ThyssenKrupp long term credit rating downgraded
The rating agency Standard & Poor's decision to downgrade ThyssenKrupp's long term corporate credit rating from BBB to BB plus has received strong protest from the Dusseldorf based steelmaker.
The international rating agency put 12 companies on watch list on February 7, 2003 following a review of 500 European businesses raised fears that their finances could become stretched by rising shortfalls between pension liabilities and resources.
Officials from ThyssenKrupp expressed their concern that despite no facts of the group have changed; Standard & Poor's have changed its methods to evaluate the pension obligations. Standard& Poor's explained that it treats the unfunded pensions as debt-like in character. Including unfunded pensions in the calculation of the group's indebtedness, credit protection measures are weak.
But ThyssenKrupp said S&P had ignored a marked improvement in its balance sheet over the past year. However, even though the group reduced net debt by € 2.3billion ($2.5billion) to €4.9billion in 2002, it still has unfunded pension and healthcare liabilities of €7.06billion and pays about €450million a year to service these obligations. In case of a war in
Iraq or another financially troublesome situation, these costs are seen as potential trouble to have negative effect on the company's performance.
The chief executive of the company, Ekkehard Schulz, said last week that the rating downgrade would add about €20million to yearly interest payments. However no influence is expected on the group's planned
investments and still earnings are predicted to rise significantly this year.
The question is now whether Moody's Investors Service will also follow suit and downgrade ThyssenKrupp while only one rate cut is still enough to change balances in the bond market, prompting forced selling by many investors, as they cannot hold debt rated below investment grade.