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S&P may cut Ford, Ford Credit deeper into junk


NEW YORK -- Standard & Poor's on Thursday threatened to cut its ratings on Ford Motor Co. and its finance arm further into junk territory, citing concerns about the No. 2 U.S. automaker's shrinking market share and high commodity costs.

Ford lost $1.2 billion in the first quarter, its biggest quarterly loss in over four years, as it took charges for job cuts and plant closings at the start of a massive restructuring.

Continuing pressure on Ford's mid-sized SUVs and its full-sized pickup segment will be considered in deciding a ratings action, S&P said.

The rest of Ford's automotive operations and Ford Credit are performing in line with expectations, the agency said.

Ford and its subsidiaries had $151 billion of debt at the end of March.

S&P spokeswoman Becky Sanch said Ford has an extremely strong liquidity position and remains committed to successfully implementing its North American turnaround plan.

S&P said it will also assess Ford's sales performance and management's plans to meet its challenges in North America, the automaker's largest market, adding a rating decision is expected by the end of June.

"Doing something about the loss of market share is tough," said Thomas Eggenschwiler, co-director of research for Aladdin Capital in Stamford, Connecticut. "They have a certain product mix that is geared toward SUVs, and that's not going to change in the short term."

Turning around large SUV sales will be harder if oil prices stay above $70 a barrel, Eggenschwiler said.

"I don't think gas consumption of a car was a major decision in purchases in the past, but I think it will become a major driver," he said.

Credit default swap spreads on Ford Motor Credit Co. widened by around 0.05 percentage point to about 5.17 percentage points after the statement. That means it costs $517,000 a year to protect $10 million of Ford Credit debt.

Ford's 7.45 percent bonds due in 2031 rose to 72.75 cents on the dollar, up from 72.25 cents on Wednesday, according to MarketAxess.

S&P said it may cut Ford's and Ford Motor Credit's "BB-minus" long-term rating, the third-highest junk level, and their "B-2" short-term ratings.
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