TEXT-S&P: CreditWatch Review Factors For Sharp Remain Unchanged

(The following was released by the rating agency)

TOKYO (Standard & Poor's) Oct. 1, 2012--Standard & Poor's Ratings Services said today that the factors it will review in resolving the CreditWatch placement of the ratings on Sharp Corp. (BB+/Watch Neg/B) remain unchanged following the company's announcement on Sept. 28 that it has signed a JPY360 billion syndicated loan agreement with Mizuho Corporate Bank Ltd. (A+/Negative/A-1) and Bank of Tokyo-Mitsubishi UFJ Ltd. (A+/Stable/A-1). The contract, the term of which ends June 30, 2013, consists of a JPY180 billion term loan and a JPY180 billion uncommitted line of credit.

In our view, the signing of the loan agreement will not improve the company's debt profile materially, because the contract term of the agreement is short and Sharp's debt profile is likely to remain largely dependent on short-term debt. Although we believe the signing of the loan agreement confirms our assumptions to some extent that major creditor banks will continue to provide Sharp with stable financing and that the company does not face serious problems refinancing its debt, we consider that the factors we will review in resolving the CreditWatch status remain basically unchanged. The factors include: Ongoing developments regarding a strategic alliance with Taiwan-based electronics maker Hon Hai Precision Industry Co. Ltd. (A-/Stable/--) and how it would benefit Sharp's business and financial risk profiles; Sharp's debt profile and how it can secure funding sources with longer terms beyond June 2013 to meet debt maturities in the future and reduce dependence on short-term debt; and Sharp's business strategy to restore earnings in the near to medium term, and potential downside risks to earnings performance.

We will consider lowering the ratings if Sharp's earnings in fiscal 2012 and prospects for its recovery deteriorate even further or the company's financing environment and relationships with creditor banks and strategic partners worsen. In addition, given the unfavorable financial market conditions for the company in recent months, we will examine if the signed loan agreement is further secured with assets held by Sharp, and assess the company's priority debt ratio in considering the potential for additional lowering of the issue ratings. Specifically, the issue rating will be notched one notch down from the corporate rating if we believe the priority debt exceeds the threshold of 15% against the company's assets if the long-term rating is 'BB+' or lower.

We aim to resolve the CreditWatch by the end of November 2012, or 90 days from the CreditWatch placement of Aug. 31, 2012, as we reassess the company's medium- to long-term business and alliance strategies, and future refinancing plans beyond June 2013.


2008 Corporate Criteria: Analytical Methodology, April 15, 2008