Ford stock slips after downgrade to junk credit rating

Marco Green
September 11, 2019

It's not a place any company wants to be, but Ford's credit rating has been slid to the junk column by Moody's Investors Service.

Moody's dropped its rating for Ford's senior unsecured notes to Ba1, the top rating for debt that's not investment grade.

On Monday, Moody's cited expectations that the automaker will be weighed by weak earnings and cash generation as it pursues a costly restructuring plan.

"We are making significant progress on a comprehensive global redesign - reinvigorating our product lineup and aggressively restructuring our businesses around the world", Ford's statement said. "Ford is undertaking this restructuring from a weak position as measures of cash flow and profit margins are below our expectations, and below the performance of investment-grade rated auto peers".

It's expected to continue for several more years and to result in $11 billion in charges plus a cash cost of approximately $7 billion.

"Ford's $23.2 billion of cash, which exceeds its debt, and its conservative balance sheet afford the company the ability to fund its product development and restructuring initiatives".

The report did allow that Ford's current initiatives "will contribute to gradual improvements in the company's earnings, margins, and cash generation, albeit over a number of years". It added that Ford already is addressing operating inefficiencies and problems with its China business.

News of the downgrade sent shares of Ford down 3% in premarket trading Tuesday. The credit downgrading also stems from the fact Ford's weak position has come at a time when the auto industry as a whole has been fairly healthy.

Industry analyst Jon Gabrielsen said the rating is a considerable concern for companies because, as the auto industry goes into a downturn, carmakers like Ford generally need to do considerable borrowing.

During the Great Recession, Ford and other U.S. automakers suffered massive losses and junk bond credit ratings, which can raise the cost of borrowing. "We're in an environment where we think the economy is looking toward harder times, not better times".

Other reports by Click Lancashire

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