Saturday , June 12 2021

the debt exceeds 150,000 million US dollars and its bonds are approaching the "garbage"



Increase in debt

Any further downgrade of the rating could be painful for bond investors and for the company, which is trying to restructure its activities

Ford Motor Co. it could be close to re-entering the garbage scoring area. This is what the bond market says.

The company's debt is trading as if it were on a speculative basis, as investors are worried about the impact on their earnings from the increase in steel tariffs and the slowdown in sales.

The automotive industry has over $ 150,000 million in short- and long-term debt worldwide and is one of the top 15 corporate bond issuers in the United States outside the financial sector, said Bloomberg.

Hedge funds reported their worst monthly performance in nearly three years at the beginning of 2005, when Ford's rating fell to rubbish with General Motors Co.

Bob Shanks, chief financial officer at Ford, said at a conference last month that he reported earnings, that the company is committed to retaining its credit rating and that it does not intend to lose that status again.

The company "moves with a sense of urgency and takes preventive measures to redesign and restructure the business," and over time "the market will recognize our progress," said spokesman Brad Carroll.

But debt investors are skeptical. The extra performance that money managers get to hold 4.346% of Ford bonds due in 2026 instead of comparable government bonds rose to typical levels of high-yielding companies.

The cost of protecting Ford's debt from default through the use of credit derivatives rose in October to the highest levels since 2012 before it fell again. In August, Moody's downgraded the company to a higher than junk rating and said more cuts could be made in the medium term.

"It's more likely to end in high performance than it does not," said Henry Peabody, Eaton Vance Corp's portfolio manager. Boston. "It is a combination of a rather weak strategic position, strategic decisions less than ideal in recent years, a little over-confidence and where we are in the credit circle."

Ford is conducting a "war of war," Peabody added, citing the slowdown in China's sales growth in China and the highest cost in the US. product of global trade disputes.

Now the business faces new difficulties. FOrd told investors in July to start a restructuring of up to five years that could cost him $ 11 billion, as it focuses on higher margin products, such as trucks and sports cars, as well as exit from the business like the American sedans.

However, it provided little information about the restructuring plan and has not yet scheduled an investor meeting originally planned for September.

The troubled businesses in Asia and Europe have led Ford to reduce its earnings forecast for 2018. It has seen a 50% decline in profits for the second quarter, followed by a fall of nearly 40% in the third quarter.

Last month, its shares fell to the lowest level since 2009. Ford bonds are traded with risk premiums similar to those of garbage-quality auto companies – such as Allison Transmission Holdings and Dana – and have fallen late since August Moody's downgraded the company to one step more than garbage, according to a Bloomberg Intelligence survey.

Bonds have recovered recently, but are still traded at higher risk premia by Fiat Chrysler, which has a garbage rating and GM, indicating that investors believe Ford has a higher credit risk.

A source of support, as the company is trying to recover is its cash position: Ford had about $ 35 billion in liquidity since September 30. This gave relief to the evaluators, who considered it good.

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