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U.S.A.:Ford sees few effects of possible downgrade

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Automotive News
Reuters / November 06, 2003

DETROIT -- Ford Motor Co.'s treasurer said Wednesday that he saw few ill effects if credit rating agency Standard & Poor's lowers Ford's rating to one notch above junk.

Ford has some $180 billion in outstanding debt, mostly to fund loans from its Ford Credit arm, and its bonds are among the most widely held in global markets. S&P's move two weeks ago to consider lowering Ford's corporate bond rating to BBB- roiled bond traders, causing a selloff in Ford bonds.

"I don't think the implications are actually that great," Ford treasurer Malcolm MacDonald told a Lehmann Brothers conference. "If they were to take action...I'm of the view it would not be a tremendous disaster for Ford and Ford Credit."

S&P's decision to review Ford's credit rating came nearly a year after S&P had lowered Ford's rating to BBB and set several targets for Ford to meet in 2003, including break-even results in its automotive business.

While Ford's automotive operations will likely break even and the company has raised its earnings estimate for 2003, S&P said Ford's continuing losses in its European unit and its reliance on cost-cutting to boost profits this year meant the rating could still be cut.

Lower credit ratings and higher interest rates on traditional bonds have forced Ford and General Motors to find less expensive funding sources for much of their vehicle loan businesses. Both have turned to asset-backed securities and whole loan sales -- essentially acting as middlemen passing car payments from consumers to bond investors -- and kept borrowing costs low.

MacDonald said S&P's move was a surprise, and said he was not clear on what criteria the agency was using to make its decision. Ford has said it has $75 billion in liquid assets, which should be reason enough for S&P to maintain its rating.

"We are extremely liquid, and that should be obvious," MacDonald said. "We have beaten Wall Street expectations for seven quarters in a row, and we are building some momentum."

S&P has said it would make a decision on Ford's credit rating by Nov. 18.
 
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