Moody's downgrades Ericsson's ratings

The international credit-rating agency Moody's said on June 17 it had downgraded the long- and short-term debt ratings of beleaguered Swedish telecom group Ericsson and warned of possible further downgrades.

Moody's downgraded Erics-son's long-term debt ratings to "Baa3" from "Baa2," and lowered to "Prime-3" from "Prime-2" the company's rating for short-term debt.

"The rating downgrade is based on a downward revision of Moody's expected transition cycle for mobile infrastructure equipment driven by the erosion of orders for second generation wireless systems and additional deferrals of installation plans for third- generation equipment in the market," it said.

The agency said Ericsson's ratings remained on review "for possible further downgrade."

In early June, Ericsson won shareholder approval for a 30 billion kronor ($3.09 billion) rights issue aimed at strengthening its financial situation.

Ericsson's management told an extraordinary general meeting of shareholders on June 6 that no date had been set yet for the issue, but it would take place before the end of September.

Company Chairman Michael Treschow confirmed to shareholders that the money would be used to strengthen the company's balance sheet and would not be spent on acquisitions.

Moody's said Ericsson's "projected cash consumption during the period until its cost base has been adjusted to depressed revenue levels will likely reduce the company's financial flexibility significantly compared to the rating category."