10 September 2019 by jbchevrel
Ford Motor Co. (F) was by far the worst performing CDX IG CDS s32 on the day, the 5y wider +18bp. Both the index (-0.1) and its fair value (+0.3) were little changed. Those deltas being, as usual, calculated on a London close basis. At 189bp (+18), F 5y CDS is clearly the widest name in the CDX, ahead of high-beta retailers, namely Macy’s (FD – 181bp) and Nordstrom (JWN – 179bp). Yesterday after our London close, Moody’s cut the historic US carmaker’s credit rating to junk (Snr uns debt = Ba1 LT credit range = Ba1 Outlook = stable). Indeed, the agency downgraded F on the back of doubts that a turnaround plan by CEO Hackett will generate earnings and cash flow quickly enough. The company’s ratings remain investment grade at the other two ‘big’ agencies, so it will not change F’s being part of the CDX IG (for s33 also because we passed the deadline and for further series if no rating changes from here). F’s bonds are also seen as staying in IG bond indices for the next six months, as a downgrade by S&P would likely be only one notch. MIS highlighted that F’s restructuring process was seen as too slow by many industry watchers, adding to the already weak macro context. FMCC CDS widened in line (5y +17.5) and bonds also slid, consistently amongst biggest decliners in IG bond market. Most actively-traded issue, 5.1% 29s cheapened -2.5c and 5.6% 24s cheapened -1.3c. In equity space, shares came down -6% at the open before paring some of their losses, such that they are now -4% lower than at yesterday’s London close. In the same time, E-minis traded in a 1% range. Adding to the credit underperformance, analysts think the dividend isn’t at risk yet. This is as cash balance remains solid, EBIT trajectory is improving, and the MIS downgrade cited operational issues, as opposed to leverage.