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The Ford logo on a front grille.

Ford Teeters Toward Junk with Moody’s Warning of Restructuring Risks

Aug. 30, 2018
The ratings company cited erosion in Ford’s “global business position and the challenges it will face implementing” its restructuring effort.

Ford Motor Co.’s credit rating was cut to one notch above junk by Moody’s Investors Service, adding to the car company’s woes after it embarked on a costly restructuring that could take years to complete.

Moody’s downgraded Ford to Baa3 from Baa2 with a negative outlook, it said in a report Wednesday. The ratings company cited erosion in Ford’s “global business position and the challenges it will face implementing” its restructuring effort that could rack up $11 billion in the next three to five years.

Just last month, S&P Global Ratings cut Ford’s outlook to negative from stable and said prolonged weakness in profit and cash flow made a downgrade within two years increasingly likely. S&P rates Ford at BBB, two levels above speculative grade. The automaker, which last month lowered its profit forecast for the year, is facing a number of headwinds beyond exiting the slowing sedan business in North America. The cost of complying with tougher emission rules in Europe and updating a stale product line in Asia contributed to second-quarter losses in those regions.

“The fitness program is a necessity, but it will take several years for material financial and operating benefits of the program to be realized,” Moody’s analysts wrote in the note, referring to the overhaul plan. “Success could be challenged by having to address the serious performance problems in multiple business units simultaneously.”

Borrowing Costs

Slipping closer to junk status puts Ford at risk of higher borrowing costs. The company’s bonds are trading close to par, with its 4.687% senior unsecured notes due in 2025 trading at about 99.1 cents on the dollar.

Earlier this year, Ford announced it would abandon its storied sedan business, sending shock waves through the American auto landscape. In addition, Ford and its Detroit counterparts have been in the crossfire of President Donald Trump’s trade talks with China and Mexico this year, causing volatility among U.S. automakers.

Since the 2008 recession, Ford has had solid financial results and operating cash flows, said company spokesman Brad Carroll in response to the downgrade.

“The company has a strong balance sheet, which provides financial flexibility. We know we can capitalize on our strengths, bolster underperforming products and regions and disposition where we cannot make an appropriate return. We’re confident that as we do, the market will recognize our progress.”

By Natasha Rausch and Keith Naughton

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