Moody’s sent Ford Motor debt further into junk territory, citing the threat of a severe and prolonged downturn in auto markets due to the coronavirus.
The rating agency on lowered Ford’s corporate family and senior unsecured debt ratings to Ba2 from Ba1 and put the ratings under a downgrade watch as it reviews whether the company can “reverse a prolonged erosion in operating performance and competitive position in all of its key markets, which are now further burdened by what could be a lengthy period of weak demand and economic uncertainty.”
Ford’s ratings “reflect what is an already-stressed credit profile and a very long-term restructuring program,” Moody’s said in a news release. “The company is now additionally burdened by the prospect of a severe and prolonged decline in automotive markets precipitated by the coronavirus.”
Moody’s move was matched by S&P, which downgraded Ford from BBB- to BB+, one notch below investment grade.
The downgrade “reflects that the company’s credit metrics and competitive position became borderline for the investment-grade rating prior to the coronavirus outbreak, and the expected downturn in light-vehicle demand made it unlikely that Ford would maintain the required metrics,” S&P analyst Lawrence Orlowski wrote.
As The Financial Times reports, Ford has been struggling to execute a restructuring program aimed largely at addressing weak sales in Europe and South America.
“Now both demand and supply is being hurt by the spread of coronavirus,” the FT noted. “The company has closed plants in North and South America and Europe to protect production workers, and customers are staying away from showrooms as governments issue stay-at-home orders.”
Moody’s is forecasting that global demand for new vehicles will decline by about 15% for all of 2020, and could be down in the range of 30% for the second quarter. “Accelerating incidence of the coronavirus across the U.S. and EMEA could lead to even more extended production shutdowns and a much-delayed recovery in unit sales,” it warned.
Ford’s bonds had already sold off heavily in the corporate bond market rout this month as the spread of coronavirus led investors to expect the downgrade.