Moody's cuts Palm

Moody's Investors Service said it downgraded Palm, Inc.'s corporate family and probability-of-default ratings to B3 from B2, $30 million senior secured revolving facility to B3 (LGD3, 44%) from B2 (LGD3, 43%), $400 million senior secured term loan to B3 (LGD3, 44%) from B2 (LGD3, 43%) and affirmed its speculative-grade liquidity rating of SGL-2.

The outlook is negative. This concludes the review for downgrade that began in March following the company's weaker-than-expected third quarter results.

Moody's said the downgrade reflects expectation of continued weakness in Palm's operating performance and negative cash flow generation over the near term.

The B3 rating also reflects a relatively small market share in the highly competitive smart phone market, narrow product portfolio and pending launch of various smart phones on multiple platforms, the agency noted.

The rating is supported by good traction with the company's entry-level Centro smart phone offset by declines in its higher margin Treo products, history of developing user friendly products with a loyal customer base and its liquidity with high levels of balance sheet cash and investments, Moody's said.

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