Capital Markets

Ford Driven Deeper into the Junkyard

Moody's and S&P downgrade the automaker's debt, again.
Stephen TaubSeptember 19, 2006

On the heels of massive job cuts at Ford Motor, the world’s two major credit rating agencies downgraded the debt of the automotive giant and its credit unit.

On Tuesday, Moody’s Investors Service lowered Ford’s ratings to B3 from B2, and Ford Motor Credits rating to B1 from Ba3. Standard & Poor’s Ratings Services cut its ratings on Ford and its finance unit to “B” from “B-plus” putting the rating five levels below investment grade, reports Reuters. Both rating companies said their outlook is negative, suggesting that more rate cuts are likely.

In its announcement, Moody’s cited “the intense pressure” the company is facing as a result of the shift in consumer preference away from trucks and SUVs, and toward more fuel efficient vehicles. Although Ford’s recently announced that it would accelerate its “Way Forward” restructuring plan to address demand risks, Moody’s believes that “company’s operating performance and cash flow will be very weak through 2009 even if the execution of the plan is highly successful.”

The rating agency also said it anticipates it will be difficult for Ford to achieve all of the cost, revenue, and pricing objectives contemplated by the plan. Moody’s senior vice president Bruce Clark acknowledged in a report that Ford’s $23 billion in cash, and $6 billion in committed bank lines, give the company “a sizable cushion” to cover near-term expenditures. But, he warned Ford’s historically “robust liquidity will be significantly reduced by these expenditures” and could be further eroded factors such as the slowdown in the U.S. economy, a spike in oil prices, a rise in price discounting, or a union work action in 2007.