November 7, 2008 / 10:19 PM / 9 years ago

UPDATE 1-S&P cuts GM, Moody's cuts Ford further into junk

(Adds S&P, Fitch action on General Motors)

NEW YORK, Nov 7 (Reuters) - Standard & Poor’s cut its ratings on General Motors Corp (GM.N) and Fitch Ratings said it may also cut them, while Moody’s Investors Service downgraded Ford Motor Co (F.N) and its finance unit deeper into junk territory.

S&P said it also cut its ratings on GMAC LLC and its residential mortgage arm Residential Mortgage LLC.

Ford and GM earlier reported deeper-than-expected quarterly losses and an acceleration in their rate of cash burn.

Both companies said they would take aggressive steps to cut costs further as they await word on promised government loans. For details, see [ID:nL7523278]

“We now believe GM will use much more cash this year than our previous estimate of as much as $16 billion in its global automotive operations,” S&P analyst Robert Schulz said in a statement.

“We expect cash outflows to quickly reduce the company’s liquidity during the next few quarters, perhaps to levels that would force GM to consider a financial restructuring, even if it does not file for bankruptcy,” the rating agency added.

S&P cut GM’s corporate credit rating one notch to “CCC-plus,” seven steps below investment grade, from “B-minus.”

It also cut GMAC’s rating two notches to “CCC,” eight steps below investment grade and cut ResCap two notches to “CCC-minus,” nine steps below investment grade.

“Residential Capital LLC represents a significant economic burden for GMAC,” S&P said. “We do not anticipate the financial pressure at Residential Capital LLC dissipating in the intermediate term. Therefore, a strategic solution appears the only option within this timeframe.”

GMAC is evaluating options including applying for status as a bank holding company, a potential debt exchange and seeking federal assistance to shore up its liquidity.

However, “it is unclear as to the likelihood of achieving any of these alternatives, or if any of them would lead to financial stability for GMAC or Residential Capital LLC,” S&P said.

Fitch Ratings said it expects federal aid is “high likely” to come to the assistance of GM, though details are uncertain.

Without “material federal assistance in the short term,” Fitch said it may cut its rating on the automaker to “CC,” one step above default and a highly speculative rating.

    It currently rates GM “CCC,” eight steps below investment grade.

    FORD

    Meanwhile, Moody’s said it expects the severity and duration of the downturn in the U.S. auto market will hamper Ford’s ability to stem its pace of operating cash consumption.

    The agency cut the corporate family and probability of default ratings of Ford by a notch to “Caa1”, or seven notches into junk status. The outlook remains negative, meaning it could lower the rating again within two years.

    It cut Ford Credit by one notch to “B3” or six notches into junk, and maintained a negative outlook.

    Declining consumer confidence, the weak housing market and the lack of available credit to fund retail auto purchases will crimp sales, Moody’s added.

    “There will be a considerable degree of downside risk in the U.S. auto sector through 2009,” said Bruce Clark, senior vice president at Moody‘s. (Reporting by Karen Brettell and Ciara Linnane; editing by Gary Crosse)

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