Credit-rating agency Moody's today downgraded Ericsson to "junk" status, making the Swedish telecommunications equipment giant the latest in a lengthening line of telecoms to lose their investment-grade credit ratings this year.
Moody's cut Ericsson's senior unsecured debt rating one notch to "Ba1," its highest junk grade, from "Baa3," and cut its short-term debt rating to "Not Prime" from "Prime-3." It said it may again cut the ratings, which affect about $5.2 billion of debt.
Moody's said it based its downgrade on falling orders for Ericsson's wireless products, as evidenced by Ericsson's weak second-quarter order inflows, and the challenges Ericsson faces in downsizing and cutting working capital.
Ericsson, based in Stockholm, last Friday announced terms of a $3.25 billion rights issue that the company needs to cut debt and help carry it through a prolonged slump in demand for telecom products. The company priced the issue at 3.8 crowns, a 74 per cent discount to the company's then current share price.
Moody's said failure to complete the rights issue would likely lead to an additional credit downgrade of two or more notches.
Earlier in July, French telecom equipment giant Alcatel was also cut to junk status.