S&P cuts HP credit rating on lack of strategy, management turnover

Credit rating agency Standard & Poor’s downgraded Hewlett-Packard’s credit rating earlier this week, citing poor policies, a high turnover rate among top executives and an unclear strategy. HP’s local and foreign long-term debt ratings now sit at BBB+, down from A, making it more expensive for the company to borrow money. The firm also cut HP’s short-term rating to A-2 from A-1. ”We have concerns that HP’s inconsistent growth strategies and high levels of board of director and senior management turnover have elevated the level of operational and execution risk in the near term,” S&P analyst Martha Toll Reed said in a statement. The agency also said that HP’s $10.2 billion Autonomy acquisition has reduced the company’s liquidity and financial flexibility. S&P’s press release follows below.

Hewlett-Packard Co. Corporate Credit, Senior Unsecured Ratings Lowered To ‘BBB+’; Outlook Stable
Publication date: 30-Nov-2011 16:25:02 EST

• Hewlett-Packard Co. recently clarified that it is maintaining its fundamental business mix, including the retention of its Personal Systems Group.
• The company also set expectations for lower revenues and profits in 2012.
• We are lowering our corporate credit rating on the company to ‘BBB+’ from ‘A’ and removing it from CreditWatch.
• We are also lowering the short-term rating to ‘A-2′ from ‘A-1′.
• The stable outlook reflects our expectation that HP’s operating trends and financial policies will sustain debt protection metrics near current levels.

NEW YORK (Standard & Poor’s) Nov. 30, 2011–Standard & Poor’s Ratings Services
said today that it lowered its corporate credit and senior unsecured ratings
on Palo Alto, Calif.-based Hewlett-Packard Co. (HP) to ‘BBB+’ from ‘A’, and
removed them from CreditWatch, where they were placed with negative
implications on Aug. 18, 2011. At the same time, we lowered our short-term
rating on HP to ‘A-2′ from ‘A-1′. The outlook is stable.
“The downgrade reflects liquidity and financial flexibility that have been
reduced by more aggressive financial policies, including the use of leverage
to fund the recent $10.2 billion (net) Autonomy acquisition,” said Standard &
Poor’s credit analyst Martha Toll-Reed, “and annual share repurchases well in
excess of discretionary cash flow.” In addition, we have concerns that HP’s
inconsistent growth strategies and high levels of Board of Director and senior
management turnover have elevated the level of operational and execution risk
in the near term.
The stable outlook reflects our expectation that HP’s operating trends and
financial policies will sustain debt protection metrics near current levels.
We could lower the rating if debt to EBITDA is likely to exceed the low-2x
area on a sustained basis because of weaker operations or incremental debt. A
higher rating is unlikely for the near-to-intermediate term, based on current
leverage levels, an ongoing emphasis on shareholder returns, and our
expectation that continuing investments will be required to maintain
competitiveness.