Palm is Named in S&P's Latest Weakest Links Report
In its most recent Global Bond Markets' Weakest Links and Monthly Default Rates report, Standard & Poor's has named Palm Inc. and 140 other US companies on its "Weakest Links" list of low quality debtors. The category represents entities rated 'B-' or lower, with either a negative outlook or ratings on CreditWatch with negative implications, that are most vulnerable to default according to S&P.
Time Magazine has just published an article which takes a look at some of the implications of the report and makes a passing mention about Palm being a "troubled firm." PalmInfocenter has obtained a copy of the report and we take a further look at how it specifically relates to Palm.
The report itselft does not go into any detail on Palm Inc's current competitive or financial situation. The company is merely included in the overall list of Weakest Links specifically in the "B-/Outlook Negative" section with $400 million in debt.
The $400 million in debt referenced in the S&P report comes from Palm's recapitalization deal last year. Palm secured $400m of new debt at the time to fund the cash distribution made to shareholders as part of the deal. That loan was made with JPMorgan Chase Bank, and Morgan Stanley Senior Funding, Inc. in October 2007. As per Palm's most recent 10-Q filing, the Term Loan does not mature until April 2014, so it is unlikely to impact Palm significantly in the immediate short term.
In total the report lists 181 companies and includes a wide range of firms such as Ford and General Motors, JetBlue and United Airlines, Eddie Bauer and Krispy Kreme doughnuts. S&P says the continued increase in weakest links (up 19 more companies since last month's report) is not surprising given the extreme volatility in the credit markets and the unfolding recessionary conditions in the U.S. It states that during the 2001 recession, the sharp rise in defaults accompanied the rise in weakest links and that in 2008 so far, 54 of the 61 publicly rated companies that have defaulted through Oct. 15 were weakest links.
Palm's current situation may appear bleak given the company has reported a loss for its five most recent quarters with no end in sight, however Palm has been preparing for and is actively engaged in this transitionary period for some time now. During the last conference call Palm CEO Ed Colligan remarked:
Our cash position remains sound and will allow us to navigate this period while still positioning Palm for a timely launch of future products. After that, we look forward to delivering consistent and growing revenue, profits, and cash flow.
Furthermore Palm's CFO Andy Brown commented in more detail on the companies cash position:
As Palm proceeds through the transformation Ed described, we are making every effort to improve cash flow while still adequately funding our transformation. [...] On a whole, our company had a promising August quarter, but we will continue to face pressure on our operating results for the next couple of quarters until we introduce our new platform and next generation devices and add carriers to distribute our Treo products. [...] As you can see, we have a couple of quarters of Palm's transformation left to navigate. We are closely managing our business for sustained profitability once we get through this transformational period.