dirt racer
07-31-2008, 01:14 PM
GM, Ford, Chrysler Credit Ratings Are Reduced by S&P
http://www.bloomberg.com/apps/news?pid=20601103&sid=axsT27Z58Qi8&refer=us
By Greg Bensinger
July 31 (Bloomberg) -- General Motors Corp., Ford Motor Co. and Chrysler LLC had their credit ratings lowered one step further into junk status by Standard & Poor's over concern that shrinking U.S. auto sales will reduce cash flow.
The three U.S. automakers are each rated B-, six levels below investment grade, S&P said today. GM's partly owned finance unit, GMAC LLC, was also lowered to the same rating.
``Liquidity for all three automakers is adequate for now, but will be significantly reduced in the second half of this year and during 2009 by continued heavy losses and cash outflows,'' wrote S&P analyst Robert Schulz in a statement.
S&P's first rating cuts for a domestic automaker in almost two years reflect the strains of record gasoline prices and the weakest U.S. vehicle market in 15 years. Neither Ford nor GM has made a profit since 2005, and prospects for ending losses before 2010 are waning as they close truck plants and boost investment in fuel-efficient small cars.
``Liquidity at each automaker will be almost halved by cash losses in 2008 and 2009,'' Schulz said.
Today's move also marks the first reduction for Chrysler since it was acquired by Cerberus Capital Management LP a year ago.
The Auburn Hills, Michigan-based company is most dependent on the vans, pickups and sport-utility vehicles that account for 60 percent of U.S. automakers' sales. Chrysler's deliveries plunged 22 percent through June; GM's were down 16 percent and Ford's 14 percent as the industry declined 10 percent.
S&P's Forecast
U.S. light-vehicle sales should run at an annual rate of 14 million over the next 18 months, though a rise in oil to $200 or more a barrel and further deterioration in the housing market could depress the rate to as low as 12 million, S&P economist David Wyss said in a conference call today.
S&P removed GM and Ford from CreditWatch with negative implications, meaning it is less likely the automakers' debt will be downgraded further below investment grade.
GM said July 15 that it plans to save $15 billion by 2010 through cost cuts, asset sales and a suspended dividend. The Detroit-based automaker is targeting a 15 percent cut to its U.S. and Canadian salaried workforce by the end of the year, people familiar with the strategy said yesterday.
GM, Ford Cash
The increased cash means the automaker should have enough to operate if U.S. sales fall to 14 million cars and trucks this year and next, lower than most analysts expect, GM has said. Last month's sales rate expressed on an annual basis was 13.6 million, the lowest since 1993.
Ford Chief Financial Officer Don LeClair said July 24 after reporting an $8.7 billion second-quarter loss that he is ``confident'' the Dearborn, Michigan-based company has enough cash to fund operations.
GM and Ford's rating were cut to junk status by S&P more than three years ago. GM was last reduced in December 2005 and Ford in September of the following year.
Ford fell 4 cents to $4.80 at 4:15 p.m. in New York Stock Exchange composite trading. GM dropped 33 cents to $11.07.
GM's 8.375 percent note due July 2033 declined 2.5 cents to 49 cents on the dollar, yielding 17.37 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Ford's 7.45 percent note due July 2031 gained 1.25 cents to 52.25 cents on the dollar, yielding 14.79 percent.
Credit-default swaps on GM debt rose 180 basis points to 2,090 basis points, according to CMA Datavision in London. Ford's jumped 91 basis points to 1,615 basis points.
The contracts are designed to protect bondholders against default. A rise in the price indicates a decline in the perception of a company's credit quality.
To contact the reporter on this story: Greg Bensinger in New York at gbensinger1@bloomberg.net
http://www.bloomberg.com/apps/news?pid=20601103&sid=axsT27Z58Qi8&refer=us
By Greg Bensinger
July 31 (Bloomberg) -- General Motors Corp., Ford Motor Co. and Chrysler LLC had their credit ratings lowered one step further into junk status by Standard & Poor's over concern that shrinking U.S. auto sales will reduce cash flow.
The three U.S. automakers are each rated B-, six levels below investment grade, S&P said today. GM's partly owned finance unit, GMAC LLC, was also lowered to the same rating.
``Liquidity for all three automakers is adequate for now, but will be significantly reduced in the second half of this year and during 2009 by continued heavy losses and cash outflows,'' wrote S&P analyst Robert Schulz in a statement.
S&P's first rating cuts for a domestic automaker in almost two years reflect the strains of record gasoline prices and the weakest U.S. vehicle market in 15 years. Neither Ford nor GM has made a profit since 2005, and prospects for ending losses before 2010 are waning as they close truck plants and boost investment in fuel-efficient small cars.
``Liquidity at each automaker will be almost halved by cash losses in 2008 and 2009,'' Schulz said.
Today's move also marks the first reduction for Chrysler since it was acquired by Cerberus Capital Management LP a year ago.
The Auburn Hills, Michigan-based company is most dependent on the vans, pickups and sport-utility vehicles that account for 60 percent of U.S. automakers' sales. Chrysler's deliveries plunged 22 percent through June; GM's were down 16 percent and Ford's 14 percent as the industry declined 10 percent.
S&P's Forecast
U.S. light-vehicle sales should run at an annual rate of 14 million over the next 18 months, though a rise in oil to $200 or more a barrel and further deterioration in the housing market could depress the rate to as low as 12 million, S&P economist David Wyss said in a conference call today.
S&P removed GM and Ford from CreditWatch with negative implications, meaning it is less likely the automakers' debt will be downgraded further below investment grade.
GM said July 15 that it plans to save $15 billion by 2010 through cost cuts, asset sales and a suspended dividend. The Detroit-based automaker is targeting a 15 percent cut to its U.S. and Canadian salaried workforce by the end of the year, people familiar with the strategy said yesterday.
GM, Ford Cash
The increased cash means the automaker should have enough to operate if U.S. sales fall to 14 million cars and trucks this year and next, lower than most analysts expect, GM has said. Last month's sales rate expressed on an annual basis was 13.6 million, the lowest since 1993.
Ford Chief Financial Officer Don LeClair said July 24 after reporting an $8.7 billion second-quarter loss that he is ``confident'' the Dearborn, Michigan-based company has enough cash to fund operations.
GM and Ford's rating were cut to junk status by S&P more than three years ago. GM was last reduced in December 2005 and Ford in September of the following year.
Ford fell 4 cents to $4.80 at 4:15 p.m. in New York Stock Exchange composite trading. GM dropped 33 cents to $11.07.
GM's 8.375 percent note due July 2033 declined 2.5 cents to 49 cents on the dollar, yielding 17.37 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Ford's 7.45 percent note due July 2031 gained 1.25 cents to 52.25 cents on the dollar, yielding 14.79 percent.
Credit-default swaps on GM debt rose 180 basis points to 2,090 basis points, according to CMA Datavision in London. Ford's jumped 91 basis points to 1,615 basis points.
The contracts are designed to protect bondholders against default. A rise in the price indicates a decline in the perception of a company's credit quality.
To contact the reporter on this story: Greg Bensinger in New York at gbensinger1@bloomberg.net