A day after its escape plan went up in smoke, Lucent (LU Quote - Cramer on LU - Stock Picks) reminded investors why it needed help in the first place.
Australian phone service upstart One.tel said Wednesday it was talking with creditors after its funding collapsed, leaving it near bankruptcy. Lucent had previously agreed to provide up to $500 million in equipment financing to One.tel, which is 47% controlled by an investment team headed by News Corp.'s (NWS Quote - Cramer on NWS - Stock Picks) Rupert Murdoch. The amount of the loan that One.tel has actually drawn down wasn't disclosed, and Lucent didn't immediately return calls seeking comment. But in the wake of the collapse of merger talks with Alcatel (ALA Quote - Cramer on ALA - Stock Picks), Lucent's loans to struggling telecom companies will draw renewed attention from investors. The company has been the most generous of the network equipment makers in extending loans, and as upstart network builders fail, problem credits will inevitably pile up, analysts say. These losses could further drain a company whose debt load and operating problems are already burdensome. Lucent fell 18 cents to $8.14 Wednesday.Problems
"The market and the analysts think the worst is over, and I don't think that's true," says Cecilia Ricci, a finance professor at New Jersey's Montclair State University. "I think the worst is yet to come. There will be a lot more companies having problems, especially if we are heading for a worldwide slowdown." In 1999, Lucent agreed to supply One.tel with $563 million worth of wireless infrastructure equipment. In winning the contract, Lucent promised to provide the Australian company with cash to buy gear to build out its network. Lucent bet that One.tel would become successful enough to repay the loan and, someday, order more gear. But the intervening years have shown that lots of small telecom companies never got that far. Ricci and others point to the example of Winstar, a New York-based telecom network builder that last month filed for bankruptcy, leaving Lucent holding the bag to the tune of $500 million in bad loans. And it could have been worse, analysts note: Lucent had committed to lend Winstar up to $2 billion.| Banks Are Open Vendor financing commitments at Lucent, by year | ||||||
| (figures in millions of dollars) | 2000 | 1999 | 1998 | 1997 | 1996 | 1995 |
| Loan Commitments | $7,300 | $7,118 | $2,622 | $1,898 | $156 | $16 |
| Loans Drawn Down | 1,800 | 1,574 | 536 | 25 | 7 | 13 |
| Co-signed Loans | 1,800 | 420 | 292 | 309 | 494 | 598 |
| Co-signed Loans Drawn Down | 740 | 312 | 205 | 118 | 346 | 296 |
| Source: Securities and Exchange Commission filings | ||||||



