Sony Credit Cut to Junk Status

From Forbes:

"The Japanese consumer electronic company’s credit rating was slashed from Baa3 to Ba1, a change that moves Sony’s long-term senior unsecured bonds from investment grade to junk grade. Moody’s also downgraded the short-term rating of Sony subsidiary Sony Global Treasury Services Plc to Not Prime from Prime-3."

http://www.forbes.com/sites/maggiemcgrath/2014/01/27/sony-credit-cut-to-junk-status-as-smartphones-cannibalize-its-tv-and-pc-businesses/

Thoughts on this?

It sounds bad, but can someone explain this in layman terms for me? How does it actually affect Sony?

Sony's a weird company. They subsidize a lot of their entertainment losses (think they lost a couple hundred million in the movie biz last year) with big profits from insurance, of all things. (They're one of the biggest insurance companies in Japan, although they do basically none of that business outside the country.) People have been pushing them to spin off entertainment and games for a long time. Maybe it'll happen, but I have a feeling they'll hang onto it until the PS4 proves itself, or doesn't, at least.

Its just a little runny, its still good! Its still good!

So they had better debt than Ireland at one point?

These massive companies are really complex. Much like Rorie said, things aren't as cut and dry as "these numbers look bad, PS4 is fucked." As far as I'm aware the games division has been doing pretty well for them, or at least well enough that it would be an appealing asset to another large company or some smarmy business fuck if it were to come to that. But, I don't really think it'll be coming to that soon.

@probablytuna: if sony wants to issue bonds (borrow money) they have to pay a higher interest rate. It's not the end of the world, but sony should be figuring out how to reduce their debt.

I think Kaz has been working on that since he became president, selling off buildings owned by Sony, cutting jobs, and generally downsizing and streamlining the huge behemoth that is Sony.

Moody’s said that Sony’s rating could see a chance for ratings redemption if it turns around its television and PC business, reverses earnings declines and reduces its debt.

The article mentioned that Sony could turn this around if they fix their TV and PC business. Apparently Moody's acknowledged that they do well in other areas.

The thing we need to remember (aside from what Rorie said about insurance) is that, based on the last thing I saw, the PlayStation part of Sony is continuing to do pretty well, whereas the rest of Sony isn't. So that's why it can, to people like us that tend to focus on one corner of Sony, seem weird to see things like this about a company that appears to be doing well, at least in our corner of the Sony universe.

Either that or Sony is doomed, and I bought a $399 box last year that no new games will be made for in a year and a half. Or some other, third thing.

electronics division not entertainment division, hmmmmmm

These particular divisions have been in severe red ink for years. The TV division alone has been a major hindrance to their profits. Moody's can say that ratings could be redeemed if these divisions are turned around, but that's far easier said than done.

That's not surprising for Sony, considering its consistently inept management. The entire Japanese economy is falling into junk status thanks to the inept economic policies of its current prime minister.

Oh no, video games are done (again). Its over (again). Might as well hang ourselves with our wired controller of choice. Because video games are over (again)

It's not Nintendo so it will be forgotten in a day.

"Junk" makes these bonds seem way worse than they actually are to the layperson. It's still not a great sign.

That mush hurt! I know I would not want my junk to get cut :(

. If you are only interested in the gaming division nothing will change there for sure. As for TV or other stuff than phones it will be interesting to see what Sony is going to do here.

It's not a great thing to happen, that's for sure, but i think saying it's rating was "slashed to junk status" is pretty harsh. It fell one grade- according to one credit agency's analysis- there are still two other big credit agencies (S&P and Fitch) that are reporting Sony as stable. I wouldn't say this is the beginning of the end or anything crazy like that for Sony, but I'm sure some exec is getting his ass chewed out right now.

id say pretty much this,

worst came to worst for that company im sure sony would spin off the entertainment division.

I don't think anyone here is saying that...

It isn't like any other company heavily subsidizes their entertainment division with more lucrative but far more boring business units either but no one really questions their status for some reason.

On the other hand, Sony is stuck in an unenviable position due to Samsung and the way the Japanese business economy works so something will probably have to change in a restructuring. You know...stuff that has little to do with things GB cares about.

Junk bond status. That sucks pretty hard for Sony. Junk bonds are a super dangerous investment for people because, sure they give super high yields if Sony makes good on it's promise, but there is a more-likely-than-not chance that Sony can't make good on the money it borrows.

I know, I just like saying that when people make dire video game related topics.

The current rumor is that Sony is simply going to withdraw from the consumer PC market or at least withdraw from the desktop PC market. That said Fitch and S&P have not downgraded Sony, BUT Moody's downgrade puts a big damper on their 2013 ambitions to raise $1.5 billion from bond sales.

I suppose it's entirely possible that using the losses from the entertainment side of things helps keeps tax burden down if the insurance side of things has huge profit margins. But I'd imagine that it also depends on if each division is an actual separate entity or not. If everything is all under one roof so to speak, they might be able to use losses from one division to offset profit in another. Obviously I'm purely speculating, but its a thought.

My thoughts on this: it means nothing to me. I'm not a Sony stockholder. It doesn't affect my plan to purchase a PS4 this year.

As a reference librarian I get a ton of data across my desk. One of the reference we get are on the health of US banks. It would shock you to know that more than half of US banks are rated fair [C] (35%) weak [D](14%) or very weak [E/F] (4%). The healthiest banks in the US are small banks that most of Americans do not do their banking through. If your money is in one of the biggest banks in the US it is without a doubt in the crapper.

So is consider this...your own money at this very moment is held at an institution WORSE off than Sony. Your own bank's rating is likley C, D or E. Should you worry, no FDIC will bail most of you. But guess who pays to bail your bank out? Why, you and your neighbors bail you out.

I just switched banks last year because my bank was owned by a Spanish bank and they were rated D, if you followed the news in the past few years about the Euro you know why Spanish banks are on the rocks. My current bank is rated B- which sounds bad, but there are only a two dozen better banks in Massachusetts. Also, I don't mind my bank being rated that low because MOST banks with higher ratings are actually banks backed by "big energy" who are making money off fracking for gas or drilling for oil.

So is the downgrade for Sony bad? No not really for you...because guess what...none of you mother fuckers own Sony bonds! ;-) Guess what you do own, well you own your assets in a bank which is likely rated EVEN LOWER. Sony bonds don't affect you even tangentially, your own bank being rated C or below (remember 55% of American banks are rated c or lower) will affect you because as Americans we are STILL bailing out failed banks every year.

AFAIK, their TV and hardware biz is what's not doing too hot. TVs and phones and the like. Not games.

This information is already outdated. Clearly the analysts over at Moody didn't hear Sony's Tennis Sensor announcement at CES. They're basically guaranteed record profits this year.

@xyzygy: The issue there being that far more people own/use TVs and phones than use games.

@monkeyking1969: A company that is already deeply in debt not being able to reduce that debt because they are incurring more interest and not drawing in new investors due to a poor credit rating can certainly affect the consumer of that company's products in terms of future service and support. Is Sony dying? Probably not - but I think the company is in for the same sort of rough stretch that many American tech giants had in the late 90's - early 2000's.