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Speedcast share price plummets 5% after ratings downgrade

The Speedcast International Ltd (ASX: SDA) share price has plunged 5.83% in morning trade after a credit rating downgrade by S&P Global.

What did Speedcast announce this morning?

Speedcast said that S&P has lowered its issuer credit rating to ‘B-‘ from ‘B’ and maintained its outlook as ‘Negative’.

The Aussie remote communications and IT solutions group does not have any ratings covenant on its debt facilities. As a result, the downgrade should have no direct impact on its funding costs.

What does this mean for the Speedcast share price?

It’s important to remember that rating agencies such as S&P are focused on a company’s debt, rather than its equity. Often these two have very different characteristics and objectives around risk and reward.

However, a credit rating downgrade usually sends a negative signal about the rating agency’s confidence in the group’s financials. Another indirect cost is the potentially higher cost of borrowing due to a credit downgrade.

It’s also worth noting that S&P’s outlook is remaining at ‘Negative’, which indicates Speedcast could hit a ‘CCC’ rating.

Speedcast is continuing to pursue operational initiatives to cut costs and working capital while boosting cash flow. 

The Speedcast share price has been under pressure in 2019 and today’s fall continues this downward trend. 

Why has the Speedcast share price been under pressure in 2019?

Speedcast shares have had a shocker in 2019, plummeting 65.81% to $0.94 per share. This is a long way shy of the company’s 52-week high of $4.15 set back in April.

Speedcast shares entered freefall in early July after updating its expectations for 1H2019 and FY19. These included significantly lower underlying EBITDA numbers for both periods due to “evolving market conditions”.

The Speedcast share price hasn’t recovered and hit as low as $0.68 per share in August.

Foolish takeaway

Today’s credit rating downgrade could see the Speedcast share price continue to slide lower, however, it’s important to remember it does reflect S&P’s view of the company’s credit, rather than its equity.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.