Nov. 12 (Bloomberg) -- Ford Motor Co.'s credit ratings on $180 billion of debt were cut to the lowest investment grade by Standard & Poor's, which said the company's ability to improve profits and cash flow are limited over the next few years.
The long-term rating was cut one level to BBB- with a stable outlook. Most of Ford's debt is issued by Ford Motor Credit, the automaker's consumer-credit unit. Ford, based in Dearborn, Michigan, is the biggest debtor in the Lehman Credit Index, a benchmark for corporate-bond managers.
Ford's debt rallied as S&P said ``the rating would not necessarily be jeopardized'' if ``expected improvement in earnings and cash flow fail to materialize.''
Ford's 7 percent notes maturing in 2013 rose in value, as the extra yield investors demand to own the notes rather than U.S. Treasuries narrowed about 47 basis points to 263 basis points, traders said. A basis point is 0.01 percentage point.
Ford, in a statement issued on PR Newswire by Chief Financial Donat Leclair, said it disagreed with the downgrade and ``we are on track to achieve our financial milestones for 2003.''
S&P said Oct. 21 that it would review Ford's ratings. The automaker posted net income of $1.29 billion in 2003's first nine months after losses totaling more than $6 billion the past two years.
The ratings cut is ``already priced into the bonds,'' Dan Genter, chief investment officer of RNC Genter Capital Management, said before the decision. The company manages $1.6 billion in bonds, including Ford debt. The cut should not drastically affect Ford Credit, he said. ``It's not going to change their access to capital or margins,'' Genter said.
Ford generated most of its 2003 earnings from Ford Credit. The company's worldwide automotive operations have had pretax profit of $53 million.
Ford is the most widely held bond, accounting for 2.84 percent of the Lehman Credit Index. It is the biggest issuer in the index.
Shares of Ford closed yesterday at $12.31 on the New York Stock Exchange.
