Playboy Magazine: Not Even Double Ds Can Save It From a Triple C Credit Rating


It looks like Hugh Hefner will have even less money to dress his famous playmates as Standard & Poors downgraded the credit rating of Playboy Enterprises, owner of the famous adult magazine. Playboy's downgrade, which was from a B- to a CCC+, is alarming. While it does not indicate bankruptcy or the final days of the company, it reveals that Playboy could be facing greater financial trouble in the near future. The downgrade has incited fears that its decreasing earnings would put the company at risk of defaulting its obligations towards its creditors. Although it's faring a little better since Scott Flanders took over in 2011, the company is still looking for ways to cope with years of decreasing sales and profits, mainly a result of the free accessibility of on-line porn.

A credit rating is determined by four main credit rating agencies: Moody's, Standard & Poors (S&P), Fitch, and Dominion Bond Rating Service (DBRS). These agencies complete an assessment of a company or institution in order to determine whether an entity that issues a bond, a kind of IOU to be repaid at a specific date with interest, can or cannot repay as promised. A "Triple A" rating means that the entity has virtually no risk of defaulting the payment. But with such little risk involved, the return is very low. The lower the rating, the greater the risk of default, but the greater the return.

Playboy's has a CCC+ rating means there is a "substantial risk" that the company won't be able to pay backs its bonds. It also means that they the bonds yield more money at maturity, which is when the payment is due, than a U.S. government bond, which is rated at AA+. While this downgrade seemed scandalous at the time, is likely to happen again as other agencies have "negative outlooks" on U.S. credit rating, which means that if the government doesn't improve its finances, it's credit rating will be downgraded. Countries such as Japan and France also have negative outlooks.

A personal credit rating, or credit score, works in a similar way. In the U.S., three credit agencies assess whether an individual is at risk of defaulting a payment such as a credit card bill, mortgage, loan, etc. An individual credit score takes into account one's payment history, job security, and income among other factors.

Everyone, even young people, can actively improve their credit score. By paying your credit card bills on time, even if it's a student card, maintaining low overall debt and building a lengthy credit history, your score will rise quickly.

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