Standard & Poor's Upgrade: Ford Gains Some Traction

Maybe Ford really does have a better idea, after all.

Standard & Poor’s Ratings Services upgraded Ford Motor Co. earlier this week, but left alone its lower rating for Chrysler and General Motors.

S&P analysts earlier were skeptical that Ford was that much better off than Chrysler and GM, even though Ford avoided asking for a government bailout late last year, while Chrysler and GM needed a bailout just to continue operating.

I’m still skeptical Ford can remain aloof from a government bailout, because demand continues to be so low. Nevertheless, the S&P upgrade is a badly needed bit of good news for Ford. A higher credit rating can ultimately lower Ford’s cost of borrowing.

The ratings agency downgraded Ford last month, to the same “CC” rating it had placed earlier on Chrysler and GM, then downgraded Ford again on April 6, to SD for “Selective Default.” That was because S&P considers a debt swap where bondholders are offered less than face value for their bonds technically to constitute a default, even though the car companies don’t see it that way. Chrysler and GM are making similar offers to their bondholders.

Ford’s completed debt transaction reduced the company’s automotive debt by $9.9 billion, from $25.8 billion at Dec. 31, 2008, according to S&P. In addition, Ford announced last month that the UAW had agreed to accept shares of Ford stock instead of cash, for 50 percent or more of Ford’s future payments to the union’s Voluntary Employee Beneficiary Association, which is taking responsibility for the union’s health care benefits.

Therefore on April 13, S&P restored Ford’s “CCC+” rating it had taken away on March 4. “The upgrade reflects our evaluation of Ford’s creditworthiness following the company’s completion of what we considered to be a distressed debt exchange,” said Robert Schulz, S&P analyst.

Still, the outlook for all three U.S. auto companies is generally negative, S&P said. “We expect continued heavy cash losses in Ford’s automotive operations for at least the next year,” Schulz said in a written statement.

Even if Ford itself avoids the worst, Ford would still be negatively affected if either Chrysler or GM were to go bankrupt, because the auto companies share some of the same suppliers, S&P said.