Bonds issued by Ford (F) - Get Report have been cut to junk status by S&P Global Ratings as the coronavirus pandemic delivers a never-before-seen shock to the global auto industry, hitting the already suffering 117-year-old carmaker.
S&P downgraded Ford’s credit rating one notch to BB+ and may cut it further, according to a statement. The move follows Moody’s Investors Service, which this week dropped its rating on Ford debt for the second time in six months.
Ford is one of many auto companies facing what Moody’s called an unprecedented “credit shock” as the coronavirus outbreak slams the global economy, forcing consumers and businesses to step away from their car- and truck-buying plans – and forcing automakers like Ford, General Motors (GM) - Get Report, Fiat Chrysler (FCAU) - Get Report and others to step away from their manufacturing plants.
However, Ford is particularly vulnerable because of problems it has had executing an $11 billion restructuring that has yet to improve performance, according to analysts.
With about $27 billion of debt maturities by the end of 2021 and little access to the unsecured markets at this time, bondholders may need to consider structural subordination, according to reports.
“The stress of having all of a company’s plants shut down differs from that of a conventional recessionary downturn,” S&P said, noting the shutdowns mean Ford isn’t generating the revenue it needs to cover its costs.
“The rate of cash burn, even for a few months, could be faster than that which transpires during a typical recession,” S&P said.
Meantime, Ford earlier this week announced that it was teaming with General Electric (GE) - Get Report, 3M (MMM) - Get Report and the United Auto Workers union to manufacture powered air-purifying respirators for medical workers.
Shares of Ford were down 0.93% at $5.33 in trading on Thursday. The stock has dropped more than 40% this year.