Bad times indeed when one of the Big Three actually put a company down to Junk status. While most don't realize what this means, it is most assuredly not something good and will come to haunt Sony, I've little doubt.
However, one thing that surprises me is that no one seems to want to make mention of those debt totals in the original posts. Were those just missed? Because I think that's even more important than the junk status itself. This quote, in question, is actually quite telling...
"Net debt for Sony’s non-financial services businesses increased by 400 billion yen from March to September, partly because of higher financial needs, Moody’s has said. Gross debt for Sony’s non-financial services businesses increased to about 1.25 trillion yen in September from 1.15 trillion yen in March. Cash and deposits decreased to about 420 billion yen from about 720 billion yen."
Now, it should be noted that Sony's gaming division is actually not that important compared to Sony's much larger undertakings. In actual fact, it is not the TV division either. Sony's Financial Division (named Sony Financial) is their biggest cash cow. This is why they make sure to note the debt increased by Sony's non-financial services, because financial services are ALWAYS high debt, because that's just the name of the game. Now 'Gross Debt' means before any deductions, while 'Net Debt' means after deductions. Now, note that Gross Debt between March and September was an increase of 100 billion (0.1 trillion) yen. Net Debt actually increases to 400 billion between that point. What that means is that they had no deductions and actually had a build up of more debt during that six months, which caused a 300 billion increase. Not exactly a positive thing, to say the least.
Now, if you convert Yen to US Dollars at the current rate, 400 billion yen works out to 4.858 billion dollars. So that is how much their debt has increased in six months. A tidy sum indeed.
The problem with your credit rating lowering is exactly the same as when a person has a bad credit rating: they can get loans, but the interest rates are going to be ludacrous. Like loan shark level when it gets bad enough. Any debts they currently have right now will pay at the same rate, but new borrowing and what not will be at higher rates because Sony is now considered to be viable (as in, not 0%) chance of default, which is always the boogieman in financial circles. The very fact that they have THAT much debt accruing in six months is absolutely astonishing. Basically, this is going to cut into their bottom line like a chainsaw through butter. And will be about as pleasant.
It should be interesting to see how things go from here on and if the other agencies will follow suit or wait on it. I believe all three at looking at Sony as a negative outlook though. So there may be more blood in the water soon.
brendude13 said:
It made a lot of sense. If SONY are going to dig themselves out of the hole they're in, they're going to emerge a different company. |
Or the company will fracture and turn into a number of smaller companies out of the more profitable ones.
It's entirely possible, and has been done before, that a company can take its individual divisions and turn them into a number of profitable companies will killing off the less profitable ones. This usually entails having to go through a bankruptcy proceeding, but usually a lot of the debts are forgiven because of the leanness of the new corporations. It isn't impossible that this could be considered, though the Sony name would likely vanish.
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