Bangkok--23 Aug--Fitch Ratings (Thailand)
Fitch Ratings (Thailand) has today downgraded the National rating of Primus Leasing Company Limited’s (“Primus”) guaranteed notes issued under its medium-term note programmes and its guaranteed bills of exchange to ‘BB+(tha)’ from ‘BBB-(tha)’ (BBB minus (tha)). The Outlook remains Negative. This action follows Fitch’s downgrade of the Issuer Default Ratings (“IDRs”) of Ford Motor Company (“Ford”) and Ford Motor Credit (“Ford Credit”) to ‘B’ from ‘B+’. Primus is a Thai subsidiary of Ford Credit of the US; Ford Credit is also a guarantor of Primus’ debt. The National ratings of Primus are based on the full, irrevocable and unconditional guarantee given by Ford Credit and the creditworthiness of Primus’s ultimate parents, Ford and Ford Credit, both of the US.
Any further downgrade in the IDR of Ford Credit, or any upgrade to the Thai sovereign (rated Long-term local currency IDR ‘A’/Stable), will potentially affect the National rating of Primus. A rating Outlook generally indicates the direction in which a rating is likely to move over a one- to two-year period.
As stated in Fitch’s press release dated 18 August 2006, the downgrade and Negative Outlook of Ford is based on the significant production cutbacks in the third and fourth quarter that reflect persistent share losses across key product categories. Negative cash flows, including restructuring costs, could exceed USD7 billion in 2006, including working capital and restructuring outflows. Cash outflows related to restructuring actions will continue in 2007, although operating losses could moderate as cost reduction efforts are realized. Sustained market share losses or a decline in economic conditions through 2007 would result in continued high levels of cash outflows and erosion of liquidity. Although liquidity remains adequate, progress in achieving structural cost reductions and maintaining the confidence of trade creditors will remain critical over the near term. Ford Credit's IDR remains linked to those of Ford due to the close business relationship between them. Fitch expects Ford Credit's earnings and dividends to decline noticeably in 2006 primarily due to lower receivables outstanding and margins. Ford Credit has benefited from lower provision expense, as the quality of its receivables pool has increased, but 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.
As a financing arm supporting domestic vehicle sales, Primus is strategically important to Ford’s operations in Thailand. Its hire purchase receivables fell by 14% in 2005 due to aggressive competition, although profitability remains strong. Nonetheless, the company’s revenues still depend on sales of captive car brands, namely Ford, Mazda, Land Rover and Volvo, which could be impacted if Ford’s troubles deepen. Primus’s asset quality currently remains strong, with delinquency (including write-offs) a still low 1% at end-2005. Its loan loss reserves stood at more than 2x of its non-performing receivables at end-2005. Primus’s rapid debt-funded receivables growth resulted in high leverage ratios, although the ratio fell from 19.4x equity at end-2004 to 12.6x equity at end-2005. Fitch’s concerns over the company’s high leverage are mitigated by the explicit guarantee of the notes by Ford Credit.
Contact: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong, +852 2263 9963.
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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