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Rating Action:

Moody's changes Pioneer's B2 rating outlook to stable

24 Feb 2010

Tokyo, February 24, 2010 -- Moody's Investors Service has changed to stable from negative its outlook for the B2 local currency issuer rating of Pioneer Corporation (Pioneer).

This rating action follows Pioneer's announcement on February 24, 2010 that the net proceeds from its common stock issuance have been fixed at about JPY29 billion.

The company also plans to issue its new shares through a third-party allotment, and will raise about JPY5.6 billion in March. Accordingly, the company will likely receive approximately JPY35 billion in total by the end of this fiscal year, FYE 03/2010.

The rating action reflects Moody's expectation that Pioneer's stock issuance will help the company mitigate the negative impact on its balance sheet of a net loss during this fiscal year. The result will be a reduction in downside risk.

Pioneer expects this net loss to total JPY54 billion, mainly because of a large operating loss and restructuring costs. The net loss could have damaged its balance sheet significantly in the absence of any capital injections. In Moody's estimation, its adjusted debt to capitalization may have surpassed 85% during FYE03/2010 from 73.6% in FYE03/2009. But, the new stock issuance would help keep the ratio around 75%.

The funds which Pioneer will receive through the new stock issuance will be used mainly for strengthening its car electronics business. Since Pioneer has decided to focus on this segment, withdrawing from its loss-making flat panel display (FPD) TV business, keeping its competitive edge in car electronics is strategically important.

Without these new funds, Pioneer would likely have to reduce its investment for the growth of this business, and which could result in a decline in its competitiveness.

Nevertheless, Moody's notes that Pioneer still needs to deal with the challenge of meeting its short-term funding needs and restoring profitability. Moody's will continue to monitor progress on these points. At the same time, Moody's recognizes that Pioneer has made steady progress, something which also supports the stable outlook.

Regarding its short-term funding needs, Pioneer originally estimated that it would need to finance JPY40 billion, including the funds for the redemption of about JPY 60 billion in euro-yen zero coupon convertible bonds due in March 2011. However, Pioneer may be able to generate sufficient funds to cover its funding requirements through reductions in its operating loss and restructuring costs, as well as the sale of assets.

For example, Pioneer expects to reduce its net loss by JPY29 billion -- from its original forecast of a net loss of about JPY83 billion for FYE03/2010 -- and which will make significant savings for its cash flow. Pioneer also plans to sell its assets, such as its former head office and investment securities, to generate about JPY20 billion. To expedite the process, it moved its head office last year.

Pioneer's operating performance is also recovering. It recorded an operating profit in its car electronics segment as well as overall in the third quarter of FYE03/2010. Pioneer's alliances with Honda Motor Co., Ltd. (A1), Mitsubishi Electric Corporation (MELCO, A1), and Shanghai Automotive Industry Corporation (Group) (unrated) in its car electronics business will help it save on development costs and increase sales in the future.

Besides these factors, Moody's believes that financial support from its major lenders remains strong, mitigating its short-term liquidity concerns. This uplifts the company's rating by two notches from its fundamental level of creditworthiness. Moody's notes the current rating incorporates the subordination of unsecured debt to secured bank loans.

If the company can further improve its financial flexibility, for instance, through the sale of assets and the improvement of loan conditions, while keeping its overall profitability, its ratings could be positively pressured. For instance, if Pioneer maintains operational profitability and keeps adjusted debt to capitalization below 75%, the outlook could change to positive.

Any event that could negatively affect its financial flexibility, such as a significant deterioration in profitability and cash flow and its failure to generate necessary funds, could lead to a downgrade of its ratings. For example, if Pioneer would seem to require more time to restore its profitability or adjusted debt to capitalization is expected to exceed 80%, the outlook could change to negative. Significant changes in its banking relationships would lead to a downgrade of two notches.

The last rating action for Pioneer took place on October 2, 2009, when Moody's downgraded the company's local currency issuer rating from B1 to B2 with negative outlook.

The principal methodology used in rating Pioneer was "Asian Consumer Electronics," published in January 2007, which can be found at www.moodys.com in the Research & Ratings directory, in the Rating Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies subdirectory.

Pioneer Corporation, headquartered in Kanagawa, is world leading manufacturer of car electronics.

Tokyo
Yoshio Takahashi
Analyst
Corporate Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Tokyo
Shinsuke Tanimoto
Senior Vice President - Team Leader
Corporate Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Moody's changes Pioneer's B2 rating outlook to stable
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