March 10, 2005
Delphi bonds downgraded as accounting problems raise concern
New York, New York – In the wake of problems uncovered in its accounting, Delphi Corp., the world’s largest auto-parts supplier, had its credit rating slashed to “junk” status by Moody’s Investors Service Tuesday.
The move will increase borrowing costs and limit the kind of institutional investors allowed to buy its bonds. Moody’s is the third major rating agency to downgrade Delphi’s debt following a growing accounting scandal that saw its chief financial officer ousted and its shares forced to an all-time low.
“The rating downgrade reflects Moody’s belief that because of the ongoing investigation of improper accounting practices at the company, heightened concerns over the adequacy of internal controls, and significant changes in management occurring at a time when the company is facing greater competitive and business challenges, Delphi’s overall credit quality is not consistent with the maintenance of an investment-grade rating,” the credit rating agency said in a report.
Moody’s cut the company’s unsecured rating two notches from Ba2 to Baa3, the lowest investment grade rating.
Delphi, based in Troy, Michigan with facilities around the world, including several in Canada, last week forced out CFO Alan Dawes after its audit committee expressed a “loss of confidence” in him and uncovered more problems with its accounting, dating back to 2000. Other managers were forced out of the company or were demoted.
In addition, Delphi has been contending with production cuts at its largest customer, General Motors Corp, and a number of lawsuits that have been filed on behalf of Delphi shareholders, including one Tuesday that contends the company violated securities laws by issuing misleading statements that inflated the stock price.
Delphi has already had its credit ratings dropped by Standard & Poor’s Corp. in December to a double-B-plus rating, and Fitch dropped it to a double-B-plus last week, while putting it on a ratings watch with a “negative” outlook. Delphi has about US$3.9 billion of debt.