Delphi Bonds Downgraded to Junk Status by Moody's As Accounting Problems Raise Concern

NEW YORK March 8, 2005; The AP reported that Delphi Corp., the world's largest auto-parts supplier, got yet another dose of bad news after Moody's Investors Service on Tuesday slashed the embattled company's credit rating to junk status.

The move -- which will increase borrowing costs and limit the kind of institutional investors allowed to buy its bonds -- makes Moody's the third major rating agency to downgrade Delphi's debt. The company has been slammed by Wall Street amid a growing accounting scandal that caused the ouster of its chief financial officer, forcing shares to an all-time low.

"The rating downgrade reflects Moody's belief that because of the ongoing investigation of improper accounting practices at the company, heightened concerns over the adequacy of internal controls, and significant changes in management occurring at a time when the company is facing greater competitive and business challenges, Delphi's overall credit quality is not consistent with the maintenance of an investment-grade rating," the credit rating agency said in a report.

Moody's cut the company's unsecured rating two notches to Ba2 from Baa3, which is the lowest investment grade rating. The rating agency also gave Delphi's senior implied and senior unsecured issuer rating a Ba2 rating.

The Troy, Mich.-based company last week forced out CFO Alan Dawes after its audit committee expressed a "loss of confidence" in him and uncovered more problems with its books dating back to 2000. Other managers also were forced out of the company or were demoted, Delphi said.

In addition, Delphi has also been contending with production cuts at its largest customer, General Motors Corp. Problems at Delphi caused a number of downgrades from brokerages within the past few days, including action from Merrill Lynch on Monday. Further, a number of lawsuits have been filed on behalf of Delphi shareholders -- including one Tuesday that contends the company violated securities laws by issuing misleading statements that inflated the stock price.

Delphi has already seen its credit ratings dropped by Standard & Poor's Corp. in December to a double-B-plus rating, and Fitch dropped it to a double-B-plus last week while putting it on ratings watch with a "negative" outlook. Delphi has about $3.9 billion of debt.