Banks Amend Loan Contracts With Lucent

Lucent Technologies Inc.’s banks agreed Thursday to amend their loan agreements with the troubled telecommunications giant, allowing the company to proceed with its restructuring effort--including massive new job cuts.

The new loan covenants also will let Lucent complete its spinoff of Agere Systems, its semiconductor and optical-components division that it took public earlier this year. But the spinoff will take longer.

Murray Hill, N.J.-based Lucent said its lenders, led by J.P. Morgan and Salomon Smith Barney, will let the company take significant charges against earnings to cover expenses associated with its aggressive cost-cutting plan.

Typically, lenders require companies to maintain minimum earnings levels to continue qualifying for credit. Those minimums were revised by the banks in their agreement covering $4 billion in debt.

“These revised covenants and conditions are definitely achievable, given reasonable market conditions,” said Frank D’Amelio, Lucent’s chief financial officer.

Since 1999, Lucent, the AT&T; spinoff considered a superstar firm in the late 1990s, has lost sales to competitors. The economy’s slowdown this year has added to its problems.

After announcing a $3.25-billion fiscal third-quarter loss last month, Lucent said it planned more cost-cutting, including the reduction of another 15,000 to 20,000 jobs and the elimination of its quarterly dividend of 2 cents a share.

The new layoffs follow a vast decrease in the company’s work force earlier this year. Lucent already has slashed 19,000 jobs since January, leaving it with about 87,000 employees. That does not include jobs lost through the Agere spinoff and the sale of other parts of the firm’s business.

Lucent expects such efforts to reduce costs by $2 billion a year and return the company to profitability by next year.

The company expects to take a charge in the current quarter of $7 billion to $9 billion to pay for write-offs associated with its continuing restructuring.

The banks said Lucent must achieve positive operating earnings (defined as earnings before interest, taxes, depreciation and amortization) before it can proceed with the remaining Agere spinoff. They also require that Lucent raise $5 billion in cash before the spinoff is completed, up from a previous requirement of $2.5 billion.

These changes will delay the full spinoff by as much as six months from the original target date of Sept. 30.

In addition, Lucent said it cannot resume payment of common stock dividends unless it meets certain credit ratings or levels of operating earnings.

After the loan agreements were announced, credit-rating agency Standard & Poor’s said it removed Lucent bonds from a “watch” list of securities that could be downgraded.

Lucent shares (ticker symbol: LU) rose 10 cents to close at $6.32 on the New York Stock Exchange before the bank agreement was announced. The stock gained another 18 cents in after-hours trading.

Agere shares (AGR/A) added 5 cents to $5.05 in regular NYSE trading.