By The Financial Lexicon
In the wake of Nokia’s (NOK) latest announcement about actions “aimed at sharpening its strategy, improving its operating model and returning the company to profitable growth,” the stock got crushed, falling to a new 52-week low. While many investors may be focusing on the seemingly never-ending decline in Nokia’s stock, the bonds are sending a message as well.
Nokia’s senior unsecured notes are currently trading at yields that indicate the rating agencies are very wrong in their ratings-and not in a good way. In other words, the market is saying the rating agencies are rating Nokia too high. At the moment, Moody’s rates Nokia’s senior unsecured debt Baa3, the lowest investment grade rating available. S&P and Fitch have BB+ ratings on Nokia’s debt, the highest junk rating a bond can receive. Currently, the “BofA Merrill Lynch US High Yield BB Option-Adjusted Spread” is at 4.99%, while the BBB spread to Treasuries is at 2.83%. Nokia’s 5/15/2019 maturing, 5.375% coupon, senior unsecured note, CUSIP 654902AB1, is currently asking 905 basis points more than a comparable Treasury, while the 5/15/2039 maturing, 6.625% coupon, senior unsecured note, CUSIP 654902AC9, is asking 653.5 basis points more than a comparable Treasury. These spreads are far in excess of what a correctly rated Baa3/BB+/BB+ corporate note should be trading at given current market-wide spreads.
In terms of yield, the aforementioned Baa3/BB+/BB+ rated seven-year Nokia bond is yielding 10.095%.
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