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Fitch Cuts Ford Debt to One Notch Above Junk
By James B. Bleeker
Fitch Ratings, one of the three leading firms rating debt, cut its rating of Ford Motor Company's long-term debt to BBB-, which is one notch above junk status. Also, Fitch continues to ascribe a negative outlook to Ford's long-term debt, meaning that it may cut Ford's long-term debt to junk without advance notice.
Standard & Poor's already rates Ford's long-term debt junk. Consequently, if either Fitch or Moody's Investors Service cuts Ford's long-term debt to junk, Ford's bonds will be dumped from the Lehman Brothers Index for investment grade debt. The current requirement for inclusion in the Index is that two of these three firms must rate the debt higher than junk.
If Ford's bonds are dropped by the Index, many large institutional investors (e.g., pension funds) will be required to drop the bonds from their portfolios.
The following table provides S&P's and Fitch's long-term debt ratings of Ford and General Motors Corporation, as well as S&P's long-term debt ratings of Toyota Motor Corporation and Honda Motor Company for reference.
S&P and Fitch Long-Term Debt Ratings as of July 22, 2005 Ratings Automobile Manufacturers Investment Grade Ratings AAA Toyota Motor Corporation AA+ AA AA- A+ Honda Motor Company A A- BBB+ BBB BBB- Ford Motor Company Junk Grade Ratings BB+ Ford Motor Company, General Motors Corporation BB General Motors Corporation BB- B+ B B- CCC+ CCC CCC-
Source for rating cut: "Ford, Unit Closer to Junk," Detroit Free Press, July 21, 2005, at http://www.freep.com/money/autonews/irep21e_20050721.htm
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