Spreads widen on US motor company debt
By Jenny Wiggins in New York and Aline van Duyn in London
Published: August 7 2002 5:00 | Last Updated: August 7 2002 5:00
news.ft.com
New fears that the US may be teetering on the edge ofa "double-dip" recession that may hurt the sales of manufacturers have led some investors to sell the debt securities of vehicle makers Ford and General Motors.
Spreads on Ford Motor Credit's 10-year bonds have widened more than 70 basis points since August 1 to be bid yesterday at 395bp over Treasuries. Similar maturity bonds of General Motors Acceptance Corp (GMAC) have widened by around 35bp to be bid at 295bp over.
The widening in spreads occurs as worry mounts over the failure of the US economy to bounce back from the downturn. Last week's disappointing second-quarter GDP report, in which growth was just 1.1 per cent, as well as declining consumer confidence have prompted many economists to call for a further cut in interest rates.
Although Ford's US car and truck sales were better than expected in July, up 1.5 per cent, they are down 9.1 per cent in the year to date compared with the same period in 2001. Credit analysts say investors are wary of more sales declines if the economy falters further.
"Consumer confidence is highly correlated with auto sales," said Domenick Fumai, analyst at BNP Paribas, adding that investors would rather sell sooner than later. "Better to do it now than if the economy goes into a recession."
Ford's bonds have widened more than GMAC's due to the higher risk associated with the company. Ford - which is the world's second-biggest issuer of debt securities after GE Capital - is undertaking a restructuring to lower costs and raise profits but this is taking longer than expected to complete.
Analysts said further economic deterioration could make it more difficult for Ford to meet its financial goals, which could have implications for its ratings.
Moody's Investors Service, which rates Ford at Baa1 with a negative outlook, said last week that its progress was "below expectations" in the key areas of cost reductions and market share improvement. Ford has been losing market share to GM and foreign vehicle makers.
The European motor vehicle sector, although also affected by spread-widening, has been less volatile than the US. With the exception of Fiat, which traders still believe could lose its investment grade rating, better-than-expected results for European vehicle manufacturers such as Volkswagen have supported their bonds.
Volkswagen Financial Services is planning a bond for at least €500m this month. Roadshows will start in two weeks and the company will keep a close eye on market conditions but the company is optimistic a transaction will be possible. |
