S&P cut Avaya's corporate credit rating two notches to "BB-minus," its third highest junk grade, from "BB-plus." It cut Avaya's senior secured debt to "B-plus" from "BB-minus" and its senior unsecured debt to "B" from "BB-minus." The action affects $914 million of debt, and S&P's outlook is negative. Downgrades often boost borrowing costs.

S&P said a "significant tightening in customer spending" has crimped Avaya's profits. It said the company might not cut costs fact enough to stem further cash flow declines, and that "failure to stem profitability and liquidity declines could cause the rating to be lowered further."

Avaya said on July 26 it will cut 2,500 more jobs and take a $150 million fourth quarter charge related to the job cuts, real estate consolidations and asset impairments. The company had cut 7,200 jobs, or 24 percent of its work force, since Lucent Technologies Inc. (NYSE:LU - News) spun it off in October 2000. The latest cuts will leave it with 19,100 employees.