S&P downgrades Palm

Standard & Poor's said it lowered the corporate credit rating on Palm Inc. to B- from B and removed ratings from CreditWatch, where they were placed with negative implications on March 21.

The agency lowered Palm's secured term loan and revolving credit facility to B- from B+ and revised the recovery rating to 4 from 2.

The outlook is negative.

S&P said the downgrades reflect weak sales, ongoing operating losses and negative free cash flow, as well as marketplace challenges that could continue to pressure the company's operating results.

The rating reflects the company's high debt leverage, narrow range of products, substantial customer concentration, limited innovation and outdated product line, the agency said.

These factors are offset partially by Palm's good niche position attributed to a degree of customer loyalty, sufficient liquidity for intermediate-term operational purposes, and prospects for refreshing product offerings and rebuilding its position with enterprise customers, S&P noted.

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