FITCH FINANCIAL WIRE --
SOUTHERN BELL, SOUTH CENTRAL BELL 'AAA' DEBT FITCHALERT NEGATIVE
-- FITCH FINANCIAL WIRE --
NEW YORK, Feb. 19 /PRNewswire/ -- The 'AAA' debentures of Southern Bell Telephone & Telegraph Co. and South Central Bell Telephone Co. are placed on FitchAlert with negative implications.
BellSouth Corp. has merged its two telephone operating units, Southern Bell and South Central Bell, with BellSouth Services, Inc. to form a single entity called BellSouth Telecommunications, Inc. The credit quality of the two telephone companies will depend on the financial strength of the combined entity. The rated debt under review is still outstanding under the previous company names. Approximately $4.1 billion in Southern Bell debt and about $3.0 billion of South Central Bell debt are affected by the review. Fitch expects that a downgrade, if any, will not exceed two notches.
Credit quality measures have deteriorated over the last two years. Both companies also face a less supportive regulatory environment and more pronounced competitive threat for their revenue streams. The merger into BellSouth Telecommunications should produce some cost savings and efficiencies. Fitch will evaluate the degree to which these savings can materially offset weakening of other credit quality measures. Although the companies maintain strong debt ratios, Fitch believes that the operating environment is riskier. Fitch will assess BellSouth Telecommunications' ability to restore earnings and interest coverage to levels appropriate for the 'AAA' rating.
Eight of the nine states served by BellSouth have moved toward some form of incentive regulation. In an aggressive effort to take advantage of these incentive plans, the company has reduced staffing levels by 4,000 managers over the past year. While these regulatory plans offer some opportunity to improve financial performance, they have typically been accompanied by significant rate reductions. The alternative regulatory plans approved for the BellSouth companies have included rate reductions of more than $330 million. Fitch will evaluate the company's prospects for restoring credit quality through additional cost reductions and revenue generation.
Although financial results for the combined entity are not available, earnings at Southern Bell have been affected by the weakening regional economy and the impact of recent rate decreases. In Georgia, regulators required a $149 million rate reduction agreed as part of an incentive regulatory plan in that state. In the region served by South Central Bell, rate reductions have accompanied the approval of alternative regulatory plans in Mississippi, Tennessee, and Louisiana.
/CONTACT: Timothy Cain of Fitch, 212-908-0587/
(BLS) CO: Southern Bell Telephone & Telegraph Co.; South Central Bell
Telephone Co. ST: Georgia IN: TLS SU: RTG SM -- NY072 -- 0582 02/19/92 15:53 EST