Automakers' Credit Ratings Downgraded

Updated from 12:11 a.m. EST

NEW YORK -- Moody's Investors Service downgraded Ford's(F) credit rating, warning that Ford's debt holders could get clipped in the auto-industry's tailspin despite the fact Ford isn't asking for its own government bailout money.

Standard & Poor's Ratings Services, meanwhile, cut the credit ratings of General Motors (GM) and Chrysler further into junk status.

Moody's said Ford will likely have to restructure its debt in order to win wage and other concessions from the United Auto Workers labor union and fall in line with GM and Chrysler, which are getting funds from the $17.4 billion loan program approved by the White House.

Ford isn't asking for any short-term help from the government for itself, but has pushed for the bailout on the argument it would be badly damaged if GM or Chrysler went under.

The terms of those loans call for GM and Chrysler to substantially reduce their debt by converting it to equity, which has the potential to dilute the outstanding shares.

"Even if Ford ends up not needing government loans because of its stronger liquidity position, the company must have UAW parity with GM and Chrysler," Bruce Clark, senior vice president with Moody's, said in a statement Monday. "But, the UAW is unlikely to make concessions to Ford unless Ford's creditors also bear some pain in the form of a debt restructuring."

Moody's lowered Ford's corporate family rating and probability of default rating from "Caa1" to "Caa3," and its speculative grade liquidity rating from "SGL-3" to "SGL-4." Moody's outlook on Ford is negative.

Ford shares fell 36 cents, or 12.2%, to $2.59 Monday as automaker shares in general tumbled on fears about the fallout of the bailout and a warning from Toyota(TM) that it expected to post its first operating loss since it began releasing the numbers in 1941.

Standard & Poor's on Monday cut its ratings on General Motors' unsecured debt further into junk status, following its deals to receive loans from the U.S. and Canadian governments.

S&P cut its issue-level ratings on unsecured debt from GM and General Motors of Canada to "C'' from "CC," and revised its recovery rating on GM's debt to "6'' from "4," indicating that lenders can expect to recover 10% or less of their funds in the event of a payment default.

S&P also cut its corporate credit rating on Chrysler by four notches, sending it further into junk status.

One reason investors are worried about the bailout is the potential to dilute automakers' shares as they convert debt to equity, injecting new shares into the market and reducing the portion of the company each investor owns.

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