Moody's downgrades C&W bonds

NEW management at Cable & Wireless has been given a resounding thumbs-down from ratings agency Moody's, which has further downgraded its junk rating on the telecoms group's bonds.

The downgrade accompanied a withering attack on the strategy of Richard Lapthorne, the ex-BAE Systems executive brought in as chairman to turn the company round from the excesses of the reign of ousted chief executive Graham Wallace.

Moody's concerns include:

The expanded restructuring plan with C&W's decision to quit the US completely, which has heightened the uncertainty over ultimate exit costs.

Increased doubt over the ability of the company to execute the restructuring.

Continued uncertainty on whether the restructuring will actually enhance C& W's prospects.

The likely drag on profits of having to fund a pension deficit that has increased to £578m.

The news sent C&W shares down 3p to 116p, extending their fall to more than 6% over the past 24 hours.

The downgrade from Ba1 to Ba3 - with a negative outlook - affects more than £900m of C&W issued bonds, including the £258m in convertible bonds issued last month to increase liquidity.

'While acknowledging the strategic rationale for the company's restructuring objectives, the revised plan involves a number of challenges as the company must manage redundancies and exit lease contracts while maintaining service levels for multinational customers in a cost-effective manner,' said Moody's.

'The restructuring initiative will also require a significant amount of management's time which could otherwise be focused on the company's continuing operations.'