DETROIT -- Credit rating agency Standard & Poor's faced several tough questions Tuesday from investors who accused the agency of misleading the market in its evaluation of Ford Motor Co.
Last week, S&P analyst Scott Sprinzen said he was considering lowering Ford's corporate bond rating to BBB- -- only one step higher than junk, or below-investment-grade, status. The move came nearly a year after Sprinzen had lowered Ford's rating to BBB and set several targets for Ford to meet in 2003, including break-even results in its automotive business.
In a conference call Tuesday, Sprinzen said Ford's continuing losses in its European unit and its reliance on cost-cutting to boost profits this year meant the rating could still be cut, even though Ford's automotive operations will likely break even and the company has raised its earnings estimate for 2003.
"The idea was that (break-even automotive) was necessary to maintain the rating, but not necessary and sufficient," Sprinzen said. "The idea was that '03 was a steppingstone to something much better, and we needed to see the trajectory of further improvement to feel the triple-B was warranted."
Ford has some $180 billion in outstanding debt, mostly to fund loans from its Ford Credit arm, and its bonds are among the most widely held in global markets. Sprinzen's move last week roiled bond traders, causing a selloff in Ford bonds.
Some investors on the conference call accused the rating agency of "moving the goalposts" on Ford, saying the world's second-largest automaker had met the targets laid out last year and had shown it could improve its results in a tough environment.
"Investors have no real clear understanding of what the credit opinion of S&P is on Ford," one portfolio manager told Sprinzen on the call. "It seems every metric that Ford achieves, S&P in their analysis changes or twists their metric in terms of what they're looking for out of this company."
"We have been pretty clear in the milestones we are looking for," he said. "How could anyone have thought just breaking even in a core business in a fairly good year was really all it would take to solidify this rating?"
Other investors said they were confused by the agency's statement that it might not lower its rating on Ford's commercial paper, or short-term borrowings, even if it cut the corporate rating.
Ford's commercial paper is rated A-2, higher than any company with a corporate rating of BBB- or below. In a release Monday, the agency said Ford's "extraordinary liquidity" -- which Ford estimates at $75 billion -- might mean Ford could keep its commercial paper rating.
Sprinzen said no decision had been made, but the agency would make its decision by Nov. 18. Standard & Poor's is a division of publisher McGraw-Hill Cos. Inc.