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Apple's S&P rating lowered

Standard & Poor?s said it has lowered its rating on Apple?s debt, citing concerns over the company's operating losses and its management turnover.

Standard & Poor?s today said it has lowered its rating on Apple?s (AAPL) debt, citing concerns over the company's operating losses and its management turnover.

S&P ratings serve as a gauge of the likelihood that buyers of a company?s debt--offers that essentially are like IOUs with interest payments--will receive repayment on their investments.

The lowering of Apple?s rating may make it harder for the company to attract investors for its debt offerings, and reflects reduced confidence in the computer maker?s ability to pay back investors.

The review stated that the outlook reflects Standard & Poor's expectation of Apple?s continuing losses and diminished liquidity. A material decrease in Apple's cash balances and liquidity could lead to lower ratings in the near term; longer-term concerns include Apple's ability to achieve its strategic goals given its business, management, and financial challenges, S&P said.

S&P lowered Apple?s corporate credit rating, in addition to its rating of the company's senior unsecured debt, to a B- from a B. And its subordinated debt rating went to CCC from CCC+.

S&Ps top four investment grade ratings--AAA, AA, A, and BBB--indicate little risk that a corporate issue will default on its interest payment or principle when due.

"The farther below you go from investment grade, the greater the risk," said Molly Toll-Reed, S&P analyst. "The B category is more vulnerable to non-payment, but currently has the ability to meet obligations. But that means events, however, could affect the issuer's ability and willingness to meet its obligation."

The CCC rating has similar circumstances, but is at a higher degree of exposure, she said.

S&P noted that, while Apple has made "significant" progress in reducing its staff and operating costs, the company has been struggling with an increasingly competitive environment, shrinking market share, operating losses, and turnover in its executive ranks.

Earlier this week, Apple announced that its fiscal 1997 ended with a $1 billion loss. And the latest in a string of departures came when Dave Manovich, senior vice president of international sales, and James McCluney, senior vice president of worldwide operations, resigned.

The rating agency also noted that, while Apple?s near-term liquidity is adequate, with $1.2 billion in cash at the end of its September quarter, its liquidity could be reduced by expected near-term operating losses.

"If, in the next quarter or two, Apple?s cash balance goes down by another $500 million, we?ll take another look at their rating," said Toll-Reed.

S&P pointed to Apple?s expense of developing its own operating system as the primary reason why it is experiencing higher operating costs than its PC competitors.