Motorola debt risks further weakness

By Karen Brettell - Analysis

NEW YORK (Reuters) - Motorola Inc's (MOT.N: Quote, Profile, Research, Stock Buzz) credit spreads have doubled as the company struggles with losses from its mobile phone division and explores alternatives for the unit, and its spreads face further weakness because of the great uncertainties ahead.

Motorola said on Thursday it was considering separating its mobile phone unit, in an apparent concession to demands from activist investor Carl Icahn.

Icahn also said on Friday he has nominated four directors for the board of the company.

"There is no question that this is welcoming news for shareholders," CreditSights analysts Zhiping Zhao and Allen Chachkes said in a report on Friday. "The impact to bondholders is much less clear."

News of a potential spinoff comes after Motorola said on January 23 it will post an operating loss in the current quarter as its mobile phone business is taking longer than expected to turn around.

The cost to insure Motorola's debt with credit default swaps has more than doubled in the past two weeks to 196 basis points, or $196,000 per year for five years to insure $10 million in debt, according to Markit Intraday.

In spite of the weaker credit spreads, large risks to bondholders remain and the credit spreads do not yet account for these, CreditSights said.

Options include spinning off or selling the phone division, which accounts for about half of revenue. Motorola also makes television set-top box and network equipment.