Last week's downgrade of General Motors and Ford Motor to junk levels by Moody's Investors Service was met with a little surprise but a general shrug in the market. Investors agreed that the move was largely expected after Standard & Poor's downgraded the corporate debt of both companies and both credits had been trading as junk for some time now in anticipation of what several saw as an inevitability. The prices of the bonds of both companies did not move much Thursday.
Kris Kowal, cio for fixed income investments at Wilmington, Delaware based DuPont Capital Management, said the recently downgraded ratings do not matter much.
"Ford is out of the index and for the most part index players are unloading. They don't own those bonds anyway," he commented. Kowal said he feels that unless both companies right themselves quickly, there is a strong chance they could be downgraded further. "Both the ratings agencies have them on watch, so another drop is possible. I do think that they have enough liquidity to get out of this, they can finance themselves and they are starting to use asset-backeds to refinance as well," he explained.
Kowal noted that in the case of GM "their unions and workers need to give some leeway. They are going to need to adjust head on." Kowal also added that even though many were waiting for this to happen, it came as somewhat of a surprise. "You just didn't' know when it would happen, sooner or later, now we know," he said
John Burger, managing director at Merrill Lynch Investment Management, was also less than shocked by the move. "People saw this coming for awhile so it wasn't a surprise; it was really telegraphed pretty well in advance." Burger said that the real focus of the downgrade should not be the change to a lower Ba rating but as to whether or not the auto giants will now be more focused on meaningful concessions from the unions.