S&P Joins Fitch in Downgrade of Nokia's Bond Credit to "Junk"
April 27, 2012 12:01 PM
Rating downgrade isn't always fatal -- Ford only escaped "junk" status this week; MSFT only AAA tech comp.
Struggling Finnish phonemaker Nokia Oyj.'s (
) recovery bid was dealt a blow on Friday when top financial agency Standard & Poor's (S&P)
[press release] the company's bonds to a notch into "junk" status.
The S&P rated Nokia's senior unsecured notes at BB+ and rated the company's liquidity at B. In the bonds world anything below BBB/Baa ratings are considered "junk" -- higher risk investments.
Some countries have seen their credit rated as "junk", including Portugal (BB), Indonesia (BB), and Vietnam (BB). The U.S. recent lost its coveted triple-A credit rating, being downloaded to AA+, a notch from the top [
]. Many other nations including America's former imperial owner, the United Kingdom and its northern neighbor Canada still enjoy "AAA" credit.
[Image Source: Wikimedia Commons]
Fitch also recently
downgraded Nokia's bonds
to junk status.
A junk credit rating is a worrying sign for investors, but not necessarily a death sentence. For example, over the last decade Ford Motor Comp. (
) long languished in "junk" status, and only escaped the dubious distinction this week with
[press release] by Fitch to "BBB-" status, a notch above junk.
Nokia issued a
, citing its cash war chest as one instrument to help it weather the storm:
Espoo, Finland - Timo Ihamuotila, Nokia's Executive Vice President and CFO, comments on today's rating announcement from Standard & Poor's:
"As we have detailed in recent announcements, Nokia is in the middle of a transformation program which encompasses every aspect of our business. We are implementing a decisive action plan to position our company for future growth and success. The main focus of these actions is on lowering the company's costs, improving cash flow and maintaining a strong financial position, while bringing attractive new products to market."
Nokia's financial position remains strong. As of March 31, 2012, Nokia had gross cash balances of EUR 9.8 billion, and a net cash position of EUR 4.9 billion.
Nokia will surely look to do the same as it tries to push through the
painful Windows Phone transition
. But the credit downgrades give its critics ammo to use against it, should it slip too far during that process.
An ironic note:
Microsoft Corp. (
partner and Windows Phone BFF
is the only tech company to enjoy a perfect triple-A credit rating, at present [
]. Why does the
world's most valuable company
, Apple, Inc. (
) not have a triple-A rating? Simple, it
never issues bond debt
"A lot of people pay zero for the cellphone ... That's what it's worth." -- Apple Chief Operating Officer Timothy Cook
Nokia Credit Rating Cut to "Junk" Status by Fitch
April 24, 2012, 11:44 AM
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