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With U.S. Consumer Shift toward Quality Unabated, S&P Cuts GM and Ford's Debt to Junk
By James B. Bleeker
Standard & Poor's, one of the world's largest credit rating agencies, has cut its ratings of General Motors Corporation's long-term debt and Ford Motor Company's long-term debt to junk. S&P put GM's long-term debt one notch deeper into junk than Ford's long-term debt. It also has given the long-term debt rating of the two a negative outlook, meaning that it may cut the long-term debt of each further without advance notice.
S&P long-term debt ratings are given in the following table, together with some auto companies holding the rating.
S&P Long-Term Debt Ratings and Auto Manufacturers Holding the Rating Ratings Automobile Manufacturers Investment Grade Ratings AAA Toyota Motor Corporation AA+ AA AA- A+ Honda Motor Company A A- Suzuki Motor Corporation, Volkswagen AG BBB+ Nissan Motor Company BBB DaimlerChrysler AG BBB- Junk Grade Ratings BB+ Ford Motor Company, Hyundai Motor Company, Kia Motors Corporation BB General Motors Corporation BB- B+ B B- CCC+ Mitsubishi Motors Corporation CCC CCC- D GM's former parts unit, Delphi Corporation, has GM's long-term debt rating, but Ford's former parts unit, Visteon Corporation, has a long-term debt rating of B+. When S&P lowered Ford's debt, it expressed concern that those contractual obligations common to both Ford and Visteon may bear heavily on Ford in Visteon's current restructuring effort.
Sources for cut to junk: "S&P Cuts GM, Ford to Junk Status, Jolts Market," Don Wilchins, Reuters, May 5, 2005, available at Yahoo! News, "S&P Cuts GM, Ford Credit Ratings to 'Junk'," John Porretto, the Associated Press, May 5, 2005, available at Yahoo! News, "GM, Ford Fortunes Turn Bleaker after Junk Bond Downgrade," AFP, May 5, 2005, available at Yahoo! News, "What the S&P Ratings Mean," Detroit Free Press, May 6, 2005, at http://www.freep.com/money/autonews/cuts-bar26e_20050506.htm, "S.&P. Cuts Debt Ratings for G.M. and Ford to Junk Status," Jennifer Bayot, The New York Times, available at nytimes.com
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The Detroit Free Press reports that S&P has cut Visteon's long-term debt rating to B-, down two notches from that reported above. This suggests an increased likelihood that Ford will have to come up with a bundle to salvage Visteon.
Source for Visteon rate cut: "Visteon's CEO to Be Chairman," Jamie Butters, Detroit Free Press, May 12, 2005, at http://www.freep.com/money/autonews/visteon12e_20050512.htm
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