Fitch downgrades Ford to lowest investment grade because of COVID-19
Fitch Ratings on Monday downgraded Ford Motor Co. to one notch above non-investment grade with a negative outlook as the new coronavirus pandemic causes the Dearborn automaker to shut down plants around the world.
Ford now is rated "BBB-." Although the Blue Oval has strong liquidity, according to the rating agency, it expressed concerns that the COVID-19 outbreak will lead to extended plant closures and harm demand.
"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," the agency said in a note.
Ford declined to comment directly on Fitch's downgrade.
"However, like we did in the Great Recession, Ford is managing through the coronavirus crisis in a way that safeguards our business, our workforce, our customers and our dealers," Ford spokesman Brad Carroll said in a statement. "We plan to emerge from this crisis as a stronger company that is an engine for economic recovery of the economy in all the markets we serve. We have maintained a strong balance sheet and ample liquidity so that we could weather economic uncertainty and continue to invest in our future, and remain committed to investment grade credit ratings over the long-term.”
The downgrade comes four days after the Blue Oval said it was suspending its quarterly dividend for the first time in eight years, withdrawing its 2020 guidance and borrowing $15.4 billion from credit lines to hold it over as it suspends production at facilities in Europe, North America and South America. At the end of 2019, Ford had $22 billion in cash and $35 billion in liquidity.
The rating agency forecasts Ford could spend $8 billion because of the shutdowns, predicting they go beyond the March 30 target date in North America the company announced last week. If an economic recession, however, persists through 2020, costs could run as high as $14 billion over the next two years, Fitch wrote, "which would be manageable for the company, but would slow the repayment of its revolver borrowings. Under such a scenario, Fitch would likely downgrade the company's ratings."
Fitch does not see a positive outlook for Ford until the greater economy improves, but it could become stable if operations return to normal in the latter of half of the year and it begins to repay its debt. Right now, it predicts production to ramp up only to 50% of expected run rates. If plants stay closed for multiple months, Ford could face another downgrade.
"The company's liquidity position," Fitch wrote, "and financial flexibility could become increasingly strained."