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Rating downgrade isn't always fatal -- Ford only escaped "junk" status this week; MSFT only AAA tech comp.

Struggling Finnish phonemaker Nokia Oyj.'s (HEX:NOK1V) recovery bid was dealt a blow on Friday when top financial agency Standard & Poor's (S&P) chopped [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 [source].  Many other nations including America's former imperial owner, the United Kingdom and its northern neighbor Canada still enjoy "AAA" credit. 

Credit Rating
[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. (F) long languished in "junk" status, and only escaped the dubious distinction this week with an upgrade [press release] by Fitch to "BBB-" status, a notch above junk.  

Nokia issued a brief response, 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. (MSFT), Nokia's partner and Windows Phone BFF is the only tech company to enjoy a perfect triple-A credit rating, at present [source].  Why does the world's most valuable company, Apple, Inc. (AAPL) not have a triple-A rating?  Simple, it never issues bond debt.

Sources: Reuters [downgrade], Nokia [response]





"There's no chance that the iPhone is going to get any significant market share. No chance." -- Microsoft CEO Steve Ballmer



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