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Ford’s Forecast Cut May Give S&P Ammo Needed to Cut Rating

Molly Smith

(Bloomberg) -- Ford Motor Co.’s lowering of its full-year forecast may prove to be the last straw for S&P Global Ratings, which has said it may downgrade the carmaker this year.

S&P assigned the company a negative outlook back in July, citing weakness in Ford’s overseas operations and the company’s ongoing restructuring. The outlook applies to a 12- to 24-month period, which could result in a cut to the BBB rating. A one-notch downgrade, which S&P analyst Nishit Madlani has said is likely, would leave Ford one level above junk.

Ford reduced its 2019 earnings projection by $500 million when reporting third-quarter results late Wednesday, a sign an $11 billion restructuring by Chief Executive Officer Jim Hackett may require more time before a promised payoff. The company blamed higher warranty costs, elevated incentive spending in North America and lower sales in China.

Moody’s Investors Service already took action last month, downgrading Ford to Ba1 -- one step into high-yield territory -- citing doubts that the turnaround plan will generate earnings and cash quickly enough. Like S&P, Fitch Ratings rates Ford BBB with a negative outlook, and could also act this year, according to Bloomberg Intelligence analyst Joel Levington. The company would need at least one more high-yield rating to fall out of investment-grade indexes.

Ford’s bonds have been trading like junk for upwards of a year now, which is “attractive” because the debt will likely stay in high grade for at least the next six to nine months, according to CreditSights analyst Hitin Anand. That timeline is subject to change once S&P pulls the trigger on a “highly-anticipated” cut, Anand said.

“A S&P downgrade to low BBB is imminent,” he said.

(Updates with analyst comments starting in the fourth paragraph)

--With assistance from Keith Naughton.

To contact the reporter on this story: Molly Smith in New York at msmith604@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Craig Trudell

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