Ford Credit Ratings Cut to Junk: Can it Survive Through This Depressing Time?

The Ford stock price bounced back in the last couple of sessions amid improving broader market sentiments on a $2 trillion stimulus package that includes $500 billion for companies hardest hit by the coronavirus outbreak.

The Trump administration came up with a huge stimulus package to help avoid bankruptcies and the threat of massive growth in unemployment. The Fed will distribute that money to companies in the form of loans.

Ford is among the companies hardest hit by the COVID-19 pandemic as it has suspended its production activities around the world and demand for its vehicles has been massively impacted.

Credit ratings agencies are seeing a bumpy ride for the automaker. S&P cut Ford’s rating to BB+ from BBB-, while Moody’s trimmed its ratings to Ba2 from Ba1.

Moody’s on Ford Credit Ratings:

“Ford remains vulnerable to shifts in market sentiment in these unprecedented operating conditions and the company is vulnerable to the outbreak continuing to spread… Today’s action reflects the impact on Ford of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.”

Market analysts believe the auto sector is likely to take longer to stabilize than some other sectors due to the substantial decline in demand associated with the global economy slipping into recession.

Forecasts are indicating significant losses for the automaker in fiscal 2020.

The company, however, now appears to be in a better position to survive this difficult time thanks to the stimulus package and easy access to loans to pay salaries and run routine operations.

The company has suspended its dividend and reduced its investment activities to support cash flows. Ford also announced access to two lines of credit totalling $15.4B to deal with production shutdowns and to preserve financial flexibility.