Re: Detroit carmakers' credit ratings teeter on edge
- From: mg <mgkelson@xxxxxxxxx>
- Date: Sat, 21 Jun 2008 11:01:59 -0700 (PDT)
It looks like the same sort of thing is happening to the airlines. Are
these companies too big to fail like the banks? Do we need to bail
them out also?
"Fuel costs may thrust airlines into bankruptcy
Cash shrinking fast as 10 largest carriers struggle to boost revenue
By Julie Johnsson | Tribune reporter
May 19, 2008
It is a thrill ride nobody wanted.
Just months after reporting their highest annual profits in eight
years, U.S. airlines are in a nose dive that could leave some major
carriers in bankruptcy.
Leaders at Chicago's United Airlines and across the industry are
scrambling to devise business models that will hold up to the stresses
of $128 per barrel crude oil and a sluggish economy.
If the 10 largest U.S. airlines don't boost revenues and restructure
loans, their cumulative cash could shrink 62 percent to about $8.6
billion by year's end, estimated Philip Baggaley, chief credit analyst
at Standard & Poor's.
That's not sufficient to cover one month's expenses at the carriers,
he said. "In other words, in this simplified example, the airlines, as
a group, would be at risk of bankruptcy," Baggaley wrote in a research
report Friday. . ."
http://www.chicagotribune.com/business/chi-mon-airlines-fuel-survivemay19,0,4883439.story
On Jun 21, 6:56 am, Jim Higgins <gordian...@xxxxxxxxxxx> wrote:
Detroit carmakers' credit ratings teeter on edgehttp://tinyurl.com/5d8g2w
General Motors Corp., Ford Motor Co. and Chrysler LLC credit ratings may
be lowered by Standard & Poor's as higher gas prices inflict "financial
damage" on the auto industry.
S&P placed the carmakers' credit ratings, already five levels below
investment grade, on CreditWatch negative, according to a statement
Friday. S&P said it may also downgrade their financing arms. While the
carmakers will be able to pay their debts this year, their cash may
shrink to "undesirable levels" by the end of 2009, S&P said.
"As we look forward, we do not see a lot of visibility on how bad things
are going to get," S&P analyst Robert Schulz said in an interview on
Bloomberg Television. "We thought the best thing to do would be to stand
back and look at these three companies and look at how the market could
unfold."
A weakening economy and soaring fuel prices are dragging U.S. auto sales
to their lowest levels in 15 years.Ford and GM shares dropped and the
cost to protect against a default on their debt soared. Chrysler, based
in Auburn Hills, is owned by New York private equity firm Cerberus
Capital Management LP.
Also Friday, Moody's Investors Service changed its outlook on Ford's B3
rating to "negative" from "stable," and lowered its outlook for Chrysler
LLC to negative from stable, saying it may need to review the
automaker's B3 rating.
"The change in outlook reflects the increasingly challenging environment
faced by Chrysler as the outlook for U.S. vehicle demand falls, and as
high fuel costs drive U.S. consumers away from light trucks and SUVs,"
the debt-rating agency said in a statement.
Moody's noted that Chrysler's share of the market fell in May and it
expressed concern about Chrysler's lineup. "While the overall U.S.
market demonstrated a car/truck mix of approximately 60/40, Chrysler's
car/truck mix was about 32/68," it said.
Moody's had estimated that Chrysler would be in a good position to cover
its cash requirements into 2010 in a market totaling 15 million cars and
trucks. But several analysts see U.S. auto sales falling below that
level this year. "This erosion in market fundamentals could stress
Chrysler's liquidity profile by late 2009 or early 2010," Moody's said.
In the S&P report, Schulz said he has renewed concerns about the
companies' "future cash outflows in light of the prospects for U.S.
sales for the rest of 2008 and into 2009."
"The erosion of demand for SUVs and pickups has been particularly
troubling," Schulz said.
S&P rates all three automaker's debt B. For issuers rated B, "adverse
business, financial, or economic conditions will likely impair the
obligor's capacity or willingness to meet its financial commitment,"
according to S&P's ratings definitions.
--
Civis Romanus Sum
.
- References:
- Detroit carmakers' credit ratings teeter on edge
- From: Jim Higgins
- Detroit carmakers' credit ratings teeter on edge
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