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 StablePublication 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 Servicessaid today that it lowered its corporate credit and senior unsecured ratingson Palo Alto, Calif.-based Hewlett-Packard Co. (HP) to 'BBB+' from 'A', andremoved them from CreditWatch, where they were placed with negativeimplications on Aug. 18, 2011. At the same time, we lowered our short-termrating on HP to 'A-2' from 'A-1'. The outlook is stable."The downgrade reflects liquidity and financial flexibility that have beenreduced by more aggressive financial policies, including the use of leverageto fund the recent $10.2 billion (net) Autonomy acquisition," said Standard &Poor's credit analyst Martha Toll-Reed, "and annual share repurchases well inexcess of discretionary cash flow." In addition, we have concerns that HP'sinconsistent growth strategies and high levels of Board of Director and seniormanagement turnover have elevated the level of operational and execution riskin the near term.The stable outlook reflects our expectation that HP's operating trends andfinancial policies will sustain debt protection metrics near current levels.We could lower the rating if debt to EBITDA is likely to exceed the low-2xarea on a sustained basis because of weaker operations or incremental debt. Ahigher rating is unlikely for the near-to-intermediate term, based on currentleverage levels, an ongoing emphasis on shareholder returns, and ourexpectation that continuing investments will be required to maintaincompetitiveness.