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Recently, according to the Financial Times, Standard & Poor's global rating downgraded Ford's credit rating from BBB- to BB+, which is the so-called "junk level". Then Standard & Poor's quickly downgraded Damei's investment grade from BBB- to junk BB, two grades lower than the investment grade.

The word "garbage grade" comes from Standard & Poor's founded by Mr. Poole in 1860.

Since its establishment, Standard & Poor's has been playing an important role in establishing market transparency, and is now recognized as one of the three most authoritative credit rating agencies in the world. Standard & Poor's credit rating standards are divided into AAA, AA, A, BBB, BB, B, CCC, CC, C and D from high to low.

It can be said that according to this standard, under the BBB level, enterprises may face the possibility that their solvency may be fragile under harsh economic conditions or external environment. Before Standard & Poor's downgraded Ford and Delta Air Lines to "junk", there were a series of other high-profile downgrades, including those of Kraft Heinz, Macy's and Western Oil Company.

So, why is the credit rating of companies like Ford or Delta Air Lines adjusted to a lower BB "junk level" this time?

Before the outbreak, it was already on the "edge" of investment grade rating.

Standard & Poor's said that Ford is under great financial pressure because its factories all over the world are closed, including all North American factories, and it has not yet been decided when to resume production. Standard & Poor's also said that the pressure for a company to close all its factories is different from the traditional recession, which means that Ford can't generate revenue to cover its costs.

"The speed of burning money, even for a few months, may be faster than in a general recession."

Not only affected by the epidemic, Standard & Poor's global rating shows that even before the epidemic, Ford was already on the verge of investment-grade rating.

In September last year, Moody's Investors Service Company downgraded Ford's credit rating from the lowest investment grade Baa3 to the highest junk grade Ba 1, on the grounds that Ford's ongoing restructuring cost is high and its profitability and cash creation ability are weak. This is the first time since 20 12 that the corporate debt has dropped to the junk level.

On Wednesday, Moody's downgraded Ford by one level, the second downgrade in six months, which also means that the average of the company's four public ratings is currently below investment grade. According to the data compiled by Bloomberg, Ford is undoubtedly one of the "fallen angels" with the biggest debt burden recently. This is also the biggest downgrade since Ford was downgraded to junk in 2005.

Bank of America credit strategist Hans? Mikkelsen said: "We are in a recession, and you should see a large number of investment-grade bonds downgraded to high-yield bonds." He predicted that $200 billion of angel bonds would be downgraded.

"But will many publishers of Ford's size be downgraded? The answer isno. " According to insiders, Ford was already struggling before the recession.

The global business restructuring initiated by Han, CEO of the company, after taking office has not been as effective as investors hoped. Wall Street analysts criticized Ford for cutting costs and restructuring its business too slowly.

In 20 19, Ford's annual net profit was $47 million, far lower than $3.7 billion in 20 18, with a decrease of 98.7%. The loss in the last three months of 20 19 was16.72 million USD, which was three times that of the same period last year.

Ford's global business restructuring is far from complete. At the end of last year, the company has included $3.7 billion for restructuring, and this year it is expected to include $900 million to $654.38+04 billion.

In response to the impact of the factory closure and sales decline caused by the epidemic, Ford Motor Company announced last week that it is taking a series of measures to further ensure the company's cash flow stability.

Ford will make full use of two credit lines up to $654.38+05.4 billion, including $654.38+03.4 billion corporate credit arrangement and $2 billion supplementary credit arrangement, and suspend dividend payment to improve financial flexibility in the short term. Suspension of dividends can save about $2.4 billion a year, while Ford used to have $22 billion in cash by the end of last year.

As a result, Ford will have more than $37 billion in cash, almost the same as the company's revenue announced in the fourth quarter of last year. But this dwarfs the company's market value of about $654.38+08 billion.

Ford also withdrew its fiscal year 2020 performance outlook released in early February. At that time, Ford predicted that the operating profit in 2020 would be between 94 cents per share and 1.20 USD. Earnings before interest and tax are $5.6-6.6 billion; The annual adjusted free cash flow is $2.4 billion to $3.4 billion; Thanks to the positive impact of the company's cost reduction plan, capital expenditure is expected to be between $6.8 billion and $7.3 billion.

