Thursday, April 13, 2006

Nasdaq's Credit Slides Again

To be sure, Nasdaq made a splash when word came out that they purchased a chunk of LSE. However, NDAQ's purchase cost it significantly more than just the cash they used to buy their LSE shares. It cost them a further slide in their credit rating. In fact, as you'll read below, Nasdaq is now flirting with junk status.

Among other negatives, companies with poor credit quality end up needing to pay higher rates on their debt. Their debt becomes more difficult to fund. This results in inability to grow and compete.

Here is a clip from a story released this morning by Dow Jones Newswire's Gaston Ceron:

"Nasdaq is facing scrutiny from credit-rating agencies over the debt it's shouldering to finance the LSE share purchase, which follows the heavier debt load Nasdaq took on just last year for its December acquisition of the Inet stock-trading system. Wednesday, Moody's Investors Service cut its ratings on Nasdaq to Ba3 from Ba2, also lowering its rating outlook to negative from stable. Although there are benefits to a deal with the LSE, Moody's noted that the share purchase "will initially result in a material increase in leverage and erosion of debt service coverage."

The action by Moody's came a day after Standard & Poor's placed its BBB- counterparty credit rating on Nasdaq on CreditWatch with negative implications, signaling that Nasdaq's rating could be cut to junk status by S&P. Like Moody's, S&P also cited the LSE stake buy."


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