Moody’s Also Downgrades Sony Credit Rating To Junk Status

Credit ratings agency Moody’s has lowered Sony’s debt rating from investment grade to junk status. To be specific, Japanese subsidiary Moody’s Japan KK has revised the rating from Baa3 to Ba1, based on a review of Sony’s businesses and their prospects in the coming years.

 In plain English, the debt rating is used to determine how well a company can pay debts and similar financial obligations. This is different from their credit score, and is only a partial indicator of a company’s health. The gap between Baa3 to Ba1 is not that big, but it is saying uncertainties in the business have made it so that they may not have the adequate capacity to meet these financial obligations.

Moody’s sees Sony’s core electronics business continue to drop in terms of revenue and marketshare, in spite of their efforts at restructuring. This has stemmed unnecessary losses, but in plain terms, it wasn’t enough.

In terms of their gaming division, Moody’s believes that Playstation 4 will give it improved profitability, but not to the extent that they had in 2010. Other businesses, such as music and movies, have the same outlook.

Sony  already received junk status ratings from the two other major credit agencies, Fitch and Standard & Poor’s, last year. Much like Nintendo’s recent financial forecast revisions, this is a sobering reminder that the industry as a whole has seen a drop in profitability, and may continue to do so in the near future. I don’t think Playstation fans should necessarily see this is as a reason to ‘pitch in’ and buy more Sony products. The attach rate is quite high for these consoles, in fact. Ultimately, Playstation may affect, but it does not direct Sony's fortunes as a whole.