Olympus' Credit Rating Downgraded
May 17, 2005 - Due to a substantial decline in digital camera profitability and slow restructuring efforts Olympus’ long-term credit rating was lowered by investment analysts Standard & Poor’s, signaling the further erosion of economic confidence in the Japan-based camera manufacturer.
Standard and Poor’s, an influential investment services company that rates stocks and bonds, downgraded Olympus’ long-term credit rating from an "A-" to a "BBB+." There are four top investment grades issued by S&P- AAA, AA, A and BBB. Companies that hold these top four grades are generally regarded as viable investments for banking institutions. Therefore, any change in investment grades is not taken lightly by stock holders and the stock market in general.
S&P reduced Olympus’ grade because of what they called a "substantial decline" in profitability in the company’s imaging division.
The events that led to the downgrade can be attributed to a variety of factors: slumping camera sales, overall loss in profitability and the reduction of nearly a quarter of their personnel.
The first sign of economic distress was an announcement made in March, stating that Olympus would end the fiscal year with a loss because of the continuing sales slump in its imaging division. Next was the announcement that Olympus would be reducing its workforce by 4,000 employees, part of a larger restructuring effort.
Another layer of Olympus’ continuing woes, according to S&P is the fact that while digital camera prices fell last fiscal year, Olympus’ pricing dropped dramatically. Along with the steep decline in pricing, the situation is compounded by the lack of consumer hits in their digital camera line.
The A rating meant Olympus was still able to meet financial obligations while being more susceptible to adverse changes in its fiscal structure do to outside economic events.
Downgrading to a BBB, according to S&P, means, "adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment."
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