We assess Toshiba's liquidity to be "adequate" under our criteria. As of Sept. 30, 2012, Toshiba had JPY170.3 billion in cash and cash equivalents (totaling cash, deposits, and short-term securities)--below JPY507.4 billion in outstanding short-term debt. However, the company had a commercial paper (CP) program of up to JPY400 billion and unused committed credit facilities, and Standard & Poor's expects FFO for fiscal 2012 to around JPY400 billion. As such, we have no major concern about Toshiba's liquidity. The ratio of its long-term funding to total funding is around 70%, and as of September 2012 its debt maturities were well-diversified with no concentration of debt redemptions due to mature over the next one to two years. Moreover, the company has stable access to capital markets through CP issuances and its strong relationships with creditor financial institutions, including its main banks--Sumitomo Mitsui Banking Corp. (SMBC; A+/Negative/A-1) and Mizuho Corporate Bank Ltd. (A+/Negative/A-1).
The outlook on the ratings on Toshiba is stable. Standard & Poor's expects the company's social infrastructure segment to continue to underpin the company's overall profits and cash flow with stable profitability. Business risk in the electronic devices segment is high, and earnings from NAND flash memory for smartphones and tablets have downside risks and are dependent on demand, but are unlikely to worsen materially.
However, we may consider lowering our ratings on Toshiba if we see lower prospects for a recovery in its earnings in the next one to two years, because Toshiba's cash flow adequacy and debt-to-capital structure are slightly weak for its current ratings. The ratings may come under further pressure if we see receding prospects of recovery in major financial indicators for Toshiba, due to significant deterioration in earnings in fiscal 2012 or continued implementation of large-scale M&A transactions--for example, if we see receding prospects of improvement in debt (after adjustments for pension and lease obligations) to EBITDA to 3.0x or less over the next one to two years, due to projections that Toshiba's bottom line and free cash flow will fall substantially below Standard & Poor's expectations in fiscal 2012.
Conversely, we may raise the ratings if earnings continue to improve significantly compared with Toshiba's forecasts, and the ratio of its adjusted FFO to total debt remains over 30%, or if we see heightened prospects of adjusted debt to EBITDA easing to 2.5x or below over the next one to two years.