S&P Cuts Sony's (SNE) Long-Term Rating from BBB+ to BBB, Outlook Negative

September 25, 2012 6:50 AM EDT Send to a Friend
Standard & Poor's lowered the long-term corporate credit rating on Sony Corp. (NYSE: SNE), the ultimate parent of Sony Life, to 'BBB' from 'BBB+' and removed the rating from CreditWatch on Sept. 25, 2012. The outlook on the long-term rating on Sony Corp. is negative.
  • Because we hold the view that Sony Life's business and financial risk profile will remain strong and commensurate with the current ratings, we affirmed our 'A+' financial strength and long-term counterparty credit ratings on Sony Life and removed them from CreditWatch negative.

  • At the same time, we also affirmed the 'A' long-term and 'A-1' short-term counterparty credit ratings on Sony Bank Inc. and removed them from CreditWatch negative, reflecting our rating action on Sony Life.

  • The outlooks of the ratings on both Sony Life and Sony Bank are stable.
Below is the full release:


Standard & Poor's Ratings Services today affirmed its 'A+' financial strength and local-currency long-term counterparty ratings on Sony Life Insurance Co. Ltd. and removed them from CreditWatch with negative implications, where they were placed on Aug. 13, 2012. At the same time, we affirmed the local- and foreign-currency 'A' long-term and 'A-1' short-term counterparty credit ratings on Sony Bank Inc., and also removed them from CreditWatch negative. The outlooks on the ratings on both companies are stable.

Standard & Poor's holds the view that Sony Life's business and financial profile will remain strong. Although we lowered the long-term corporate credit and senior unsecured debt ratings on its ultimate parent, Sony Corp. (BBB/Negative/A-2), to 'BBB' from 'BBB+' and removed the long-term rating from CreditWatch negative (see "Ratings On Sony Corp. Lowered To 'BBB', Off CreditWatch; Outlook Negative," published Sept. 25, 2012), we believe the downgrade will have limited impact on Sony Life. Sony Corp. holds about a 60% stake in Sony Life's parent company, Sony Financial Holdings Inc. (SFH; not rated). We view Sony Life as a core operating entity of SFH.

In our view, Sony Life maintains a very strong competitive position as well as a solid operating performance and strong capitalization in Japan's individual life insurance market. When downgrading Sony Corp., we investigated the potential negative impact that its weakening credit profile could have on Sony Life and concluded that it will have very limited effect on the ratings on Sony Life. Currently, we do not observe any weakening in Sony Life's competitive position--it has built a good record of acquiring new businesses in individual life insurance and its surrender-and-lapse ratio has been improving to the level of other large Japanese life insurers. We also take the view that any financial support that SFH and its financial subsidiaries might be asked to extend to other business segments within the wider Sony group would be limited because they are regulated by the Banking Law and the Insurance Business Law. Based on SFH's publicly disclosed dividend policy, it may pay dividends to Sony Corp., a major shareholder. However, due to regulations on major shareholders, the amount is restricted to a level that will not lead to the risk of impairing what we view as SFH's sound and appropriate management of its insurance and banking businesses. Furthermore, Sony Corp. maintains a policy of separate management for the cash flow of its financial subsidiaries. Factoring these views into our analysis, we believe that the ratings on Sony Life will likely be maintained at the current level as long as the rating on Sony Corp. remains in the 'BBB' category. On the other hand, as Sony Life operates under the Sony brand, the insurer's franchise may be negatively affected if the brand faces any reputation risk, and such negative impact on the franchise may lead to lower profitability and capitalization. Therefore, we believe that the ratings on Sony Life will not be completely delinked from the rating on Sony Corp., and the financial strength and local-currency long-term counterparty ratings on Sony Life will not be higher than 'A+' as long as the rating on Sony Corp. remains in the 'BBB' category.

The stable outlook reflects our view that Sony Life will maintain its strong competitive position in the individual life insurance market and its solid financial risk profile. In addition, we expect Sony Life's stable and solid financial risk profile to support the credit quality of Sony's financial services group as a whole. We may consider upgrading Sony Life if we raise our rating on Sony Corp. to the 'A' category and if Sony Life's competitive position and financial risk profile remain at the current levels while the group financial subsidiaries maintain their financial soundness. However, we see a low likelihood for this scenario in the next 24 months. On the other hand, we may consider lowering the ratings on Sony Life if its stand-alone credit profile (SACP) weakens to a level that is not commensurate with current ratings, or if we lower the rating on Sony Corp. to the 'BB' category.

Separately, we affirmed our 'A' long-term and 'A-1' short-term counterparty ratings on Sony Bank, which we currently categorize as a strategically important subsidiary of SFH. The long-term counterparty rating on Sony Bank incorporates the extraordinary support factor from SFH in the form of a two-notch uplift from the bank's SACP. At the same time, we affirmed our SACP on Sony Bank because of its expanding business profile, good asset quality, and adequate capitalization, despite its low profitability, which is mainly due to intense competition in the online banking market. The stable outlook on the long-term rating on Sony Bank reflects the ratings outlook on Sony Life and the prospects of the bank's stand-alone performance. We may raise the long- and short-term ratings on Sony Bank if we raise the ratings on Sony Life and, at the same time, if Sony Bank successfully improves its earnings through measures, such as increasing its profit margins, or expands its economies of scale. We may also raise the ratings on Sony Bank if we believe that the bank has become even more important to the SFH group. Conversely, if we downgrade Sony Life, we may consider lowering the ratings on Sony Bank. Also, if Sony Corp.'s reputation deteriorates beyond our current expectation and hurts Sony Bank's business operations, we may lower the ratings on the bank.


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