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Tuesday, April 24, 2012 11:39:24 AM
http://www.forbes.com/sites/ericsavitz/2012/04/24/nokia-debt-rating-downgraded-to-junk-status-buy-fitch/
CIO Network | 4/24/2012 @ 9:30AM
It has come down to this: Nokia is now just another junk bond issuer.
Fitch Ratings this morning cut its senior unsecured debt rating on Nokia to BB+ from BBB-. Fitch said the company’s outlook remains negative. The new rating puts Nokia’s rating below investing grade – in other words, the company’s debt now has junk status.
“The downgrade reflects Fitch’s view that the deterioration in the company’s core Devices and Services division in Q1, together with the company guidance of -3% non-IFRS operating margins or below for the division for Q2 and the general lack of visibility beyond this point, means Nokia’s profile is no longer commensurate with an investment grade rating,” Fitch said in a statement.
To avoid further rating cut, Fitch says, “Nokia needs to demonstrate substantial improvements over Q3 2012, Q4 2012 and 2013.”
Fitch said Nokia needs to stabilize revenues and be capable of generating low-single digit non-IFRS operating profit margins and positive pre-dividend free cash flow, if it is to affirm the current rating. “Given the potential headwinds facing the company, Fitch is currently not convinced that Nokia can attain this over the course of 18 months.”
The ratings agency said that the launch of the new Lumia phone with AT&T, and the potential launch of new Nokia products later in the year, could be positive for Nokia’s credit profile. “However, there are also numerous negative potential factors which could delay or fully impede a recovery,” Fitch said. “These could come from further dramatic declines in Nokia’s low-end smartphone and feature phone business, further losses at Nokia Siemens Networks, or only partial success of the Lumia product range that does not compensate fully for the declines in the rest of the business.”
Fitch notes that the company has 9.8 billion Euros of gross cash and 4.9 billion Euros of net cash. “Although this net cash position is currently strong, this could be depleted over the next 18 months by substantial restructuring charges and the potentially negative operating cash flow that could persist unless the company’s operating performance improves,” Fitch added. “The agency will closely monitor the company’s Q3 and Q4 results for evidence of a stabilization of operating trends. If Fitch believes that Nokia is not capable of stabilizing revenues and generating positive operating margins, further negative rating actions will be taken.”
NOK this morning is down 11 cents, or 3%, to $3.54, yet another new 52-week low.
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