US:Moody's cuts Ford's rating deeper into junk status
Moody's cuts Ford's rating deeper into junk status
NEW YORK -- Moody's Investors Service on Friday cut its ratings on Ford Motor Co. and its finance arm deeper into junk status, saying the automaker will face considerable stress as high fuel prices hurt demand for its high-margin SUVs.
Ford, which lost $1.2 billion worldwide in the first quarter, has relied heavily on sales of SUVs, but high gasoline prices have cut deeply into demand. The automaker has announced plans to shutter 14 plants and cut 30,000 jobs as part of a broad restructuring called the Way Forward.
Ford's sales of large SUVs fell by 32.1 percent in the six months through June, according to Moody's. Because of the dramatic shift away from the profitable SUV segment, Ford's restructuring program may not materially strengthen its credit quality before 2008, Moody's said.
"The biggest hurdle they're facing is that the change in (vehicle) mix is happening much quicker than they anticipated," said Brad Rubin, a senior credit analyst at BNP Paribas. "They are selling fewer high-margin SUVs and pickups and more lower-margin passenger cars and crossover utility vehicles."
Ford on Thursday, July 13, cut by half both its dividend and fees paid to board members, saying headwinds for the company have worsened as high gasoline prices hurt demand for SUVs and trucks. Ford paid out $738 million in dividends last year.
Gasoline prices have risen to record highs this week, driven by escalating conflict in the Middle East.
The dividend and board fee cuts will have "minimal" impact on Ford's cash flow, though they may help the automaker's negotiations with the United Auto Workers union, Moody's said. Ford is set to renegotiate its contract with the UAW in late 2007.
"We're still in the early stages of implementing our Way Forward plan," said Ford spokeswoman Becky Sanch. "We announced it in January and we're making progress toward the goals that we outlined."
Moody's cut Ford's rating by two notches to "B2," five steps below investment grade, from "Ba3."
It cut Ford's finance arm, Ford Motor Credit Co., by one notch to "Ba3," three steps below investment grade, from "Ba2." The outlook for the ratings is negative, meaning another downgrade is likely over the next 12 to 18 months.
Ford's bonds with a 7.45 percent coupon due in 2031 fell to 71.25 cents on the dollar on Friday, down from 72.1 cents on Thursday, according to MarketAxess.
The cost of protecting Ford's debt in the credit derivatives market rose to about 925 basis points, or $925,000 for every $10 million protected, from about 900 basis points on Thursday, July 13.
My first car was a 67 Mustang Coupe, 2nd one was a 67 Cougar XR-7, 3rd one was a 66 Mustang Coupe. Why did I get rid of these cars for ? I know why, because I'm stupid, stupid, stupid.
My next Ford.....