Toyota Suffers First Credit Rating Cut in 10 Years

Toyota Suffers First Credit Rating Cut in 10 Years

Toyota Motor Corp.’s debt rating was cut by Fitch Ratings, the automaker’s first downgrade in 10 years, as the slump in U.S. car sales drags down earnings at the company with the industry’s best credit.

By Makiko Kitamura and Tetsuya Komatsu

Nov. 26 (Bloomberg) — Toyota Motor Corp.’s debt rating was cut by Fitch Ratings, the automaker’s first downgrade in 10 years, as the slump in U.S. car sales drags down earnings at the company with the industry’s best credit.

Fitch cut Toyota’s senior unsecured debt rating two levels to AA from AAA with a negative outlook on the company, it said in a report today. The shares dropped 4.6 percent, the most in two weeks, to close at 2,985 yen on the Tokyo Stock Exchange.

A lower debt rating raises borrowing costs for Toyota, potentially hindering its ability to offer interest-free loans to boost sales in the U.S. Toyota, set to topple General Motors Corp.’s 77-year reign as the world’s largest automaker this year, may also have its worst share performance since at least 1975.

“Toyota is suffering severely from the ongoing turmoil in the global automotive sector,” said Tatsuya Mizuno, director at Fitch Ratings, in the report. “The negative developments in the industry are so substantial and fundamental that even the strongest player — Toyota — can no longer support a `AAA’ rating.”

The rating cut is the company’s first since Moody’s Investors Service reduced its long-term debt rating from Aaa to Aa1 in 1998. Moody’s raised the company back up to Aaa in 2003. Standard & Poor’s has rated the carmaker AAA since 1985.

“We are closely monitoring Toyota and especially the U.S. market,” Moody’s analyst Junichi Yamaki said. He declined to say whether the rating may be revised. S & P analyst Osamu Kobayashi couldn’t be reached at his office.

Cash on Hand

Toyota had 1.85 trillion yen ($19.5 billion) in cash and near cash as of Sept. 30 and earned 169.5 billion yen ($1.79 billion) in operating profit in the three months ended Sept. 30. That compares with a $4.2 billion operating loss for GM, which said it may run out of cash by the end of the year.

“Toyota’s financial foundation is solid, and I don’t think there has been such a drastic change to warrant a two-level downgrade,” said Yasuhiro Matsumoto, senior credit analyst at Shinsei Securities Co. in Tokyo. “I don’t see an impact on the company’s new bond issues.”

Toyota has 289 billion yen in debt coming due this year, and owes 2.52 trillion yen next year, according to Bloomberg data.

Toyota’s 150 billion yen 1.33 percent bonds maturing in 2012 traded at 28 basis points above Japanese government debt yesterday, up from 20 basis points at the beginning of 2008, data compiled by Bloomberg show.

Share Performance

Toyota’s stock has dropped 51 percent this year, set for the worst annual performance since at least 1975. The company is still valued at 18 times GM and Ford Motor Co. combined. Toyota spokesman Hideaki Homma declined to comment on the rating change. more

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