NEW YORK, Feb 3 (Reuters) - Moody's Investors Service and Fitch Ratings on Tuesday cut their ratings on Motorola Inc to the lowest investment grade after the cellphone provider forecast a deeper-than-expected first-quarter loss.
Moody's cut Motorola's debt rating one notch to 'Baa3' and Fitch cut the company one step to 'BBB-minus.
Both agencies have a negative outlook on the company, indicating a cut into junk may be likely over the next one to two years.
'While the rating contemplates a moderate slowdown in the non-handset businesses, a severe or prolonged decline in revenues and operating profit in those businesses could also cause downward pressure on the rating,' Moody's said in a statement.
Rating downgrades into junk territory can significantly increase a company's borrowing costs.
Motorola slid to fifth place from fourth in global rankings in the last quarter and said on Tuesday it expects its handset division to post another loss in 2009. It declined to say when it sees it breaking even. For details, see
'The downgrade was driven by the continued decline in the performance of the handset business and the enormous challenges the company faces in turning around this business while the economic environment continues to deteriorate,' Moody's said.
Motorola's free cash flow in 2009 is expected to range from meaningfully negative to break even, despite the company suspending its dividend, Fitch said in a statement.
'The rating and outlook also reflect Motorola's renewed commitment to turning around the mobile devices unit prior to divesting it, which Fitch believes could take well into 2010, given limited significant product launches until the fourth quarter of 2009,' Fitch said.
The cost to insure Motorola's debt with credit default swaps rose by around 23 basis points to 589 basis points, or $589,000 per year for five years to insure $10 million in debt, according to Markit Intraday.
(Reporting by Karen Brettell; Editing by Dan Grebler) Keywords: MOTOROLA RATING/MOODYS (karen.brettell@thomsonreuters.com; +1-646-223-6274; Reuters Messaging: karen.brettell.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
Moody's cut Motorola's debt rating one notch to 'Baa3' and Fitch cut the company one step to 'BBB-minus.
Both agencies have a negative outlook on the company, indicating a cut into junk may be likely over the next one to two years.
'While the rating contemplates a moderate slowdown in the non-handset businesses, a severe or prolonged decline in revenues and operating profit in those businesses could also cause downward pressure on the rating,' Moody's said in a statement.
Rating downgrades into junk territory can significantly increase a company's borrowing costs.
Motorola slid to fifth place from fourth in global rankings in the last quarter and said on Tuesday it expects its handset division to post another loss in 2009. It declined to say when it sees it breaking even. For details, see
'The downgrade was driven by the continued decline in the performance of the handset business and the enormous challenges the company faces in turning around this business while the economic environment continues to deteriorate,' Moody's said.
Motorola's free cash flow in 2009 is expected to range from meaningfully negative to break even, despite the company suspending its dividend, Fitch said in a statement.
'The rating and outlook also reflect Motorola's renewed commitment to turning around the mobile devices unit prior to divesting it, which Fitch believes could take well into 2010, given limited significant product launches until the fourth quarter of 2009,' Fitch said.
The cost to insure Motorola's debt with credit default swaps rose by around 23 basis points to 589 basis points, or $589,000 per year for five years to insure $10 million in debt, according to Markit Intraday.
(Reporting by Karen Brettell; Editing by Dan Grebler) Keywords: MOTOROLA RATING/MOODYS (karen.brettell@thomsonreuters.com; +1-646-223-6274; Reuters Messaging: karen.brettell.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.