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'Junk' rating for Ford from Moody's hurts ability to borrow money, warns investors

Phoebe Wall Howard, Detroit Free Press on

Published in Business News

"Moody's rating agency is everything," he said. "Anytime major investors see a downgrade to junk status, which shows a higher risk, it tends to cause the stock price to go down."

Moody's wrote: "The erosion in Ford's performance has occurred during a period in which global automotive conditions have been fairly healthy."

Moody's cited Ford's "operating inefficiencies" in "almost all" of Ford's key markets. "An upgrade of Ford during the near term is unlikely."

David Kudla, CEO and chief investment strategist with Mainstay Capital Management, is a Grand Blanc investment adviser who manages $2.5 billion in assets for clients who include many Ford employees.

He said the downgrade on Monday is "unfortunate for Ford" because things are only getting tougher in the auto industry. Junk status means fewer pension funds and other institutional investment funds will be able to buy Ford bonds.

"Even though you have cash, you are going out and securing debt from time to time, and it's costlier to do that when that line in the sand is crossed from investment grade to junk," Kudla said. "We're in an environment where we think the economy is looking toward harder times, not better times."

 

While both Ford and General Motors are stocking up on cash for an expected downturn, he said, securing debt is still necessary for big capital projects.

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