The US-based credit rating firm, Standard & Poor's, trimmed the Triple B ranking of Ford Motor Company to Double B-Plus, which was also placed on the monitoring stage. Analysts have expected the downgrade, something that Ford might have anticipated as well.
According to a statement, S&P has cut Ford's credit rating one notch down and could even further downgrade the company. The step follows Moody's Investors Service, which just six months earlier had trimmed its ranking for the second time.
The two high-yield ratings by the auto giant would pull back their $35.8 billion debt at the end of the month from the Bloomberg Barclays investment-grade index.
In extended trade, the automaker's stock fell 1 percent after the S&P Global Ratings lowered the company's credit rating to junk status. Ford's ranking was also placed on Credit Watch by the department. "The coronavirus brought in supply-side and demand-side jolts to the market for light-vehicles," S&P said in describing the reasoning behind the cut.
Another credit rating firm, Moody's has placed Ford on watch level for a reduction of ratings after cutting it from BA-1 to BA-2. Ford revealed on Tuesday that it was working with General Electric Health Care and 3M to make ventilators and respirators that would help combat the virus.
Ford is one of the automotive firms undergoing what Moody's considers an unprecedented "price shock," with the epidemic also presenting a a significant challenge to rivals like General Motors Co. and Volkswagen AG. Yet Ford is especially at risk because of the difficulties it has had to carry out an $11 billion turnaround, which has yet to change.
This month, Ford shares are down 23 percent, compared to a 17 percent decline in the S&P 500. The big automakers have closed factories, and many US-wide dealerships are closing down as governments and businesses respond to the growing health catastrophe.
The downgrade of Ford to high yield by S&P would make the automaker the largest issuer in the Bloomberg Barclays index, ahead of the second-largest Charter together with Kraft Heinz. Bondholders would need to consider systemic subordination, with around $27 billion in debt maturities by the end of 2021 and no access to unsecured markets at this time.
In its downgrade of Ford, Moody's predicted that the firm could burn through $8 billion in the coming 12 months due to the virus-related decline in demand, putting a major dent in the $37.7 billion that the firm accumulated last week by drawing down its credit lines. Moody's is impressed by the company for taking the "constructive step" of suspending its dividend as well.
