Alcatel-Lucent -- Moody's places Alcatel-Lucent's B2 ratings on review for downgrade

Frankfurt am Main, November 20, 2012 -- Moody's Investors Service has today placed the B2 ratings of Alcatel-Lucent ("ALU") on review for downgrade.

A full list of affected ratings is provided towards the end of this press release.

RATINGS RATIONALE

"Today's announcement reflects our growing concerns about ALU's lack of improvement during the third quarter of the year, as well as our diminished expectations in terms of the group's operating profitability and cash flow generation for the second half of 2012 as a whole," says Roberto Pozzi, a Moody's Vice President - Senior Analyst and lead analyst for Alcatel-Lucent.

Alcatel's current B2 corporate family rating (CFR) primarily reflects (1) the generally subdued investment spending of telecom carriers in some developed markets; (2) pricing pressure for manufacturers of telecommunications equipment as a result of major competitors' strategies to increase their market share; and (3) the challenge for ALU to contain its cash consumption, with the group having consumed cash of approximately EUR1 billion in the first nine months of 2012 (as reported), and facing EUR2.1 billion of debt maturities from June 2013 to January 2015.

However, more positively, the B2 CFR also reflects Alcatel's (1) strong customer relationships and the large installed base supporting its market shares; (2) broad and advanced product offering, complemented by services that make the group relevant for key customers of various communication technologies; (3) strategy to continue reducing its expenses and streamlining its product portfolio; and (4) currently adequate liquidity position.

FOCUS OF THE REVIEW

In its review, Moody's will focus on ALU's ability to restore adequate profitability, with operating margins in the mid-single digits, and positive free cash flow generation. Also, to maintain its current rating, Moody's would expect the group to have an adequate liquidity buffer to cover its debt maturities over the next two years (equivalent to the rating agency's indication of cash and cash equivalents of at least one third of gross adjusted debt).

Any potential downgrade as a consequence of the rating review is likely to be limited to one notch.

. WHAT COULD CHANGE THE RATING UP/DOWN

Given the review for downgrade, Moody's does not expect upward rating pressure in the short to medium term.

Moody's could downgrade the rating if (1) the operating margin (as adjusted by Moody's) does not trend up towards a mid-single-digit margin, (2) if ALU fails to reduce negative cash flow from continuing operations to below EUR 300 million in 2012 with a trend towards positive thereafter, or (3) if cash and cash equivalents were to decline below one-third of gross adjusted debt.

Ratings placed on review include:

Issuer: Alcatel-Lucent

B2 corporate family rating

B2 probability of default rating

B3 senior unsecured conv./exch. bond/debenture

B3 senior unsecured regular bond/debenture

Issuer: Lucent Technologies, Inc.

Caa1 senior unsecured backed conv./debenture

The principal methodology used in rating Alcatel-Lucent and Lucent Technologies, Inc. was the Global Communications Equipment Industry Methodology published in June 2008. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Paris, France, Alcatel-Lucent is a leading developer and manufacturer of telecommunications equipment, with sales of approximately EUR15.3 billion for fiscal year 2011.

REGULATORY DISCLOSURES

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Roberto Pozzi Vice President - Senior Analyst Corporate Finance Group Moody'sDeutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Matthias Hellstern Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Deutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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