Ratings Agency Downgrades Ford to Chrysler, GM Level

Standard & Poor's Ratings Services once again downgraded Ford Motor Co. to the same corporate credit rating as Chrysler and GM, even though unlike its domestic rivals, Ford so far has managed to avoid asking for an extensive government bailout.

S&P took similar action in November 2008. Later, in December, S&P cut Chrysler and GM to "CC," but left Ford a couple of notches higher, at "CCC+." Ford's latest downgrade, on March 4, once again puts Ford in the same category as Chrysler and GM, at "CC."

What changed is that Ford announced on March 4 that it will ask bondholders to swap debt for cash and/or equity. Chrysler and GM are taking similar actions. Like its rivals, Ford is offering less than the face value of the bonds. S&P considers that to be "tantamount to a default under our criteria," the ratings agency said.

Brian Johnson, auto industry analyst for Barclays Capital, said separately in a March 5 note that if Ford bondholders accept the offer, Ford could reduce its debt by as much as $10.6 billion.

S&P said that the risk of bankruptcy for Chrysler, Ford and GM remains "high" for 2009 and 2010, "because of the dismal state of industry demand and other industry problems, such as the potential for supplier failures."

Ford's debt restructuring could lead to a "modest decrease" in Ford's risk of a near-term default, S&P said.

"Our downgrades are based on the financial pressure that Ford is under to reduce its debt by retiring debt for less than originally contracted," said S&P analysts Robert Schulz and Gregg Lemos Stein.

Chart: Barclays Capital