Nokia Downgraded By Moody’s Deep Into Junk Territory

Nokia Downgraded By Moody’s Deep Into Junk Territory
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Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) debt was downgraded again today by Moody’s Investors Service, putting the company’s bonds further into junk territory. The announcement of the downgrade had little effect on the company’s stock on today’s market despite the bad long term implications of the downgrade.

Nokia Downgraded By Moody's Deep Into Junk Territory

According to a Bloomberg piece on the decision, the Finnish handset maker’s debt was downgraded to B1 across the board. B1 is four levels below investment grade on the Moody’s Corporation (NYSE:MCO) scale meaning that Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) debt is accurately described as junk at this stage. The mobile phone maker is in real trouble, and despite its efforts to sort its problems, Moody’s isn’t optimistic.

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Nokia debt falls again

This isn’t the first time in 2013 that Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) debt has been downgraded, nor is it the second. Almost exactly one year ago the company’s bonds were downgraded to a single step above junk. That rating, Baa3 stands four steps above the rating put on the debt by today’s decision. Moody’s Corporation (NYSE:MCO) isn’t optimistic about Nokia, and the situation isn’t getting better.

According to Moody’s, securities rated B1 are “Obligations rated B are considered speculative and are subject to high credit risk.” That’s not high praise, but it does seem to represent the Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) situation fairly well. The company is strapped for cash and lording over a dying business in a thriving industry.

Problems going forward

The big worry for investors is that as problems continue to get worse at Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) it will become increasingly hard for the company to do business at all. If the company can’t pay the debt, debt owners lose out. The B1 rating is a fair representation of the risks at the company. If Nokia continues on this path, it will continue to have its debt downgraded.

Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) managed to secure a good source of cash flow recently with the acquisition of the outstanding shares in the Nokia Siemens group. That cash flow will help the company better afford its transformation, but it’s not massively scalable. If Nokia wants to have its debt upgraded at some point in the next decade it needs to build a smart phone business.

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