(The following statement was released by the rating agency)
NEW YORK, Oct 28 - Standard & Poor's Ratings Services said today it lowered its long-term ratings on Sweden-based car finance company AB Volvofinans to triple-'B' from triple-'B'-plus. At the same time, the ratings were removed from CreditWatch, where they had been placed on Oct. 16, 2002. The outlook is negative.
The action follows the lowering of long-term ratings on Volvofinans' ultimate parent company, Ford Motor Co. (BBB/Negative/A-2), on Oct. 25, 2002.
In addition, the Swedish CP rating on Volvofinans was lowered to 'K-2' from 'K-1' and removed from CreditWatch. The 'A-2' short-term ratings on the company, which had not been placed on CreditWatch, were affirmed.
"The downgrade reflects concerns about the adequacy of restructuring measures being implemented by Ford to restore the competitiveness in the group's core automotive operations, and is not triggered by any deterioration in the performance of Volvofinans," said Standard & Poor's credit analyst Per Tornqvist.
For the first nine months of 2002, Volvofinans reported a pretax profit of Swedish krona (Skr) 185.0 million ($19.7 million at Skr9.35 to $1), compared with Skr139.7 million in the same period in 2001. Over the past year, the company has actively diversified its funding base and reduced its once considerable reliance on the Swedish CP market.
"The ratings on Volvofinans could be lowered further if at any point Standard & Poor's comes to doubt that Ford will be able to sustain some earnings improvement, including the achievement of at least break-even pretax earnings in its automotive operations (excluding Ford Motor Credit Co.; BBB/Negative/A-2) in 2003," added Mr. Tornqvist. "In addition, there could be negative ratings pressure on Volvofinans should Ford decide to reduce its financial support."
Following Ford's acquisition of 50% of Volvofinans in June 2001, as well as Ford's assumption of other Volvofinans obligations (including an Skr2 billion credit facility), the ratings on Volvofinans were equalized with those on Ford. Since then, the ratings on Volvofinans have moved in tandem with those on Ford.
Ford has been pursuing its extensive revitalization plan, announced in January of this year, following the company's dismal operating performance in 2001. Significant progress has been made in certain areas, such as enhancement of product quality measures. A turnaround has already been effected at Ford's automotive operations in Europe. Furthermore, largely reflecting stronger-than-anticipated industry demand, Ford has been exceeding its modest initial goal of consolidated pretax break-even earnings in 2002. Even so, its automotive operations remain unprofitable in aggregate. Standard & Poor's is concerned that the benefits of Ford's restructuring could eventually be offset by decreasing industry demand in North America, industrywide intensification of price deterioration--partly resulting from aggressiveness by General Motors Corp. (BBB/Stable/A-2)--and Ford's market share weakness. In addition, although an important element of Ford's long-range plan has been expansion in relatively high-margin luxury vehicles, the performance of the brands within its Premier Automotive Group has been mixed.
Moreover, Ford's financial leverage has increased as a result of growth in its unfunded pension liability. Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Fixed Income in the left navigation bar, select Credit Ratings Actions.