Following Ratings Agency Moody's recent re-appraisal of Sony's long-term bond rating to Baa3 (reportedly, their lowest investment-grade rating), Fitch has gone one further downgrading their view by three levels to BB-, casually referred to by investors as "junk" status (via GI International
Junk status is not an officially defined term, but generally refers to anything of BB status or below with a high risk of default and very little chance of any short or medium term gains.
The move "reflects Fitch's belief that meaningful recovery will be slow, given the company's loss of technology leadership in key products, high competition, weak economic conditions in developed markets and the strong yen," said the ratings group.
These conditions have hit Sony hard over the past year or two, partly prompting the promotion of former PlayStation boss Kaz Hirai to CEO and president of the group. His strategy of a 'joined up' Sony hopes to curb losses and build business by consolidating profitable areas of the business and building strategies for struggling branches such as flatscreen TVs.
However, with quarterly financial reports still showing a downward trend for both the games business and other core areas, Hirai's task is not getting any easier.
While undoubtedly cause for concern, a BB class rating indicates the agency still has some degree of confidence that structural changes by Sony can avoid their defaulting on debts. The state of affairs are also said to be less of a reflection of the company's performance in the entertainment space, and more an unfortunate consequence of exchange rate fluctuations that have affected many export-driven Japanese businesses.