S&P cuts Ericsson to junk

S&P said it has lowered its long-term corporate credit rating on Ericsson (Telefonaktiebolaget L.M.) to BB+ from BBB-. The outlook is stable.

S&P consequently also lowered its short-term Nordic regional scale rating to K-4 from K-3 and affirmed the A-3 short-term rating on the company.

At the same time, S&P lowered its issue ratings on Ericsson's unsecured bonds to BB+ from BBB- and assigned a 3 recovery rating to the debt, reflecting an expectation of 65% recovery prospects in the event of a hypothetical payment default.

“The downgrade reflects our view that the expected recovery in the wireless infrastructure market is likely to be more protracted. Ericsson is also likely to incur additional costs for the realignment of existing customer projects. In our view, these factors make it unlikely that the company will stabilize revenues and achieve EBITDA margins and cash flows by 2018 that are commensurate with an investment-grade rating,” S&P said in a news release.

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