MOODY'S DOWNGRADES DEBT RATINGS OF THOMSON S.A. AND THOSE OF ITS GUARANTEED SUBSIDIARIES (SR. TO Baa1 SHORT TERM TO PRIME-2); CONFIRMS A3 COUNTERPARTY RATING OF THOMSON-CSF, A SUBSIDIARY
New York, 04-04-96 -- Moody's Investors Service downgraded its long and short-term debt ratings of Thomson S.A. and those of its guaranteed subsidiaries to reflect the expected delinking of credit support from the French state after Thomson's anticipated near term privatization. Moody's also said that downward rating pressure will continue due to the rating agency's expectation for a weak operating environment for Thomson's primary businesses, consumer and defense electronics. The A3 counterparty rating of Thomson-CSF, a Thomson subsidiary, was confirmed because of its stronger overall financial condition and somewhat better business outlook as well as its strategic importance to the French state, even after the expected privatization. These actions complete the review initiated on January 26, 1996.
Ratings downgraded were:
Thomson S.A. -- its MTN program rating to Baa1 from A3; its counterparty rating to Baa1 from A3; and its short-term debt rating for commercial paper to Prime-2 from Prime-1.
Thomson Commercial Paper (U.S) Inc. -- short-term debt rating for commercial paper guaranteed by Thomson S.A. to Prime-2 from Prime-1.
Thomson Brandt International B.V. -- the rating on its senior debt, which is guaranteed by Thomson S.A., to Baa1 from A3 and its short-term rating to Prime-2 from Prime-1.
Moody's review focused on the possible outcome of privatization and the business and cash flow outlook of both Thomson S.A. and Thomson-CSF. The rating agency concluded that while under likely scenarios the balance sheet of Thomson S.A. may improve, its overall operating and cash flow outlook will not strengthen materially. Moody's believes that the consumer electronics market will continue to be adversely affected by intensive competition and poor pricing. In such an environment, Moody's believes that Thomson's consumer electronics business is unlikely to translate its leading market and technology positions into strong operating and cash flow performance over the intermediate term.
Regarding Thomson's defense electronic subsidiary -- Thomson-CSF -- Moody's expects pressures stemming from declining defense budgets, worldwide, to continue over the intermediate term. Longer-term, however, Moody's expects defense spending, worldwide, to stabilize and possibly to show moderate increases, at least in nominal terms. However, Moody's noted that Thomson-CSF is operating in a rapidly consolidating industry and participation of the company in this process is expected and needed -- especially given the significant consolidation of the U.S. defense industry.
Moody's stressed that when the specifics of the privatization are known it will again review Thomson S.A.'s and Thomson-CSF's credit quality. Moody's also cautioned that under certain scenarios for the privatization, such as possible mergers and acquisition for debt, the credit quality of both the parent and subsidiary could significantly weaken more than Moody's current ratings reflect.
Thomson S.A., headquartered in Paris, France, is a major manufacturer of defense and consumer electronics.
Thomson-CSF, headquartered in Paris, is the defense electronics subsidiary of Thomson S.A.
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