Toyota May Be Downgraded by Moody’s After Japan Earthquake

Toyota Motor Corp. (7203)’s long-term credit rating may be cut by Moody’s Investors Service after Japan’s strongest earthquake on record disrupted parts supply and shuttered factories.

While Toyota’s plants haven’t suffered significant damage, the March 11 disaster disrupted the shipping of about 500 types of components, Moody’s said in a statement. Moody’s currently rates Toyota Aa2, its third-highest investment grade.

“Toyota’s financial and operating performance will worsen in the aftermath of the March 11 earthquake and tsunami and the resulting supply chain disruptions,” Moody’s analysts Curt Beaudouin and Robert Young in New York wrote in a report dated yesterday.

The 9-magnitude earthquake and tsunami dealt a renewed blow to Toyota, which is also aiming to recover from record recalls last year for problems related to unintended acceleration. High levels of quality-related spending to recover from the recalls are also weighing on Toyota’s operating margins, Moody’s said.

Shiori Hashimoto, a spokeswoman for the Toyota City, Japan- based automaker, declined to comment on the possible downgrade.

Moody’s move comes after Standard & Poor’s cut the carmaker’s long-term debt rating by one level on March 4, seven days before the earthquake.

The automaker rose 0.2 percent to close at 3,265 yen in Tokyo trading. The stock has fallen 11 percent since the day before the earthquake.

CDS, Bonds

The cost to protect Toyota debt against non-payment for five years rose 0.7 basis points to 76.6 basis points today as of 4:11 p.m. in Tokyo, according to data provider CMA. Credit- default swaps pay the buyer face value in exchange for the underlying securities or cash equivalent if the issuer fails to comply with debt agreements.

The spread on the 1.77 percent Toyota bond maturing in 2019 over Japanese government bonds increased to 20 basis points yesterday from 15 basis points on March 10, the day before the quake.

The company, Japan’s most indebted manufacturer, said today that it won’t resume production at most of its Japan plants next week. Toyota is unlikely to restart auto production at the plants because of damage to some suppliers caused by the earthquake and tsunami, it said before the downgrade.

140,000 Units

Toyota, the world’s largest carmaker, has said the company lost 140,000 units of production from March 14 to March 26, citing a shortage of electronic parts, rubber and plastics. The carmaker resumed output of three models at two factories on March 24, prioritizing hybrids models including the Prius. All 18 plants in Japan were halted until then. Toyota built 3.28 million cars in Japan in 2010.

Toyota’s operating profit may be cut by at least 100 billion yen ($1.2 billion) in the fiscal year ended March 31 and as much as 200 billion yen this fiscal year, according to Koji Endo, an auto analyst at Advanced Research Japan in Tokyo. Any impact on production overseas will further damp earnings, he said.

To contact the reporter on this story: Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net

To contact the editor responsible for this story: Kae Inoue at kinoue@bloomberg.net

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