Decreasing Demand Leads Moody's to Downgrade Sony
Moody's said Sony's downgrade will affect about $4.2 billion in debt. The agency cited rapidly decreasing demand for products like flat-panel TVs and digital cameras. It noted sluggish economic conditions and the growing use of smartphones.
Moody's said in its press release explaining the downgrade that "without robust restructuring in the coming 12-18 months, Sony's non-financial services businesses will at best achieve roughly break-even" levels. Moody's said ratings could be further hit if "profitability, cash flow, and leverage further deteriorate."
Ratings given by ratings agencies reflect the creditworthiness or default risk of a borrower. When a company's debt is downgraded, investors seek a higher yield on that debt because it's seen as a riskier investment.
Long-term senior unsecured bonds issued by Sony now carry a Moody's credit rating of Baa3, down from Baa2.
The article Decreasing Demand Leads Moody's to Downgrade Sony originally appeared on Fool.com.John Divine has no positions in the stocks mentioned above. You can follow him on Twitter @divinebizkid and on Motley Fool CAPS @TMFDivine.The Motley Fool owns shares of Moody's and is short Sony (ADR) and has the following options: long JAN 2013 $22.00 calls on Sony (ADR). Motley Fool newsletter services recommend Moody's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.