Coronavirus: Ford cut by Fitch on concern long shutdown will strain finances

Ford Motor Co. was downgraded by Fitch Ratings as the coronavirus pandemic sends shock waves through supply chains and all but wipes out demand across the auto industry.

Fitch cut Ford’s credit rating one notch to BBB- on Monday with a negative outlook. The downgrade also applies to the car maker’s lending unit, Ford Motor Credit.

The lower rating “reflects Fitch’s significant concerns about the effect that the global coronavirus mitigation actions currently underway will have on the company’s near-term financial performance and credit profile," the rater said in its report. “Fitch currently believes the company has the financial flexibility to manage through an extended shutdown of its facilities, but concerns are increasing that a combination of an extended shutdown followed by weak demand in a global recessionary environment could further pressure the company’s credit profile."

Moody’s Investment Service downgraded Ford to the first rung of speculative grade last September, and the company sits just one step above junk at S&P Global Ratings. The automaker was upgraded to investment grade from junk in 2012.

Hackett’s Efforts

Chief Executive Officer Jim Hackett is under pressure to accelerate his $11 billion restructuring after a disastrous rollout of the redesigned Explorer SUV led to dismal earnings and a disappointing profit forecast. While Hackett maintains the support of Executive Chairman Bill Ford, the great-grandson of founder Henry Ford, he shook up his management team recently by installing Jim Farley as his new No. 2 executive to speed up the company’s turnaround efforts.

“Ford is managing through the coronavirus crisis in a way that safeguards our business, our workforce, our customers and our dealers," the company said in a statement on Fitch’s downgrade. “We plan to emerge from this crisis as a stronger company."

Ford’s most actively traded bonds, Ford Motor Credit’s 5.113% notes due 2029, are trading at ~60.03 cents on the dollar with a yield of about 12.6% as of 12:10pm ET. The notes were trading at par on March 5. The cost to protect Ford’s debt from default has soared. It now costs 1,536 basis points upfront, compared to just 164 basis points as of February 21.

Ford shares, which began falling prior to the coronavirus crisis, have dropped to their lowest since April 2009. They closed Monday at $4.01, falling another 7.4%.