Struggling Ericsson has credit rating slashed to 'junk'

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Struggling Ericsson has credit rating slashed to 'junk'
Ericsson has been struggling with poor results in recent years. Photo: Pontus Lundahl/TT
11:20 CEST+02:00
Leading ratings agency Moody's has slashed Swedish telecoms giant Ericsson's credit rating from Baa3 to Ba1, meaning the firm's rating is now in the "non-investment" grade, also known as "junk".

The change is a product of the company's deteriorating financial performances and major restructuring it is currently undergoing. The outlook on the rating is "stable", per Moody's.

READ ALSO: Struggling Ericsson spends billions in bid to turn things around

"The downgrade of Ericsson's ratings reflects the anticipated negative impact on the company's operating earnings and cash flow in 2017 and 2018 due to rising restructuring charges and provisions, as recently announced by the company, leading to credit metrics that will no longer be commensurate with investment-grade ratings," Moody's Vice President Alejandro Núñez said in a statement.

The downgrade reflects negative "near and medium-term financial implications" that are anticipated to arise in 2017 and 2018 due to the company's recent strategic review announcement, Moody's elaborated.

READ ALSO: Ericsson makes expected hefty loss

Fellow ratings agency Standard & Poor’s (S&P) has not yet followed suit, but also rates Ericsson at the bottom of the “investment grade” category with a negative outlook. Ericsson was previously downgraded to “junk” by S&P between 2002 and 2005. 

Ericsson reported a net loss of 10.9 billion kronor ($1.2 billion) in the first quarter of 2017, compared to a reported net income of 2.1 billion kronor in the first quarter of 2016.

In October 2016 it announced 3000 job cuts in Sweden, while it also fired then CEO Hans Vestberg that year following a falling share price and dropping profits.

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