Posted on November 22, 2012 AT 05:33am
Influential credit rating agency Fitch Group has downgraded Sony’s debt rating to “junk” status.
The firm downgraded Sony three notches from BB- to BBB-, meaning that it has stripped the company of an investment-grade rating, this makes Fitch the first of the three big investment firms to make such a move. “This wasn’t an easy decision,” Matt Jamieson, head of corporate research, told The Financial Times. “But their reputations have been hit so much that it’ll take a long while to crawl back.”
The downgrade will impact Sony’s credit default swaps, insurance contracts against debt, and its ability to borrow money. Fitch Group added that if Sony can sort out problem areas, such as its TV business, then it should be able to avoid further downgrading. A BB rating indicates that a company is vulnerable to defaulting on debt over time, but still has the flexibility to pay off debt at the moment.
“I don’t think the banks will push either of these companies to the wall,” Damian Thong, an equity analyst at Macquarie Securities in Tokyo, told The Financial Times. “But they do need to convince people that tough restructuring moves will be done in good time, while minimizing unnecessary damage to healthy businesses.”
Can Sony pull this back? Share your thoughts below.
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