Breaking: Softbank Bonds Gets Severe Downgrade; WeWork Bonds Suffer
Moody’s tops standard & poor’s’ with an even more severe downgrade of Softbank’s bonds—WeWork bonds plunge another 15 pts to 37.8.
Boom. Moody's topped Standard & Poor's with an even more severe credit quality downgrade of Softbank Group (9984 JP) debt, cutting it two notches from Ba3 from Ba1—junk quality just above triple-"C".
Very ugly, but both credit rating agencies are echoing echo mounting concerns I've raised for months about Softbank's overly aggressive strategies to save WeWork versus its owns own rapidly eroding circumstances, and this has severely damaged its financial condition (most recently discussed in WeWork Prepares Board Fight to Force Softbank to Comply on 3/23/20).
Now Softbank is compounding risk with massive selling of its best assets as market value has collapsed, a desperate enough move by itself, made worse because it's not focused on paying off debt and bolstering its cash. Its primary goal is to pursue massive stock buybacks.
The result is to further weaken its financial condition by reducing its best assets—which increases the proportion of its weakest assets while also squandering liquidity resources.
Moreover, debt costs will be barely reduced during a time when revenue is falling and costs are rising, so juicing earnings per share via less stock outstanding fools no one about the quality of its stuttering earnings any more than investors should believe Softbank's lofty book values it claims its assets are worth.
So much for Softbank salvaging its reputation as a savvy asset manager and visionary investor.
As I've said before, we debt curmudgeons are a wary bunch.
All this is even worse news for WeWork bonds since it spikes risks that Softbank will back out of its rescue takeover all together, as I have warned, leaving it to sink or swim on its own.
And WeWork can't swim, much less keep itself afloat.
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