Moody’s Lowers Ford’s Debt Further Into Junk Territory

Moody’s Investors Service cut its ratings on Ford Motor Co.’s debt further into junk territory Wednesday, saying the automaker might remain under stress through 2007.

Even as Ford crafts a restructuring plan to be unveiled Jan. 23, the No. 2 U.S. automaker’s Asian and European rivals will continue to make progress, adding to Ford’s challenge, Moody’s said.

The rating service also downgraded the debt of Ford’s finance arm, Ford Motor Credit Co., to junk status from investment grade. Most of Ford’s $142 billion of consolidated debt is issued by the credit operation.

The carmaker’s North American operations lost $1.2 billion in the third quarter before taxes and special items. The company’s profit margins have been squeezed by fierce competition from foreign rivals and a decline in sales of large sport utility vehicles amid high gasoline prices.

The company’s debt rating could come under more pressure in the next six to 12 months if demand for SUVs and other trucks continues to decrease, if its market share falls further or if Ford has to increase incentives to buyers, Moody’s said.

Ford spokeswoman Becky Sanch declined to comment on Moody’s action except to say, “We remain committed to accelerating our business plan.”

Moody’s cut its long-term rating on Ford by two notches to Ba3, the third-highest junk rating, from Ba1. It cut Ford Motor Credit’s ratings by two notches to Ba2 from Baa3. Even after the downgrades, Moody’s said, the firm will have a negative outlook on Ford and Ford Credit.

The market effect of the downgrade was limited because Standard & Poor’s had already cut Ford to about the same level as Moody’s, or BB-minus, Jan. 5, analysts said. Fitch Ratings had downgraded Ford on Dec. 19 to BB-plus, one step below investment grade.

Investors are more focused on the Jan. 23 release of Ford’s plan to turn around its North American operations, said Craig Hutson, an analyst at independent research firm Gimme Credit.

“Certainly it’s not good news that both Moody’s and S&P; have downgraded Ford ahead of this announcement, and it’s pretty clear that both agencies have seen the details of the plan,” he said.

The rating firms probably believe that the plan will not help Ford’s credit quality in the near term, Hutson said.

Ford Motor Credit’s 7% notes due in 2013 were unchanged at 89.5 cents on the dollar, according to MarketAxess.

Ford’s shares rose 16 cents, or 1.8%, to $8.93.