The Associated Press reports the rating was lowered due to expectations the art market will be slow to recover, indicating Sotheby's may not see a strengthened financial statement until sometime in 2011. If correct, the 2011 recovery date is bad news for all within the auction and art business as it means that better times are much further off than many have expected or predicted. Perhaps we have hit bottom, but the return to financial strength appears to be a slower than expected process. The good news for Sotheby's is they are expected to weather the current economic slowdown and eventually recover. It just seems the expectations are it will take longer for the recovery than initially indicated.
Sotheby's also obtained a new line of credit with participation from GE's financial arm with a new limit of $200 million. The line is $50 million more than the previous line, and the interest rate is expected to be at least 6% according to CNNMoney.com. Sotheby's stock is also up over 7% this year, trading around $15.25 per share.
I find it interesting bankers are willing to loan money and increase a line of credit, state a recovery within the auction market will be slow although expected, and at the same time lower the debt rating to junk status. Typically a lowered corporate credit level to junk status is not a good omen. With Sotehby's, the predictions are all positive for a return to financial strength, yet Moody's lowers is rating. Interesting indeed.
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