Markets & Finance

Ford's Debt Rating: At Risk


From Standard & Poor's RatingsDirect

On May 25, Standard & Poor's Ratings Services put its BB- long-term and B-2 short-term ratings on Ford Motor (F), Ford Motor Credit, and related entities -- except FCE Bank PLC-- on CreditWatch with negative implications.

The BB- long-term rating on FCE Bank PLC, Ford Credit's European bank, was placed on CreditWatch with developing implications, while its B-2 short-term rating went on CreditWatch with negative implications.

MIX GONE SOUR. On May 24, the auto maker made an offer to investors to replace Ford Motor Credit bonds maturing this October with bonds that don't come due until 2010 and 2011 -- at the highest rate of interest Ford has ever paid (see BW Online, 5/25/06, "Ford: Fearful of Cash Crunch?").

The Ford CreditWatch placement reflects our increasing concerns about Ford's performance in 2006 amid deteriorating product mix and market share in North America and persistently high commodity costs generally. We currently plan to resolve both of these reviews by the end of June.

"We will consider the effect of the continuing pressure on Ford's midsize SUVs, as well as prospects for the health of the crucial full-size pickup segment," says Standard & Poor's credit analyst Robert Schulz.

NOT ENOUGH GOOD NEWS. The remainder of Ford's automotive operations and Ford Credit are performing in line with S&P's expectations, notes Schulz, and do not count as central factors in its review. "But, the performance of these units is not sufficient to offset the problems the company faces in its North American operations," he adds.

As part of this review, Standard & Poor's will assess Ford's sales performance for the remainder of 2006 and will meet with Ford's management to discuss the company's plans to address the heightened challenges it faces in North America.


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