Nokia’s debt downgraded to junk status

Nokia CEO Stephen Elop at last year’s Nokia World.

(Credit: Stephen Shankland/CNET)

Just when you thought it couldn’t get worse for Nokia, Moody’s steps in with a downgrade of its debt rating.

Moody’s lowered its rating to junk status, citing earnings pressure and cash burn that is larger than the firm previously expected. The move comes after Nokia said yesterday that it would cut 10,000 jobs and warned its second-quarter financial result would again disappoint investors.

The downgrade is just the latest blow for Nokia, which is quickly seeing its prospects dim. A lower rating means it will cost more to issue debt, and the company will have a hard time refinancing its existing debt at favorable terms.

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Despite several high-profile launches of phones such as the Lumia 800 abroad and the Lumia 900 here in the U.S., the company has failed to make a real splash. While the phones have sold well, they haven’t made much of a dent in the dominance of Apple’s iPhone or Android smartphones.

Despite the downgrade, Moody’s said it applauded the move to restructure the business to cut costs and return to profitability. But the future will depend on a successful transition to Windows Phone and a stabilization of its basic phone business, and it’s still unclear if the company has pulled that off.

Its success will also depend greatly on Nokia’s use of the next version of Windows Phone, which is expected to be more tightly integrated with Microsoft’s Windows 8 desktop and tablet software.

Moody’s downgraded Nokia’s long-term debt to Ba1 from Baa3 and its short-term debt to Not-Prime from Prime 3. The outlook on the firm’s ratings remains negative.

CNET contacted Nokia for comment. We’ll update the story when we get a response.

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