Moody’s downgrades Avaya rating, citing challenges presented by purchase of Nortel unit

Moody’s lowers Avaya rating

NEW YORK — Moody’s Investors Service on Monday lowered its corporate family rating on telephone and computer software company Avaya Inc., citing challenges the company faces in the wake of its purchase of Nortel Networks Corp.’s enterprise solutions unit.

Moody’s said the downgrade to “B3″ — six notches into junk-grade — from “B2″ also reflects the additional $1 billion in debt privately held Avaya took on in purchasing Nortel Enterprise Solutions. Avaya agreed in September to buy the company for $900 million plus $15 million to cover an employee retention program.

Toronto-based Nortel has been selling its operations piece by piece since it filed for credit protection in January. Avaya expects its acquisition to close this month.

Moody’s said the purchase could help Avaya improve its position in the enterprise voice system market, but that the risks posed by the deal call for a lower rating. The ratings service also downgraded Avaya’s probability of default rating to “B3″ from “B2.” It lowered ratings for several loans and lines of credit as well.

Moody’s ratings outlook for Avaya is “Stable.”