Moody's downgrades BCE ratings

A leading U.S. credit rating agency has decided BCE Inc. is a slightly riskier bet because of its multibillion-dollar acquisitions this year of broadcaster CTV Inc.,and particularly of international long-distance provider Teleglobe Inc.

Moody's Investor Services Inc. of New York said yesterday it has lowered the Montreal-based holding company's issuer rating to A-3 from A-2 and its short-term rating on BCE's commercial paper program to p-2 from p-1.

Moody's said it believes BCE's "financial flexibility . . . has been strained" by the acquisitions of CTV (for $2.3-billion in cash) and of Teleglobe (for $9.65-billion in stock).

As well, while confirming Teleglobe's senior unsecured rating at Baaa1, the rating agency said it is changing its outlook on the company to "negative" from "stable." However, it is maintaining at "stable" its outlook for both BCE and key operating unit Bell Canada, and leaving Bell's debt ratings unchanged.

Bell, the dominant telephone company in Ontario and Quebec, still accounts for the bulk of BCE, and "Bell Canada is very strong," said Moody's senior analyst James Veneau.

The rating agency said it does not expect Toronto-based CTV to "represent much of a burden" going forward. However, it argued that the task of turning around Teleglobe's "sagging operations" in the midst of a $6.7-billion network expansion "could strain BCE's financial resources."

Indeed, Moody's said it figures there is a "reasonably high" likelihood that Montreal-based Teleglobe will need to spend more than $6.7-billion to finish the network.

However, it also said the additional strain from Teleglobe is "partially offset" by BCE's plans to dispose of its remaining 2-per-cent interest in networking equipment giant Nortel Networks Corp. of Brampton, Ont.

BCE officials appeared unperturbed by the Moody's action.

"This is not unexpected for us," BCE spokesman Don Doucette said. "This is the first time they've looked at us since February of 2000, and obviously since then . . . there have been some changes to our capital structure."

The most important thing from BCE's point of view, he said, is that the one-notch downgrade came at the holding company level while the ratings of operating companies Bell and Teleglobe have remained unchanged.

"That's essentially where the debt is raised," he said.

"We don't raise debt at the BCE level."

In a deal set to close early next year, BCE is also acquiring a controlling interest in The Globe and Mail, which it plans to combine with CTV and its Internet content business in a separate media company partly owned by Toronto-based Thomson Corp. and the Thomson family.