Hankate said on Thursday that Ford needs to cut costs as soon as possible, but will not abolish any jobs. In the internal letter sent to employees on the same day, Han mentioned a plan to cut costs, including stopping recruiting new employees and reducing management pay, but it does not involve layoffs at present. In addition, Ford also said that it will resume production in some "key factories" in the United States and Mexico in April.

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Moody's said in the report: "In view of the sensitivity of the automobile industry to consumer needs and emotions, it has always been one of the industries hardest hit. These companies are still vulnerable to the continued spread of the epidemic. "

Therefore, Ford is not only one of many automobile companies facing an unprecedented "credit shock", but the outbreak of the epidemic also poses a major threat to the rating of the American automobile industry, including General Motors. Subsequently, Moody's put seven European automakers such as Daimler, Volkswagen and Renault on the downgrade watch list, and downgraded BMW's debt rating from A2 to A 1.

Of course, American automakers are still the hardest hit areas of "garbage". According to Reuters, J.D.? Power predicts that car sales in the United States will drop by 80% or more in March due to the rapid spread of the epidemic. In addition, the third largest automobile retail company group in the United States? 1? Car companies told investors on Wednesday that their total car sales in the United States dropped by 50-70% compared with the normal expected sales in March.

At the same time, Standard & Poor's also put GM on the credit watch list late on Wednesday.

The agency said, "If GM's factory idle time exceeds our expectations, resulting in negative cash flow, eroding its liquidity and increasing its debt leverage, without immediate improvement, then GM's credit rating has at least a 50% chance of being downgraded by one level."

The United Auto Workers Union asked General Motors to "put workers' safety first, follow the advice of the government and health officials, and let workers stay at home. "

According to three people familiar with the matter, GM does not intend to resume production on March 30. It is not clear when these factories can resume production, nor whether some factories can resume production before others. GM declined to comment on Tuesday, but said in a previous announcement that the plant will be closed at least until March 30, after which the production situation will be reassessed weekly.

Standard & Poor's predicts that the sales of light vehicles in the United States and Europe will decline this year 15~ because the spread of the epidemic has led to factory shutdowns and mass layoffs, which has curbed the global demand for bulk purchases. 20%, which will be reduced by 8~ 10% in China.

Moody's warned that due to the sharp drop in demand, the company is considering reducing GM to junk status. "The epidemic has seriously disrupted the demand for automobiles, and the economic recession that may follow will put considerable pressure on GM's cash flow and credit indicators."

In order to further ensure the company's cash flow stability to cope with the impact of factory closure and sales decline caused by the novel coronavirus epidemic, General Motors said on Tuesday that it would withdraw its previously released financial performance target for 2020 and double its cash reserve by borrowing/kloc-0.6 billion US dollars from the existing credit line to cope with the impact of the novel coronavirus epidemic.

This move will improve GM's cash position and maintain financial flexibility in an uncertain global market. General Motors originally expected the cash reserves at the end of March to be about $654.38+06 billion. Therefore, after issuing a credit line of $654.38+06 billion, GM will have about $32 billion in cash to deal with risks.

Joe Spark, a capital market analyst at Royal Bank of Canada, estimated in a report to customers that GM's cash of $32 billion was enough to sustain the shutdown for 265,438+0 weeks. GM's share price has fallen by nearly half in the past month. As of Monday's close, the stock has fallen by 52% this year.

At present, the American auto industry is seeking guidance and help from the federal government, but the details of the rescue plan proposed by the American government are still pending. Although Washington is discussing a proposal to allocate rescue funds to some industries, including airlines, automakers have not yet asked for direct acceptance of rescue funds. On the contrary, they hope to get financial relief from Congress in the form of loan guarantee, paid vacation tax reduction for employees and deferred payment of corporate tax.

Ten years after the federal government of the United States was forced to rescue General Motors and Chrysler, automakers were once again faced with self-help or help, but this time they were cautious about direct financial assistance from the government.

10 years ago, GM and Chrysler received 5 10 billion dollars and1250 million dollars in federal aid respectively, while Ford did not receive federal funds. However, although the current epidemic crisis may have a huge impact on the automobile industry, it is still unlikely to be as serious as the 2008-2009 financial crisis.

No one can forget that winter, but no one wants to go back in time. If they survive the financial crisis, they can only hope to better cope with the storm with the foundation laid in the past decade.

Text /Pino

This article comes from car home, the author of the car manufacturer, and does not represent car home's position.