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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
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
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.
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
Senior Vice President - Team Leader
Corporate Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
No Related Data.
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