The corporate bond market was quiet as a mouse yesterday, with the only action coming from the rating agencies. Secondary trading was slight, leaving both investment grade and below-investment grade bonds unchanged.
Moody's Investors Service reaffirmed its credit ratings on $4.2 billion of dollar-denominated debt issued by Sony Corp. and its subsidiaries. Sony's senior unsecured debt will continue to carry an Aa3 rating from Moody's.
The rating decision comes despite weakness in some of Sony's key markets worldwide, Mood y's said.
"Sony's (and the consumer electronic industry's) operating environment will continue to be adversely affected by stagnant domestic and world economies, intensifying price competition, a strong yen and the lack of new ~hit' consumer products," Moody's said.
The agency also noted Sony's "high fixed charges resulting from its past aggressive investments, including the acquisition of Columbia Pictures."
But Moody's chose not to downgrade Sony based on the international entertainment conglomerate's strong position relative to its competitors.
"Moody's believes that Sony's leading hardware technologies combined with strong software support from Sony Music Entertainment and Sony Pictures Entertainment divisions will provide a strong competitive advantage in the coming multimedia age," the rating agency said.
Moody's said the rating is also supported by Sony's continuing efforts to lower expenses and fixed costs.
"Sony is expected to improve its debt protection measurements by streamlining its operations, reducing costs and moving more of its production facilities offshore to reduce its exposure to currency fluctuations," Moody's said.
The rating agency also assigned a first-time rating of A2 on Japan Airlines Co.'s upcoming Euronote offering. The announcement of the rating could be a prelude to a dollar-denominated offering by JAL next year.
Moody's said the airline has been hit by declining travel demand during the global recession.
To offset the loss of business, JAL has attempted to cut costs and improve profit margins.
But the rating agency said the cost-cutting moves will not improve the airline's financial health.
These measures at best will enable JAL to only stabilize operating income level at relatively low levels beginning in fiscal 1994," Moody's said. "Further improvement in earnings will depend on a strong rebound in the world economies. Which is not likely over the intermediate term."
Inside Japan, the airline's position is helped by the high barriers to entry, which limit new competition, Moody's said.