The debt ratings agency, Moody's Investor Services has downgraded the long-term credit rating of Ericsson from Baa3 to Ba1 - giving Ericsson's debt a junk rating - and continues to review its rating for possible further downgrade pending completion of the rights offering. The action does not affect the underwriting of the rights offering.
"This action by Moody's does not affect the underwriting agreement from the banks nor the commitment from our largest shareholders. We are fully committed to maintaining a very conservative financial profile and the underwritten rights offering is an important element of this strategy," says Michael Treschow, Chairman of the Board, Ericsson.
The terms agreed with the banks supports the underwriting even if the company's credit rating were to drop to BB by Standard & Poor's or Ba3 by Moody's. Ericsson believes such a scenario is unlikely. According to Moody's, their new rating will remain under review until the completion of the rights issue, whereupon Moody's expects to confirm the Ba1 ratings with a negative outlook.
Moody's said that the rating downgrade is based on the accelerated decline for operator's investments in current generation wireless equipment as evidenced by Ericsson's weak order inflow in Q2 2002 and the challenges faced by management in quickly implementing additional downsizing measures and further reducing working capital.
The financial impact of this decision amounts to an increase in financing costs of just under US$10 million annually.'"
Posted to the site on 29th July 2002
Posted to: www.cellular-news.com/story/7264.php