Motorola Credit Rating Downgraded to Junk Status

It’s been a long time coming, but Motorola (NYSE: MOT)’s struggling mobile phone manufacturing business has finally caught up with its finances. Citing Motorola’s “operational challenges” that are not expected to fix themselves in the intermediate term, the Standards & Poor’s (S&P) Ratings Services has cut its long-term credit rating on Motorola to junk status.

Motorola’s credit rating rating dropped ‘BB+’ from ‘BBB,’ reflecting the S&P’s expectation that Motorola’s handset business would lead to higher debt-to-earnings ratios, lower profit, and diminish free cash flow. The S&P gave Motorola a recovery rating of ‘3,’ indicating the credit rating company’s confidence of meaningful debt recovery (50-70%) should Motorola default on payments. The debt downgrade comes amidst a slowdown in mobile phone sales that is likely to result in profit losses for the coming quarters.

Moody’s Investors Services previously announced that it had placed Motorola under review for a possible rating downgrade. Moody’s currently has Motorola just two notches above junk status, mirroring Motorola’s previous S&P rating.

The overall cellphone market is expected to decline next year, which will likely only make it harder for Motorola to compete.

[Via: WSJ]