Wireless equipment giant Ericsson's ( ERICY) long-term corporate credit rating was today downgraded to junk status by Standard & Poor's today, marking the second time in two weeks the credit agency has pulled the company's rating down. The rating action follows S&P's downgrade last Monday to BBB-. Today the agency downgraded Ericsson's long-term corporate credit rating to BB+. Today's action comes right after Moody's
downgrade last Friday to Ba1, which essentially put the rating at junk status with that agency. Ericsson quickly put out a prepared statement that said the rating does not yet seriously impact the business, although it suddenly adds an additional $6 million to the company's annual financing costs. At the heart of the concern is the company's proposed 8-billion-share rights issue to raise an estimated $3.25 billion. A consortium of large shareholders has committed to purchase about $1 billion, provided that other current shareholders agree to snap up the remaining shares, according to an amendment filing this past Monday. If the rating falls below BB by Standard & Poor's or below Ba3 by Moody's, the offering would be jeopardized, according to the company. As of today, "This downgrade has no effect on our rights offering," said Ericsson chairman Michael Treschow in a statement. "As we have said earlier, the underwriting agreements with our banks remain firm, and so does the commitment from a group of our major shareholders." Ericsson, the largest global provider of wireless network equipment, is dead center in the eye of the perfect storm for telecommunications equipment, suffering from both the slowdown in demand for its gear and a gradual disinterest in much-hyped 3G services in Europe. In recent months the company has fought desperately to gird for more bad news in the next 12 to 18 months, including a painful company restructuring. The rights issue is being sold by the board of directors as a key component to shelter itself against the economy, should it continue to dive.