MOODY'S LOWERS LONG-TERM DEBT RATING OF GTE CORPORATION (SR. TO Baa1); RATINGS REMAIN UNDER REVIEW FOR POSSIBLE DOWNGRADE ALONG WITH SHORT-TERM RATING OF PARENT AND ALL DEBT RATINGS OF TELEPHONE SUBSIDIARIES
New York, 10-16-97 -- Moody's Investors Service has lowered the long-term debt and preferred stock ratings of GTE Corporation (GTE) and its financially supported subsidiaries, GTE Delaware, L.P., GTE Corp. Savings Plan Trust and GTE Finance Corporation. Additionally, these ratings remain under review for possible further downgrade. The Prime-2 short-term rating of GTE Corporation and the long and short-term debt ratings of all its telephone subsidiaries are also placed under review for possible downgrade. These actions are based on Moody's belief that GTE's proposal to acquire all of the outstanding common shares of MCI Communications Corporation (MCI) for about $28 billion in cash represents a change in business strategy which can only be accomplished by an increase in GTE's financial risk. Moody's believes that in the changing telecommunications environment of the next few years, the long-term debt ratings of GTE Corporation will be rated no higher than Baa1 whether or not this transaction is consummated. The ratings reviews covering MCI, British Telecommunications, plc, and WorldCom, Inc remain in effect.
Moody's notes that GTE's offer for MCI is in a preliminary stage and competes with two prior offers to purchase MCI. Nevertheless, Moody's said that the all cash nature of GTE's proposal may enhance its attractiveness to shareholders of MCI when compared to the large stock component included in the competing offers.
Moody's believes that GTE's new strategy significantly increases its financial risk profile. Should the bid be successful in its current structure, it poses material downgrade risk for the credit ratings of the affiliated telephone companies. However, given the strong market positions and healthy financial profiles of those operations, they are likely to remain at least upper medium investment grade credits.
Moody's review of the parent company will focus on the deal closing in its current structure, the potential for and possible role of a strategic business partner in the future development of GTE's plan, how the new strategy reflects GTE's view of the evolving telecommunications industry, and GTE's ability to integrate MCI's existing corporate initiatives into the new enterprise. Moody's will also evaluate, the degree of financial flexibility which the new entity will possess, GTE's plan for debt reduction, the potential synergies arising from the proposed combination, and will consider the ability to fund the common stock dividend from internal sources. We also intend to factor into our analysis the legislative and regulatory policy implications of an integrated telecommunications provider with the scope and financial resources of the new GTE.
Moody's expects that the domestic telephone subsidiaries will continue to finance on a stand-alone basis. Nevertheless, the magnitude and structure of the offer creates significant uncertainty as to whether the existing financial philosophy and management of the telephone companies is compatible with GTE's new strategic vision.
Ratings downgraded are:
GTE Corporation --senior unsecured debentures and senior unsecured notes, to Baa1 from A3; shelf registration of preferred stock, to (P)"baa2" from (P)"baa1"; shelf registration of junior subordinated debentures, to (P)Baa2 from (P)Baa1; and the company's counterparty rating, to Baa1 from A3.
GTE Delaware, L.P. -- monthly income preferred shares, to "baa2" from "baa1".
GTE Corp. Savings Plan Trust --guaranteed ESOP notes, to Baa1 from A3.
GTE Finance Corporation --Swiss bonds, Swiss notes, Eurobonds, variable rate Euronotes, and medium-term notes, to Baa1 from A3.
Ratings under review for downgrade include the all the above and:
GTE Corporation -- Prime-2 short-term debt rating. GTE North Incorporated – first mortgage bonds, at Aa3; debentures, rated A1; Shelf registration of debt securities, rated, (P)A1; Telephone Facility Lease Bonds, rated, A1; preferred stock, rated, "aa3"; and Commercial paper, rated, P-1.
GTE Northwest Incorporated – first mortgage bonds, at A1; debentures, rated A2; Shelf registration of debt securities, rated, (P)A2; and Commercial paper, rated, P-1.
GTE California Incorporated – first mortgage bonds, at Aa3; debentures, rated A1; Shelf registration of debt securities, rated, (P)A1; and Commercial paper, rated, P-1.
GTE Hawaiian Telephone Company, Inc. -- first mortgage bonds, at Baa1; and debentures, rated Baa2.
GTE Southwest Incorporated – first mortgage bonds, at A1; debentures, rated A2; Shelf registration of debt securities, rated, (P)A2; and Commercial paper, rated, P-1.
GTE South Incorporated – Debentures, rated A3; Shelf registration of debt securities, rated, (P)A3; and Commercial paper, rated, P-1.
GTE Florida Incorporated – Debentures, rated A2; and Commercial paper, rated, P-1.
GTE Midwest Incorporated – Commercial paper, rated, P-1.
GTE Funding Incorporated -- Commercial paper, rated, P-1.
GTE Corporation, headquartered in Stamford, Connecticut, is the largest U.S. based local telephone company and fourth-largest publicly held telecommunications company in the world. Its domestic and international wireline operations serve over 24 million access lines in 28 states, Canada, the Dominican Republic and Venezuela. Its wireless networks serve a potential 82 million customers mainly in North and Latin America.
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