Moody's Targets Koyo for Rating Upgrade

Moody's Investor Services Inc. announced it is reviewing Koyo Seiko Co. Ltd. (Japan) for an upgrade of its long-term debt rating. Koyo is currently at Baa1, where it was upgraded from Baa3 late in 2004. An upgrade from Baa1 would be a major event, moving Koyo from "Minimum Investment Grade" to "High Quality" and radically changing its access to lower-cost financing and borrowing options. An upgrade would also boost its stock price, as companies with debt rated "High Quality" are often added to commercial investment portfolios where "Minimum Investment Grade" are not. Moody's is one of several services (Standard and Poor's, Fitch, and Duff & Phelps are others) rating the investment quality of various types of debt. Put simply, Moody's rates corporate debt quality based on historical information about similarly situated companies and their likelihood of default. Moody's has 23 levels of long-term corporate bond ratings, running in order from highest to lowest: AAA Highest Rating Aa1 Aa2 Aa3 Very High Quality A1 A2 A3 High Quality Baa1 Baa2 Baa3 Minimum Investment Grade Ba1 Ba2 Ba3 Low Grade B1 B2 B3 Very Speculative Caa1 Caa2 Caa3 Substantial Risk Ca1 Ca2 Ca3 Very Poor Quality C In Default The agency said its rating action, "reflects Moody's view that the merger between Koyo Seiko and Toyoda Machine Works, Ltd. planned for January 1, 2006, may result in a combined new entity with increased competitiveness and earning power." Full details of the Koyo / Toyoda merger were revealed this past August. Koyo operates two divisions -- bearings and steering -- while Toyoda Machine Works operating divisions are machine tools and automotive parts, including steering. The new company will be named JTEKT Corporation. The name JTEKT is formed from a combination of the "J" of "joint," "joy," and "Japan" and the ancient Greek word "tekton," which meant one possessing superior technical skills. The final "KT" also can stand for the first initials of Koyo and Toyoda. Both Koyo and Toyoda have long and very close ties to Toyota Motor Corp. Toyota owns almost 23% of Koyo Seiko, and almost 24% of Toyota Machine Works. A deputy director from Toyota Motor Corp. has been named a managing officer of JTEKT. Kohshi Yoshida, currently President of Koyo Seiko, will be named President of JTEKT once it is properly formed and beginning to build operations.