Moto credit rating lowered to junk status

Motorola Inc. had its credit rating lowered to junk status by Standard & Poor's because its declining handset business is eating into profitability.

The rating was cut two levels to BB+, one notch below investment-grade, S&P said Friday.On Dec. 2, Moody's Investors Service said it may downgrade the Schaumburg based Motorola's debt, currently rated Baa2, or two levels above non-investment grade.

Co-Chief Executive Officer Sanjay Jha is trying to turn around the phone business using Google Inc.'s Android software to build more advanced phones. He's going up against Apple Inc., Research In Motion Ltd. and Samsung Electronics Co. while also facing the global economic slump. Motorola said in October it won't meet a goal of splitting off the mobile phone unit by the third quarter of 2009.

"Revenues and profits in the first part of the year will be challenged by a narrower, somewhat-dated product portfolio," S&P's Bruce Hyman said in the statement. "Standard & Poor's also expects about 10 percent fewer handsets to be sold worldwide in 2009 at lower average prices than in 2008."

Motorola's handset business has lost about $2.8 billion in operating income since the start of 2007. The company's other units, which include networking gear, "partly offset these difficulties," Hyman wrote.

Motorola's 5.375 percent notes maturing in November 2012 fell 8 cents on the dollar to 90.7 cents on the dollar, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. The yield rose to 8.2 percent.

The cost of protecting Motorola's bonds from default has increased 33 percent in the past month. Credit-default swaps on Motorola climbed to 420.7 basis points today, up from 314.2 on Nov. 5, according to CMA Datavision in New York.