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Lucent plunges on bankruptcy rumor

Shares of the company plunge in morning trading after a rumor that Lucent is preparing to file for Chapter 11 bankruptcy. Lucent denies the rumor.

Shares of Lucent Technologies plunged in morning trading Wednesday after a rumor that the company is preparing to file for Chapter 11 bankruptcy.

A Lucent spokesman said rumors were "absolutely false."

"They are ridiculous," Lucent spokesman Bill Price said. "We have the financial flexibility to execute our turnaround and nothing has changed in that regard."

Lucent shares were off almost 30 percent at one point during the morning. Shares recovered slightly at midday to $6.85, down $1, or 11.5 percent.

Though the bankruptcy reports may be excessive, worries about the company's cash position are not that far-fetched, analysts have said. On Tuesday, A.G. Edwards analyst David Heger lowered his investment suitability rating on the stock from "aggressive" to "speculative," saying "market fears have been raised that Lucent debt could be dropped to junk status in light of the industry slowdown and the company-specific challenges."

He also flagged the recent spinoff of Agere Systems as a disappointment for Lucent. That initial public offering had its target price lowered three times and was delayed once. It eventually snagged $3.6 billion, allowing Lucent to eliminate $3 billion in debt from its balance sheet. But the company had hoped to reduce its $8 billion debt load by $5 billion.

On Monday, Morgan Stanley, the lead underwriter of the spinoff, swapped 90 million Agere shares for $519 million in debt owed by Lucent.

In February, Lucent was able to secure $4.5 billion in loans to fund its business and avoid seeing its credit drop to junk status. Earlier, the company restated fourth-quarter earnings and announced restructuring including 10,000 layoffs.

Reuters contributed to this report.