SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
June 5, 2002
Date of report (Date of earliest event reported)
AT&T CORP.
(Exact Name of Registrant as Specified in Charter)
NEW YORK 1-1105 13-4924710
(State or Other (Commission File (IRS Employer
Jurisdiction Number) Identification No.)
of Incorporation)
295 North Maple Avenue, Basking Ridge, New Jersey 07920
(Address of Principal Executive Offices, including Zip Code)
(908) 221-2000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
ITEM 5. OTHER EVENTS.
On May 29, 2002, Moody's Investors Service ("Moody's") lowered its ratings of
long-term debt issued or guaranteed by AT&T to Baa2 from A3. Moody's also
confirmed AT&T's short-term rating as Prime-2. Moody's ratings outlook for AT&T
remains negative but AT&T is not currently on review for any additional
downgrade by Moody's. On June 3, 2002, Fitch Ratings also downgraded AT&T's
long-term debt rating to BBB+ from A-, with the rating remaining on Rating Watch
Negative pending completion of the AT&T Comcast transaction. AT&T's long-term
debt ratings remain BBB+ and CreditWatch with negative implications by Standard
& Poor's Ratings Group ("Standard & Poor's"). Further ratings actions could
occur at any time.
Any downgrade by either Standard & Poor's or Moody's increases, by one-quarter
of one percent (0.25%) for each ratings notch downgraded by either agency, the
interest rates paid by AT&T on approximately $10.1 billion of long-term debt,
which would increase AT&T's interest costs by approximately $25 million per year
for each such ratings notch downgrade by either rating agency. As a result, the
Moody's downgrade referred to above will increase by one-half of one percent
(.50%) the interest rates paid by AT&T on approximately $10.1 billion of
long-term debt, which will increase AT&T's interest costs by approximately $50
million per year. Any ratings downgrade by Standard & Poor's would also increase
such interest costs by one-quarter of one percent (0.25%) for each ratings notch
downgrade.
In addition to the increased interest costs on the $10.1 billion offering
referred to above, AT&T could incur increased costs in the replacement or
renewal of its credit facility and refinancings of approximately $5 billion of
debt through March 31, 2003. Assuming current market conditions and assumptions
regarding the type of financing available, the additional annualized cost
increases could approximate $100 million, although it is not possible to predict
the actual amount of any such interest cost increase as a result of a rating
notch downgrade. Additional ratings downgrades could result in greater interest
rate increases for each notch downgrade. In addition, interest expense could be
higher in subsequent periods than it otherwise would have been as additional
maturing debt is replaced by debt with higher interest rate spreads due to the
lower credit ratings. Also, in addition to interest rates, differences in credit
ratings affect the amounts of indebtedness, types of financing structures and
debt markets that may be available to AT&T.
As a result of the Moody's downgrade, AT&T will seek to replace or renegotiate
all or a portion of its $8 billion 364-day term bank facility that expires in
December 2002, since the facility (under which no amounts are currently drawn)
currently provides among other things that AT&T could not consummate the AT&T
Comcast transaction unless after giving effect thereto AT&T's long-term debt
would be rated at least Baa1 by Moody's. In this regard, AT&T is currently in
discussions with respect to a substitute facility with a group that includes
affiliates of certain members of the underwriting syndicate for AT&T's pending
equity offering, although there are no assurances with respect to the success of
such negotiations.
Also, AT&T is a party to an approximately $200 million lease that contains a
provision comparable to that set forth in the 364-day term bank facility. As a
result, AT&T will be required to either renegotiate the terms of that lease or
repay the lessor thereunder.
As previously disclosed, on May 10, 2002, AT&T Broadband Group filed a demand
for arbitration against CSG Systems, Inc. before the American Arbitration
Association. On May 30, 2002, CSG answered and submitted counterclaims against
AT&T Broadband.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: June 5, 2002
AT&T CORP.
By: /s/ Marilyn J. Wasser
-------------------------------------
Name: Marilyn J. Wasser
Title: Vice President - Law and
Secretary