Moody's, S&P Cut Ford and Chrysler Ratings
Standard & Poor's Ratings Services and Moody's Investors Service downgraded ratings for Chrysler and Ford Motor Monday.
Standard & Poor's Ratings Services lowered the corporate credit rating on Chrysler to 'CC' from 'CCC+', while Moody's Investors Service downgraded the senior unsecured rating of Ford Motor Credit to Caa1 from B3 after the Corporate Family Rating of its ultimate parent, Ford Motor , was downgraded to Caa3 from Caa1.
S&P Ratings said that despite the nearly $21 billion in emergency loans announced by the U.S. and Canadian governments to help General Motors and Chrysler avert near-term bankruptcies, the automakers aren't likely to see their credit ratings rise in the near future.
The U.S. government announced Friday it would provide a total of $9.4 billion in loans to GM in two payments, on Dec. 29, 2008, and Jan. 16, 2009. Another $4 billion could become available on Feb. 17, 2009. The U.S. government will lend $4 billion to Chrysler on Dec. 29, 2008.
On Saturday, the Canadian and Ontario governments announced they would together provide about $3.3 billion to the Canadian units of GM and Chrysler in stages over the next two months. Sweden and Germany have also pledged to aid their local units of the Michigan-based automakers.
S&P added that they "believe the bankruptcy risk remains high for GM and Chrysler, as well as for Ford Motor, for the rest of next year because of a range of fundamental challenges that will not be alleviated by the government funding and, in our view, will keep cash outflows high or potentially erode liquidity."
Moody's said that a consideration in the downgrade of Ford Credit's ratings was the increased
potential that Ford could restructure its liabilities through a distressed debt exchange and the ramifications of such an action for Ford Credit.
A distressed offering could be seen by Ford as a necessary condition to negotiating labor contract concessions equal to those obtained by GM and Chrysler in connection with their receiving support from the U.S. government.
Ford Motor Credit is the Dearborn, Michigan-based captive finance arm of Ford Motor The company reported third quarter 2008 total assets of $155 billion.