Ford Debt Cut to Junk by Fitch, to Leave Lehman Index (Update3)
quote.bloomberg.com
Dec. 19 (Bloomberg) -- Ford Motor Co., the second-biggest U.S. automaker, was cut to junk by Fitch Ratings amid falling sales, forcing the bonds of its finance unit out of Lehman Brothers Holdings Inc.'s investment-grade index, the most widely followed among investors.
The automaker that created the Model T and the Mustang muscle car had its senior unsecured debt ratings on $18.3 billion in debt lowered one level to BB+ from BBB-, Fitch said in a statement today. Ford Motor Credit Co., the automaker's lending affiliate with $123.5 billion in debt, was also cut to BB+.
Ford will have few new products over the next several years, Fitch said, and will have more competition from Asian companies, especially in the sport-utility and pickup truck segments, which have had the company's highest profit margins.
``With the escalation of gas prices, it's really uncertain whether sales of midsize and large SUVs have troughed or not,'' said Mark Oline, head corporate-debt analyst at Fitch, in a phone interview from his office in Chicago. ``The trend away from this has been very rapid. We think it will remain a smaller segment in the future.''
Ford's credit downgrade to junk will mean fewer buyers and potentially less demand for its debt because the speculative bond market is about one-third the size of investment grade. The downgrade comes less than six weeks before the finance unit needs to pay off or refinance a $6.5 billion bond due Jan. 25, its biggest debt issue ever.
Biggest Debtor
Ford and its finance subsidiary together were the biggest corporate debtor in the Lehman Credit Index for at least a decade and fell to No. 2 last year behind General Electric Co. after retiring more than $3 billion of bonds.
Christ Solie, a spokeswoman for Ford Motor Credit, declined to comment on how the lending affiliate would refinance the $6.5 billion in debt maturing in January and won't provide details till next month.
Ford said in an October conference call for fixed-income analysts it will have to borrow $10 billion to $20 billion in 2006. The lending unit said in October it expects to have $10 billion to $20 billion in public financing in 2006 and $20 billion to $30 billion from private sources.
Fitch's Oline said the automaker, with $19.6 billion in cash and another $5.6 billion from the sale of its car-rental subsidiary Hertz Corp., won't have trouble paying off the maturing debt. The auto-finance unit matches maturities with assets so it should have ready cash to pay off the maturing notes, Oline said.
Hertz Cash
``They certainly will still have access to the securitization market and they have said they will expand there,'' Oline said. ``The Hertz cash does provide supplementary liquidity. They're going to need a more aggressive restructuring because they're going to have to buy their way out of their cost structures'' with employee buyouts and other incentives.
Ford's 7.45 percent note maturing in 2031 yields 10.8 percent, up from 8.875 on Aug. 1, according to Trace, the bond price reporting service of the NASD. The bond is priced at 71 cents on the dollar, down from 71.25 cents on Dec. 16, and from 86 cents on Aug. 1.
Ford shares fell 7 cents to $8.23 in New York Stock Exchange composite trading, and have dropped about 44 percent this year. Detroit-based General Motors Corp. is the largest U.S. automaker.
The two companies lost a combined $6.3 billion in their North American auto operations in the year's first nine months. Third-quarter sales fell 32 percent each for Ford's midsize Explorer SUV and Expedition and Navigator large SUVs.
Speculative Grade
Regular gasoline at the pump averaged $2.213 a gallon nationwide on Dec. 16, AAA said today on its Web site. Pump prices are 22 percent higher than a year earlier.
Dearborn, Michigan-based Ford is rated BB+ by Standard & Poor's, and Ba1 by Moody's Investors Service, the highest speculative ratings. Moody's rates Ford's finance unit Baa3, which is the lowest investment grade, meaning two of the three major ratings companies now affix a junk rating to the affiliate.
Lehman previously had used only S&P and Moody's to determine whether a bond belonged in the investment-grade or junk indexes. Beginning July 1, Lehman has assigned the middle rating from Fitch, Moody's and S&P. Lehman says its indexes are followed by 90 percent of bond fund managers.
Ford and Ford Credit will be the biggest component of the Lehman High Yield Index, making up about 6 percent, or $36.5 billion, of the benchmark after Dec. 30, said Nick Gendron, head of Lehman's index group in New York. GM, which makes up 5.9 percent, will be second.
The parent company, Ford, currently has about $7.8 billion in the high yield index and $28.7 billion in debt of the finance unit will be added. The investment grade index has $1.95 trillion in assets.
S&P on May 5 cut debt of Ford and General Motors Corp. to junk, affecting $375 billion in securities. Park Ridge, New Jersey-based Hertz, Ford's auto rental unit, had been cut to junk last month because of the leveraged buyout and wasn't affected today, Fitch said. |
