DBRS Upgrades Nortel's Debt Trend

Citing Nortel’s (NT) “revitalization efforts and its improved business model,” DBRS changed its trend on the company’s debt to “positive” from “stable,” while confirming its B (low) rating for Nortel’s short and long-term debt. DBRS also established an issuer rating for Nortel at B (low).

The foundation for growth at Nortel has been developed by a largely new management team over the past two-and-a-half years and, as DBRS has noted previously, the management team, under the direction of CEO Mike Zafirovski, has made significant progress in stabilizing the Company. DBRS now believes the Company has in place a foundation upon which management can begin to profitably grow its businesses.

DBRS is encouraged by Nortel’s optimism for growth in the enterprise and Metro Ethernet segments to replace declining wireless sales as customers start to migrate their GSM and CDMA network to 4G and LTE. DBRS expects the CDMA market, which accounts for most of Nortel’s profits, to decline by 4% a year for the “foreseeable future.”

In order to offset this decline in its main cash generating engine, Nortel has rebuilt the other segments in its portfolio and will rely on them to achieve its objectives of (1) double-digit operating margins, (2) strong cash generation, and (3) revenue growth greater than the market.

For more details, check out the DBRS Web site. As well, Seeking Alpha’s Larry MacDonald has a post on changing analyst sentiment towards Nortel.