Ford’s debt has been relegated to junk territory

Like a worn-out engine, Ford’s costly turnround plan is sputtering. The latest blow came this week when Moody’s stripped America’s number two automaker of its investment grade status. The decision by the agency to cut Ford’s rating to Ba1 marks the first time the company’s debt has been relegated to junk territory since 2012. The downgrade should not raise Ford’s financing costs immediately. The company needs to be junked by two ratings group’s before it falls out of the investment grade index. S&P and Fitch both still rate the company at triple B, two notches above junk territory… Still, Ford chief executive Jim Hackett has been put on notice… Profits at the company halved in 2018 and are forecast to dip again this year. Mr Hackett’s $11 billion restructuring plan, which calls for cutting thousands of jobs, ramping up trucks and SUVs production, has been criticised for its sketchiness. The 8 per cent drop in the company’s share price over the past two months reflects Wall Street’s frustration. But a forward earnings ratio of 7.2 times also represents a buying opportunity. Ford has a sound balance sheet and abundant liquidity, with cash holdings standing at $23.2 billion as of the end of June. Mr Hackett just needs to put the pedal to the metal. 

Lex.

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