Wall Street’s major credit ratings agencies downgraded the outlook for Detroit’s struggling automakers – publicly-held Ford and General Motors – after reviewing the Bush Administration’s $17.4 billion low-interest loan agreement intended to keep the automakers afloat. Analysts on Wall Street warned that a bankruptcy is still a risk despite the low-interest loans.
GM shares saw a 22 percent drop yesterday in response to comments like Credit Suisse analyst Christopher Ceraso’s lowered price target of $1 – formerly $2.
“Over the next two months, as bondholders, union representatives, and company management meet to hammer out concessions, we think it will become increasingly clear that the enormous sacrifice of value on the part of the union and bondholders will require the complete or near-complete elimination of the existing GM equity,” Ceraso wrote in a research note given to the media.
J.P. Morgan auto analyst Himanshu Patel said that the loans don’t eliminate the risk of bankruptcy for the automakers. A Chapter 11 bankruptcy reorganization by GM “should not be dismissed,” Patel wrote.
Standard & Poor’s, a credit-rating agency, downgraded Chrysler from CCC+ to CC, pushing the automaker further into “junk” status yesterday.
Robert Schulz, the credit analyst behind the report, said that a CC rating is given when a company is “expected to undertake a distressed exchange of its debt.” Standard & Poor’s issued the same rating to GM a few weeks ago.
Moody’s Investors Service lowered Ford ’s outlook to “negative” yesterday, as well, further expanding the beating the automakers took on Wall Street.
