Saturday May 07, 2005

GM, Ford debt cut to junk status

This article belongs to the GM, Ford and Chrysler bankruptcy watch story arc.

latoc -> usatoday.com :

The day after General Motors' shares soared on news that activist investor Kirk Kerkorian intended to double his investment in the ailing automaker, ratings firm Standard & Poor's said Thursday it is cutting GM (GM) and Ford Motor (F) debt ratings to junk status.

That isn't likely to affect either company immediately — both have enough cash to fund operations for a while — but it signals to investors doubt the automakers can pull out of their skid. More significantly, it could hurt the profits of their financing arms, which lately have tended to earn more than car operations ...

- More evidence of the crash gathering momentum. Junk bonds are the riskiest types of bonds out there, indicating that the companies which have issued/or are issuing them are risky - that's why they're called junk. They may attract high interest rates, but the company issuing them may default (be unable to pay). Investors may not be able to get some, most, or all of their money back. And agencies like S&P don't assign junk status lightly - after all, they do have a reputation to protect, they don't want to make a wrong call, and they spend many months and man-hours evaluating these things. This is serious.

(2005-05-07 23:44:17 SGT) [Biz] Permalink

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