Bloomberg News

Nokia Debt Rating Cut to Junk at Fitch

July 20, 2012

Nokia Oyj (NOK1V)’s debt, already at junk status at the three biggest rating companies, was lowered further by two steps at Fitch Ratings after the Finnish mobile- phone maker’s second-quarter loss widened.

The long-term rating was cut to BB- from BB+ with a negative outlook, Fitch said in a statement today. Nokia yesterday reported an operating loss at its handset division equivalent to 9.1 percent of revenue adjusted for some items and forecast similar losses for the current period.

“If these operational losses are not reversed, the support that the cash cushion gives the rating is going to be eroded faster, which could lead to further downgrades,” Fitch said in its statement. Fitch cut Nokia’s debt to junk in April.

The company has announced more than 20,000 job cuts and shuttered production and research sites as it tries to offset a continuing decline in revenue. Chief Executive Officer Stephen Elop is betting on the Lumia smartphone running Microsoft Corp. (MSFT:US) software to halt gains by Apple Inc. (AAPL:US)’s iPhone and handsets using Google Inc. (GOOG:US)’s Android software.

Nokia has debt of 5.2 billion euros ($6.3 billion). Its financial position is strong and liquidity profile “robust,” according to an e-mailed statement from the Espoo, Finland-based company. Fitch’s rating is “unsolicited,” Nokia said. In addition to net cash of 4.2 billion euros at the end of June, Nokia said it has access to a 1.5 billion-euro revolving credit facility without financial covenants until 2016.

IPhone Effect

Shares of Nokia have plunged more than 90 percent since Apple introduced the iPhone in 2007. They declined 4.4 percent to 1.47 euros at 3:01 p.m. Helsinki time.

The cost of insuring Nokia bonds using credit-default swaps has more than tripled this year, rising to a record of 1,240 basis points on July 18. Today, it declined 14 basis points, or 1.2 percent, to 1,179 basis points.

Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. Credit swaps are used by investors to hedge against losses on corporate debt or to speculate on creditworthiness.

The current cost level of the swaps implies a Caa1 rating, seven steps below investment grade, according to the most recent Moody’s Analytics data. Nokia’s debt has a Ba1 rating at Moody’s Investors Service and a BB+ grade at Standard & Poor’s, both one step below investment grade and with a negative outlook.

Credit Line

Nokia obtained the 1.5 billion-euro five-year revolving credit last year, agreeing to pay an initial interest of 40 basis points more than the euro interbank offered rate on drawn funds, according to data compiled by Bloomberg. That credit line remains undrawn. A basis point is 0.01 percentage point.

Banco Santander SA (SAN), Bank of America Corp (BAC:US)., Barclays Plc (BARC), Citigroup Inc. (C:US), Credit Agricole SA (ACA), Deutsche Bank AG (DBK), HSBC Holdings Plc (HSBA), JPMorgan Chase & Co. (JPM:US), Nordea Bank AB (NDA), Royal Bank of Scotland Group Plc (RBS), Skandinaviska Enskilda Banken AB (SEBA), Standard Chartered Plc (STAN), and Turkiye Sinai Kalkinma Bankasi AS (TSKB) led the financing, Bloomberg data show.

To contact the reporter on this story: Cornelius Rahn in Frankfurt at

To contact the editor responsible for this story: Kenneth Wong at

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