Press Release: S&P Upgrades Nokia To 'BB '; Outlook Positive Font size: A | A | A 10:28 AM ET 4/17/15 | Dow Jones

The following is a press release from Standard & Poor's:

-- Finland-Based technology company Nokia reported better results than we

expected in 2014 and is likely to continue to do so in 2015.

-- We view Nokia's proposed merger with French-American

telecommunications equipment supplier Alcatel-Lucent overall as potentially

credit-positive in the medium term.

-- We are therefore raising our long-term corporate credit rating on

Nokia to 'BB+' from 'BB'.

-- The positive outlook reflects the potential for a one-notch upgrade if

the combined entity is able to demonstrate revenue growth about in line with

the industry, Standard & Poor's-adjusted EBITDA margins of about 10%, as well

as sustainable positive discretionary cash flow.

FRANKFURT (Standard & Poor's) April 17, 2015--Standard & Poor's Ratings

Services today raised its long-term corporate credit rating on Finnish

technology company Nokia Corp. to 'BB+' from 'BB'. The outlook is positive.

We also affirmed the 'B' short-term rating on Nokia.

At the same time, we raised our issue rating on Nokia's senior unsecured notes

to 'BB+' from 'BB'. The recovery rating is '3', indicating our expectation of

meaningful recovery (in the lower half of the 50%-70% range) in the event of a

payment default.

The upgrade primarily reflects Nokia's solid operating results and free cash

flow generation in 2014 and resilient prospects for 2015, which are better

than we expected in our previous base case. As a result, we have raised our

business risk assessment to "fair" from "weak" and will deduct surplus cash

from Nokia's Standard & Poor's-adjusted gross debt obligations going forward.

In addition, we expect the company will continue to follow a conservative

financial policy, including the maintenance of a strong net cash position. At

year-end 2014, Nokia reported gross cash and short-term investments of EUR7.7

billion and a net cash position of EUR5.0 billion.

Furthermore, despite being margin-dilutive and creating meaningful integration

challenges in the near term, we view the proposed merger with French-American

telecommunications equipment supplier Alcatel-Lucent overall as potentially

credit-positive in the medium term. This is because the transaction is

structured as an all-share transaction. In addition, in the fourth quarter of

2015, Nokia intends to use the soft call option for its EUR750 million

convertible bond due 2017, and we expect all of Alcatel-Lucent's outstanding

convertible bonds to be converted into equity and exchanged with newly issued

ordinary shares of Nokia.

In our view, the combined entity will have a more diversified business

portfolio and will be one of the market leaders in wireless, fixed-line

access, internet protocol (IP) routing and fiber optics transmission, and core

network technologies. In addition, the enlarged group's profitability should

benefit from sizable cost synergies over the next few years, particularly for

research and development (R&D) expenses in wireless operations.

The transaction is expected to close in the first half of 2016. Post the

closing, Alcatel-Lucent shareholders will own about 33.5% of the combined

group.

The positive outlook reflects the potential for a one-notch upgrade in about

12-18 months if Nokia successfully executes the proposed merger with

Alcatel-Lucent, is likely to achieve the targeted cost synergies, and

maintains a very conservative balance sheet.

We could raise the rating if the combined entity is able to demonstrate

revenue growth about in line with the industry, Standard & Poor's-adjusted

EBITDA margins of about 10%, as well as sustained positive discretionary cash

flow. In addition, an upgrade would be supported by a Standard &

Poor's-adjusted debt-to-EBITDA ratio of below 1x and FFO to debt above 65%.

We could revise the outlook to stable if the combined entity is likely to

report Standard & Poor's-adjusted EBITDA margins sustainably below 10% due to

strong competitive price pressure, market share losses, or higher than

expected restructuring costs. In addition, significant negative discretionary

cash flow generation or a meaningful deterioration of the group's net

financial cash position could lead us to revise the outlook to stable.