Sony on Watch for Debt Downgrade

The senior unsecured debt and short-term ratings of Sony Corp. (NYSE: SNE) have been placed on review for a possible downgrade by Moody’s Investors Service this morning. The current ratings are Baa1 and Prime-2.

The ratings agency noted:

The rating actions reflect Moody’s concern that weak consumer sentiment, especially in Europe and China, and a strong yen versus the euro may hinder the timely recovery of Sony’s earnings and leverage.

In addition, the company’s digital audio visual (AV) and mobile-phone businesses continue to be plagued by structural challenges, such as the commoditization and maturity of major products, rapid technological changes, and intense global competition. Sony has not been able to deal with these issues effectively.

Sony’s TV and mobile device business have suffered from low margins and are the “major reason” for the company’s poor earnings. Sony’s digital camera business and portable game console business are also getting hammered by strong smartphone sales.

Sony lowered its revenue forecast for the 2013 fiscal year and dropped its estimated operating margin from 3.5% to 3.2%.

The ratings review will “focus on Sony’s ability to restore its earnings and leverage by dealing with its structural challenges effectively. … In particular, Moody’s will focus on Sony’s approach to strengthen and diversify its earnings base over the medium term.”

Sony’s shares are inactive in premarket trading this morning. The shares closed at $11.64 on Friday, in a 52-week range of $10.91 to $23.67.

Paul Ausick