Ford Motor Co.'s bonds jumped 1/2-3/4 of a point despite Standard & Poor's and Moody's Investors Service downgrading the company. A dealer said the strong equity market boosted bond trading. Ford's '31 bonds were up to 77; its five-year credit default swaps were 20 basis points tighter to 685-695. The dealer said the market was not surprised the company's ratings were lowered after it announced an accelerated 'Way Forward' restructuring plan Sept. 15. "After they announced the plan it was clear the market wouldn't look at it favorably so it wasn't surprising they got downgraded," he said.
S&P lowered its long-term corporate credit ratings on Ford Motor Co., Ford Motor Credit and related subsidiaries to B from B+. Moody's lowered Ford Motor Co.'s corporate family rating to B3 from B2 and Ford Motor Credit's senior unsecured rating to B1 from Ba3. A Ford spokeswoman said the accelerated restructuring plan addresses the challenges the company faces in North America, adding that the ratings agencies recognize its strong liquidity. She would not comment further on the downgrades.
In a release, S&P said the downgrade "reflects the seemingly relentless deterioration in Ford's North American automotive operations, which are now expected to remain unprofitable until at least 2009." The ratings agency said it is particularly concerned about the big falloff in the pickup truck market in recent months after the segment held up well in the first quarter of the year. Ford's North American market share declined to 17.7% through August, from 18.3% at the end of 2005, according to the agency. It expects the pace of decline to worsen through the end of this year and into 2007 because of production cuts and discontinued models.
The downgrades followed Ford's announcement of the accelerated restructuring plan, which includes development of new vehicles, while also reducing the time it takes for vehicles to come to market. It also plans to reduce total operating costs by $5 billion by the end of 2008. Part of the cut will come from salary-related costs, which will be cut by a third. It has agreed with its union, the United Auto Workers, to extend buy-out offers to Ford hourly employees in the U.S.
Despite the accelerated plan, Moody's said in a release the company's operating performance and cash flow will be very weak through 2009 even if the execution of the plan is successful. It added that it anticipates it will be difficult for Ford to achieve the cost reductions it has laid out in its plan.