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The eBearing News
December 30, 2004
Koyo, NSK, NTN
Upgraded by Moody's
copyright © 2004 eBearing Inc.
Moody's Investor Services Inc., following its October 13 rating review notification, has raised the
long-term debt ratings
of Japan's three largest bearing manufacturers: Koyo Seiko Co. Ltd., NTN Corp., and NSK Ltd.
• article: Moody's considers upgrades for three Japanese bearing manufacturers
Moody's is one of several services (Standard and Poor's, Fitch, and Duff & Phelps are others)
rating the investment quality of various types of debt. Put simply, Moody's rates corporate debt
quality based on historical information about similarly situated companies and their likelihood of
default. Moody's has 23 levels of long-term corporate bond ratings, running in order from highest
to lowest:
| AAA | | | Highest Rating |
| Aa1 | Aa2 | Aa3 | Very High Quality |
| A1 | A2 | A3 | High Quality |
| Baa1 | Baa2 | Baa3 | Minimum Investment Grade |
| Ba1 | Ba2 | Ba3 | Low Grade |
| B1 | B2 | B3 | Very Speculative |
| Caa1 | Caa2 | Caa3 | Substantial Risk |
| Ca1 | Ca2 | Ca3 | Very Poor Quality |
| C | | | In Default |
NSK Ltd.
long-term debt rating was upgraded one step, from Baa2 to Baa1.
NSK is benefiting, said Moody's, from, "successful restructuring of operations, solid position in
the global bearing market, strong product profile, and the earnings recovery in its precision
machinery and parts division." Moody's also cited NSK's market position, with 35% of the Japanese
bearing market and 13% of the worldwide market, and its long-term, stable relationships with
Japanese auto manufacturers.
NSK's performance, noted the agency, has improved strongly over the past two years. Net profits were 5%
of sales, up from 0.8% only two years ago. Moody's said cost savings resulting from NSK's three-year
restructuring plan were strong, at ¥ 13.8 billion in the last fiscal year alone.
NTN Corporation
long-term debt rating was upgraded one step, from Baa2 to Baa1.
NTN exhibits strengths similar to NSK, said Moody's. Its performance going forward is, "supported
by its ongoing rationalization efforts and strong product profile."
The company has 26% of the Japanese domestic bearing market and 8% of the worldwide market. But in the
constant velocity joint segment, NTN has a 39% market share in Japan and 18% market share in the rest of the world.
NTN's profit margins hit 6.9% in the most recent period, up from 2.5% two years ago. Moody's said, "This
is largely attributable to the positive effect of its rationalization efforts under its structural reform plan,
New Plan 21, and the successful implementation of its strategy to concentrate its business resources on
constant-velocity joints (CVJ), axle units and needle roller bearings, which constitute the major
portion of its strategic products."
Koyo Seiko Co. Ltd.
long-term debt rating was upgraded two steps, from Baa3 -- the lowest investment grade -- to Baa1.
The upgrade will be particularly well received at Koyo. By lifting it now three steps above "junk" status,
Koyo could suffer another downgrade in the future and still remain solidly "investment grade."
Koyo is improving as its customers' fortunes improve, said Moody's. Koyo benefits
from, "its solid position in the automotive component industry in Japan and its close business relationship
with Toyota." Moody's went on to say,
"While Moody's expects that competition will further intensify in the auto parts industry from increasing
global sourcing activities by the major auto manufacturers, Koyo Seiko's long-term relationship with
Toyota and other Japanese auto makers will continue to positively contribute to its earnings improvement."
Toyota owns 24.5% of Koyo-Seiko's stock and accounts for 25% of its overall sales.
Koyo's operating profit margin strengthened to 4.3% for the year to March, from 0.8% two years ago, while
sales rose sharply to ¥ 505.2 billion from ¥ 404.3 billion over the same period.
Debt ratings are important
Credit ratings are extremely important operating tools for publicly-traded companies.
The effects a credit upgrade vary from one company to another. Generally, higher ratings mean
decreased costs of capital -- a company has to offer less incentive for investors to buy its debt.
In addition, loan agreements and/or funds available often depend upon a company maintaining a specific
minimum credit rating. Credit upgrades can ease loan covenants and help cash flow and liquidity.
Just a year ago, Moody's downgraded debt of The Timken Company (USA) from Baa3, the lowest
investment grade, to Ba1 or junk status.
• article: Moody's downgrades Timken debt
In October, with these upgrades for NTN, NSK and Koyo-Seiko in the wind, an analyst following Timken
told eBearing he believes this can only be good news for the company. Although every analysis
is separate, he said, there is a definite "halo effect" when a particular
industry sector is seen as performing well. "Let's just say this doesn't represent bad news for Timken," he said.
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- by Bruce A. Carr
from individual research,
tips and commercial sources.
Bruce Carr edited this content.
Copyrighted material; unauthorized reproduction prohibited.
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Entire contents Copyright © 1999-2011, eBearing Inc. All rights reserved.
eBearing.com and "... for everything that moves" are registered trademarks of eBearing Inc.
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