MOODY'S LOWERS THE DEBT RATINGS OF CORNING INCORPORATED (SR TO A3, SHORT TERM TO PRIME-2)
New York, 12-24-96 -- Moody's Investors Services lowered the long term and short term debt ratings of Corning Incorporated concluding its review commenced in May, 1996 after the announcement by Corning that it would spin-off Corning Clinical Laboratories, Inc. and Corning Pharmaceutical Services Inc. to shareholders ("Distributions"). The rating actions are based on the impact that the Distributions have on Corning, resulting in reduced cash flows, high leverage, and relatively small capital base, coupled with large capital expenditure requirements to support the company's ongoing businesses in the near-to-intermediate term.
Ratings lowered are: senior unsecured long term rating for debentures, medium term notes, and IRBs to A3 from A2; the short term debt rating to Prime-2 from Prime-1; and the preferred stock rating of Corning Delaware L.P. to "baa1" from "a3".
Moody's views the Distributions positively, because it refocuses Corning's efforts in its core competencies. Continued growth in worldwide demand for optical fiber and cable will drive the profitability in the Communications business segment, where the company is capacity constrained. A major expansion is underway that will come onstream in 1998. However, additional expansion plans industrywide may disrupt the existing positive supply/demand imbalance, delaying Corning's return to solid financial performance. Specialty Materials business segment has modest growth prospects shaped by North American and European vehicle build rates. The rating agency noted that Consumers Products continues to underperform, which will be addressed in 1997.
By the time of the Distributions at December 31, 1996, Corning will have an investment in equity and intercompany debt of Quest Diagnostics Incorporated (formerly Corning Clinical Laboratories Inc.) and Covance Inc. (formerly Corning Pharmaceutical Services Inc.) of approximately $1.8 billion. Proceeds from the bank and debt markets of about $600 million raised at the spunned companies will be used to retire intercompany debt. The remaining $1.2 billion will be charged to Corning's equity which was over $2 billion at September 30, 1996, resulting in a Debt/Capitalization ratio in the range of 40-44% depending upon the amount of external debt paydown and fourth quarter earnings. Moody's treats the convertible preferred securities of Corning Delaware L. P. as debt which causes Debt/Capitalization to rise to the 50-56% range on an adjusted basis. Further adjustments for operating leases would exacerbate Corning's strained balance sheet. In addition, heavy capital expenditures to support major expansion in fiber optic cable production, continued share repurchases, and dividends requirements will leave little free cash flow to further reduce debt in the near-to-intermediate term. Litigation concerns and double leverage associated with equity companies further adversely impact debtholder protection measures.
Corning Incorporated, headquartered in Corning, NY, focuses in three business segments: Specialty Materials, Communications, and Consumer Products through a global network of businesses, subsidiaries, and equity-venture companies.
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