Nokia Junk Debt Rating Cut by Moody’s as Losses Mount

Nokia Oyj (NOK1V)’s debt, already at junk status at the three biggest rating companies, was cut two additional steps at Moody’s Investors Service as the mobile- phone maker’s losses mount.

The long-term rating was cut to Ba3 from Ba1, three levels below investment grade, Moody’s said today in a statement. Fitch Ratings cut Nokia’s rating deeper into junk last week after the Espoo, Finland-based phonemaker reported a wider second-quarter loss and said its handset business probably won’t be any closer to profitability this quarter.

“Nokia’s transition in the smartphone business will cause deeper operating losses and consequently cash consumption in the coming quarters than we had previously assumed,” Wolfgang Draack, a Moody’s analyst, said in the statement. Moody’s has a negative outlook on Nokia.

The company has announced more than 20,000 job cuts and shuttered production and research sites as it tries to offset a continuing decline in revenue. Chief Executive Officer Stephen Elop is betting on the Lumia smartphone running Microsoft Corp. (MSFT) software to halt gains by Apple Inc. (AAPL)’s iPhone and handsets using Google Inc. (GOOG)’s Android software.

Nokia’s 1.25 billion euros of 5.5 percent bonds due 2014 fell 0.07 percent today to 95.4 cents on the euro, pushing the yield up six basis points to 8.84 percent, according to data compiled by Bloomberg. The yield reached a record 11 percent on June 26.

Shares of Nokia fell as much as 4.2 percent and declined 1.3 percent to 1.40 euros at 4:46 p.m. Helsinki time, near the lowest level since 1994.

‘Limited’ Effect

Nokia has debt of 5.2 billion euros ($6.3 billion). In addition to net cash of 4.2 billion euros at the end of June, Nokia said it has access to a 1.5 billion-euro revolving credit facility without financial covenants until 2016.

“While we are disappointed with Moody’s decision, its impact on the company is limited,” Timo Ihamuotila, Nokia’s chief financial officer, said in a separate statement. “Nokia will continue to focus on lowering the company’s cost structure rapidly, improving cash flow and maintaining a strong financial position.”

The cost of insuring Nokia bonds using credit-default swaps has more than tripled this year and reached a record of 1,244 basis points on July 18. It added half a basis point, or less than 0.1 percent, to 1,211 basis points as of 4 p.m. Helsinki time, according to Bloomberg data.

Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

To contact the reporter on this story: Adam Ewing in Stockholm at aewing5@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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