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On the Edge of Junk, Ford Debt Brings back 2005 Nightmare!


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Bloomberg Ford Debt Story

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Ford's $150 Billion plus short and long term debt is now speculative debt according to Moody's Investors Service and S&P Global Ratings, just a step away from the painful Junk Status that would see Ford's borrowing costs jump massively. Ford is one of the top 15 biggest corporate bond issuers in the U.S. currently and is currently at a performance level equal to 2005 when Ford and GM was cut to Junk status.

Bob Shanks, Ford's CFO on their earnings call last month says the company is committed to maintaining its investment-grade ratings and does not intend to lose that status again. This is being shown in their aggressive restructuring of the business, rapid adjustment to the current buying trends of the public globally.

Yet with all that positive showing, debt investors have shown they are skeptical that Ford can achieve it. The cost of protecting Ford's debt using credit derivatives rose to their highest level not seen since 2012. Moody's is watching month to month and says that they could take the final step of droping from speculative to junk depending on the final two months of this year. 

Henry Peabody, a portfolio manager at Eaton Vance Corp. in Boston states that Ford's problems come from a multiple-front war that they are not doing well in. It is a combination of fairly weak strategic position, less than ideal strategic decisions over the last number of years, paired with overconfidence in their Trucks and where the current credit cycle is at.

Bill Ford says it is great to have recovered their heritage as an investment grade company after hocking everything including the company logo to the banks. In July Ford told the investment community that a 5 year overhaul at a cost of $11 Billion dollars will have the company focus on high margin products that cover trucks, SUVs, and the performance pony car market. Ford will be exiting the sedan business in the US and scaling it back globally based on sales. Yet with this announcement, they have provided scant info on this restructuring plan and already rescheduled an investor meeting originally set for September.

Ford is talking with Volkswagen AG which itself is also hurting, Ford saw a 50% decline in Earnings in the 2nd quarter of 2018, followed by a 40% decline in the 3rd quarter. Shares are at their lowest point since 2009. Ford as speculative debt trades at risk premiums higher than Junk status based Fiat Chrysler and strong investment grade GM indicating according to Bloomberg that Ford is a huge credit risk. The only positive is that Ford has $35 billion in cash on hand as of Sept. 30th.

Bloomberg's review shows Ford has options still but they are shrinking fast. Those options will stay as long as Ford can keep their cash flow from high trucks sales going. Sadly, interest rates are rising, the trade war is costing them an extra Billion a quarter for steel and the auto business is cyclical with it currently slowing down.

Where Ford ends up is anyone's Guess.

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2 hours ago, riviera74 said:

Alan Mullaly mortgaged the future in order to survive the present back in 2007.  The piper is now demanding payment.  I personally suspect that Ford's debt problems WILL lead to its demise within five years.  Thanks a lot, Alan.

Bankruptcy is the future of Ford

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On 11/10/2018 at 10:32 AM, riviera74 said:

Alan Mullaly mortgaged the future in order to survive the present back in 2007.  The piper is now demanding payment.  I personally suspect that Ford's debt problems WILL lead to its demise within five years.  Thanks a lot, Alan.

Doubtful within five...I could see within fifteen. I think lack of product development may well be what does them in. 

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