Ford Motor Co. was cut to junk by S&P Global Ratings as the coronavirus pandemic delivers a shock to the global auto industry, rendering the No. 2 U.S. automaker the largest fallen angel to date.
S&P downgraded Ford’s credit rating one notch to BB+ and may cut it further, according to a statement Wednesday.
The move follows Moody’s Investors Service, which dropped its rating Ford for the second time in sixth months earlier Wednesday.
With Ford’s factories shut around the globe -- including all North American plants -- and no decision as to when they’ll resume production, the automaker is under immense financial pressure, according to S&P.
“The stress of having all of a company’s plants shut down differs from that of a conventional recessionary downturn,” the agency said, noting that the shutdowns mean Ford isn’t generating revenue to cover costs. “The rate of cash burn, even for a few months, could be faster than that which transpires during a typical recession.”
S&P also placed General Motors on credit watch late Wednesday. The agency indicated there is at least a 50 percent chance it will lower GM's credit rating by one notch if the company's plants "remain idle for longer than we expect, causing its cash flow generation to turn negative, eroding its liquidity, and increasing its debt leverage with no signs of an imminent improvement."
Moody's also warned it was considering cutting GM to junk as it faces sharply lower demand.
"A severe disruption in automotive demand due to the coronavirus, combined with the possibility of a follow-on economic recession, will place considerable pressure on GM's cash flow and credit metrics," Moody's said.
Because the spreading coronavirus has idled plants, prompted mass layoffs and curbed demand for big-ticket purchases across the globe, light-vehicle sales will decline by 15-20 percent in the U.S. and Europe, and by 8-10 percent in China, this year, S&P said.
Ford is one of many auto companies facing what Moody’s calls an unprecedented “credit shock,” with the coronavirus outbreak also posing a major threat to peers including GM and Volkswagen Group.
But Ford is particularly at risk because of the problems it’s been having with executing an $11 billion restructuring that’s yet to improve performance.
The cost to protect Ford’s debt against default for five years has soared this month more than fourfold, though it’s come down this week. Its bonds due 2025 trade around 78 cents on the dollar.
“Ford is managing through the coronavirus crisis in a way that safeguards our business, our workforce, our customers and our dealers,” the company said in an emailed statement. “We plan to emerge from this crisis as a stronger company.”