Ford Motor Company's chief executive officer Jim Hackett has been dealt a major blow by Moody's Investors Service, which cut the carmaker's credit rating to junk over doubt his plans to fix the carmaker will soon generate earnings and cash.
Moody's downgraded Ford to the highest non-investment grade rating, Ba1, saying the automaker's cash flow and profit margins are below expectations and likely to remain weak over the next two years. The descent to junk status affects one of the 15 biggest corporate bond issuers in the U.S. outside the financial sector.
The lower rating reflects "the considerable operating and market challenges facing Ford, and the weak earnings and cash generation likely as the company pursues a lengthy and costly restructuring plan," Moody's analyst Bruce Clark said in a statement Monday.
Ford's most actively-traded bonds, Ford Motor Credit Co.'s 5.113 per cent bonds due 2029, weakened relative to Treasuries. The extra yield, or spread, the notes pay widened 0.13 percentage point to 3.27 percentage points, according to Trace. The automaker's shares plunged as much as 4.2 per cent to $9.14 in late trading.
Investors have been contemplating whether Ford would be able to maintain its investment-grade status for the past year, as slowing sales have weighed on profits. Hackett has struggled to win over Wall Street with an overhaul that calls for cutting thousands of jobs, reviving an ageing line of SUVs and pickups and ditching slow-selling sedans.
