Bangkok--Dec 21--Fitch Ratings
Fitch Ratings (Thailand) today downgraded the National rating on Primus Leasing Company Limited’s (“Primus”) guaranteed notes issued under its medium-term note programmes and its guaranteed bills of exchange to ‘A-(tha)’ (A minus(tha)) with a Negative Outlook from ‘A(tha)’. Primus is a Thai subsidiary of Ford Motor Credit Corporation (“Ford Credit”) of the US; Ford Credit is also a guarantor of Primus’ debt. The rating action was triggered by Fitch’s downgrade of the international Senior Unsecured ratings of Ford Credit, and parent, Ford Motor Corporation (“Ford”), to ‘BB+’ from ‘BBB-’ (BBB minus). The rating Outlook on Ford and Ford Credit remains Negative, indicating the likelihood of further downgrades on Primus’ National rating.
Primus’ National rating is based on the full, irrevocable and unconditional guarantee by Ford Credit and the creditworthiness of Primus' parents, Ford and Ford Credit, both of the US. The rating action on Primus was taken on the back of the downgrade of both Ford and Ford Credit in order to maintain the International rating differential between Primus’ guarantors and the Thai sovereign (currently rated International Long-term local currency ‘A’). Fitch notes that any further changes in the rating differential between Primus’ guarantors and the Thai sovereign will continue to affect Primus’ National rating.
The downgrade and Negative Outlook of Ford reflect the continuing share losses and competitive pressures at Ford's core North American auto operations, and the challenges the company faces in restoring sustainable positive cash flow. Ford, along with most of the North American auto industry, is in the midst of an extended and fundamental restructuring of its cost base, which will be necessary to stem operating losses. The ability to accelerate restructuring activities could leave Ford with a smaller, but more viable combination of flexible manufacturing plants and product segments, with better plant economics. However, replacing unit sales to support revenue levels will remain a difficult challenge given the unrelenting competitive environment.
Operating results have also been severely impacted by higher commodity costs, namely steel and resin, which may continue to rise for Ford through 2006. Longer term, commodity price relief may alleviate some margin pressure although this may not occur until into 2007. Given top-line pressures and reduced scale, fixed-cost absorption will continue to be challenging, and margin restoration will be difficult to accomplish without more significant inroads into structural costs in the areas of wages and benefits.
The ratings of Ford Credit are linked to those of Ford due to the close business relationship between them. Fitch expects Ford Credit's earnings and dividends to decline noticeably going into 2006 primarily due to lower receivables outstanding and margins. Ford Credit has benefited by lower provision expense, as the quality of its receivables pool has increased, however, the pace of these improvements is expected to slow going forward. Fitch believes that Ford Credit maintains a good degree of liquidity relative to its rating. Supporting this is Ford Credit's ability to sell or securitize a broad spectrum of assets such as retail finance, lease, and wholesale loans. Moreover, Ford Credit continues to hold high cash balances and its assets mature faster than its debt.
According to Fitch’s methodology, any change in the international rating differential between guarantors and the Thai sovereign could have an impact on National ratings of MNC guaranteed bonds. As National ratings are by definition a ranking of relative creditworthiness, and in Thailand's case the sovereign is defined to be ‘AAA(tha)’, rating actions on the sovereign and guarantors automatically prompts a review of rating relativities to ensure their continuing accuracy. In addition, investors should note that one notch change in the International rating could result in greater than one notch change in the National ratings.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with sub- or low-investment grade international sovereign ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.
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