Credit ratings agency Moody’s Investors Service Inc. said Friday that it is reviewing Sony Corp.'s credit rating and could downgrade it to junk status.
The news comes one day after Tokyo-based Sony, which reports its earnings in yen but provides some conversions into U.S. dollars, posted a net loss of $197 million for its fiscal second quarter, an increase of 25% from the same quarter a year earlier.
Moody's is reviewing Sony's long-term senior unsecured bond rating, which currently stands at "Baa3," the lowest on the credit ratings agency's scale for investment-grade debt. A downgrade to the "Ba1" level or lower would place Sony's credit rating in junk territory.
"The rating actions reflect the slow progress being made in improving overall profitability," Moody's said in a statement. "Weak earnings across the majority of reporting units suggests the potential for a much longer period of restructuring and financial weakness than previously expected."
Revenue increased for Sony’s television, music, video games, mobile devices and movies divisions in the second quarter. However, among those five units, only the music group had an operating profit.
Analyst Harold Vogel said the announcement that Moody's is reviewing Sony's bond rating could potentially make it more difficult for the company to borrow money.
Shares of Sony were down 2.78% in midday trading Friday to $16.77.
Moody's review of Sony's credit rating "is in effect like a downgrade. The market doesn’t wait," Vogel said.
Sony declined to comment.
As part of Thursday's earnings announcement, Sony also downgraded its financial outlook for the fiscal year that ends in March, forecasting a profit of about $305 million — down 40% from an August profit estimate.The company's movie unit -- for months the focus of scrutiny from activist hedge fund investor Daniel Loeb -- posted an operating loss of $181 million in the second quarter, which ended Sept. 30.
Sony singled out its summertime flop “White House Down,” which starred Channing Tatum and Jamie Foxx, as a drag on the performance of the movie division, Sony Pictures Entertainment. The expensive action picture, about an assault on the White House by a paramilitary group, grossed $205 million worldwide against a budget of about $150 million.
Shareholder Loeb began to pressure the company earlier this year. In May he kicked off a campaign of public pleas for Sony to adopt his proposal to make an initial public stock offering of up to 20% of its entertainment division. Loeb's company, Third Point, owns about 6.5% of Sony.
The company said this summer that it would consider Loeb's proposal, but rejected the idea in August.
Third Point declined to comment.