Ford Becomes Largest Fallen Angel After S&P’s Cut to Junk

Ford Motor Co. was cut to junk by S&P Global Ratings as the coronavirus pandemic delivers a shock to the global auto industry and renders the carmaker the largest fallen angel to date.

S&P downgraded Ford’s credit rating one notch to BB+ and may cut it further, according to a statement. The move follows Moody’s Investors Service, which dropped its rating for the second time in six months earlier Wednesday. The automaker’s two high-yield ratings will remove its $35.8 billion of debt from the Bloomberg Barclays investment-grade index at the end of the month.

Ford is one of many auto companies facing what Moody’s calls an unprecedented “credit shock,” with the coronavirus outbreak also posing a major threat to peers including General Motors Co. and Volkswagen AG. But Ford is particularly at risk because of the problems it’s had executing an $11 billion restructuring that’s yet to improve performance.

What Bloomberg Intelligence Says

S&P’s downgrade of Ford to high yield will make the automaker the largest issuer in the Bloomberg Barclays index, ahead of current biggest Charter and Kraft Heinz combined. With about $27 billion of debt maturities by the end of 2021 and little access to the unsecured markets at this time, bondholders may need to consider structural subordination.

— Joel Levington, BI credit analyst

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With Ford’s factories shut around the globe — including all its North American plants — and no decision as to when they’ll resume production, the company is under immense financial pressure, according to S&P.

“The stress of having all of a company’s plants shut down differs from that of a conventional recessionary downturn,” the credit rater said, noting that the shutdowns mean Ford isn’t generating the revenue it needs to cover its costs. “The rate of cash burn, even for a few months, could be faster than that which transpires during a typical recession.”

Moody’s estimated in its downgrade of Ford that the company could burn through $8 billion in the coming 12 months due to the coronavirus-related downturn in demand, putting a significant dent in the $37.7 billion the company compiled by drawing down its credit lines last week. Moody’s praised Ford for taking the “constructive” step of also suspending its dividend.

The cost to protect Ford’s debt against default for five years has soared this month more than fourfold, though it’s come down this week. Its bonds due 2025 trade around 78 cents on the dollar.

“Ford is managing through the coronavirus crisis in a way that safeguards our business, our workforce, our customers and our dealers,” the company said in an emailed statement. “We plan to emerge from this crisis as a stronger company.”

Ford shares fell as much as 7.1% after the close of regular trading and were down 0.9% as of 6:15 p.m. in New York. The stock has dropped 42% this year.

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Feinberg: Boeing deserves credit for $50M community investment fund

Attorney Feinberg distributing $50M for Boeing victim compensation

Victim Compensation Attorney Ken Feinberg discusses Boeing 737 Max victim compensation programs and plans to distribute $50 million to crash victims.

Victim compensation attorney Kenneth Feinberg, picked by Boeing to oversee its $100 million victim compensation fund, said Thursday the biggest challenge will be determining where and how the money should be distributed.

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The aerospace giant enlisted Feinberg and Camille Biros earlier this week to distribute the remaining $50 million of the fund to communities affected by the deadly crashes of a Lion Air flight in Indonesia and Ethiopian Airlines flight in Ethiopia. This includes local community projects and programs that are of interest to the families, like education programs, water treatment and providing food for the hungry, according to Feinberg.

The accidents, both involving the Boeing 737 Max, together killed 346 people and led to the aircraft's grounding worldwide in March 2019.

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BA BOEING COMPANY 337.77 -0.53 -0.16%

"Camille and I have the responsibility that the money will be protected, it will be used for those purposes, it will not be wasted, and it's going to be a challenge, no question," Feinberg told FOX Business' Neil Cavuto on Thursday.


Indonesian investigators inspect the wreckage of an engine from Lion Air Flight JT 610 recovered from the sea at the Tanjung Priok port on November 4, 2018 in Jakarta, Indonesia. (Ulet Ifansasti/Getty Images)

Feinberg and Biros were tapped by Boeing last year to distribute the first $50 million to the crash victim's families, which equates to $144,500 per each person.

"This is Boeing's attempt through independent evaluation by Camille and myself to reach out to the families and to try and do something constructive, something that will improve not only the families' financial situation, but the local community," he said." And Boeing deserves some credit for that, I think."


Most notably, Feinberg has headed the Sept. 11 Victim Compensation Fund, as well as those related to other tragedies including the Virginia Tech shootings, the BP oil spill, the General Motors ignition switch recall and the Pulse nightclub shootings. He was also appointed by the Justice Department in 2016 to oversee distributing money through a state-sponsored terrorism fund, which includes compensating Americans who were held hostage at the U.S. embassy in Tehran, Iran in 1979.


Feinberg said Boeing's compensation fund has "nothing to do whatsoever" with litigation against the company and differs from the Sept. 11 fund as it does not require a person receiving the money to release their right to litigate. Instead, the attorney said Boeing's program is similar to those associated with the marathon and shootings at Virginia Tech and the Pulse nightclub.


"Those programs, you could take that money as a gift," Feinberg said. "There was no requirement that you release your right to litigate. You could take that money and hire a lawyer if you wanted to."

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Personal loan vs. line of credit: Which is better for you?

When you need to borrow funds, two financial products to consider are a personal loan and a line of credit. (iStock)

For many people, there comes a time when you need to borrow money to cover your expenses. Maybe you're financing a major home renovation, covering medical costs or sending someone to college. Whatever the case, a personal loan and line of credit are two options that can give you the money you need.

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Below is an explanation of the differences between these two financial products, some examples of when it’s best to use each one, and an overview of how to apply once you’ve made your decision. Keep reading and learn how these products can help bring a sense of security into your financial life.

What’s the difference between a personal loan and line of credit?

Disbursement of the loan

One of the biggest differences between a personal loan and line of credit is in how the funds are disbursed. With a personal loan, the money is given to you in one lump-sum. However, a personal line of credit works more like a credit card. In this case, you can borrow money as needed, up to a certain limit.


Interest rate

Another difference is in how interest is calculated on the borrowed funds. With personal loans, you’re typically given a fixed interest rate and the rates are usually lower than those for personal lines of credit. With a personal line of credit, on the other hand, the interest rate is typically variable, which means that it can change after you’ve borrowed the money.


The last major difference between personal loans and personal lines of credit comes down to how repayment works. If you take out a personal loan, you’ll be expected to make fixed, monthly payments for a set period of time, similar to a mortgage payment.

In contrast, repayment on a personal line of credit is similar to a credit card, where you can choose how much you pay off, as long as you cover the minimum payment. How that minimum payment is calculated can vary by lender, but it’s typically either a set minimum fee or a percentage of what you’ve borrowed.


How to apply for a personal loan or personal line of credit

No matter which option you choose, the application processes for personal loans and personal lines of credit are very similar. In both cases, the lender will look at your credit score, income and assets to determine if you’ll be approved.

The big difference in this case is between secured and unsecured borrowing. Both personal loans and lines of credit come in either form.

With secured debts, you have to put up an asset as collateral, meaning that, if you default on the loan, your lender can take that asset as a form of repayment. For example, your vehicle serves as collateral for your car loan and your home is collateral for your mortgage.

In contrast, with unsecured debts, you don’t have to put up any collateral. Instead, your eligibility for one of these loans is determined entirely by the strength of your credit score and your financial profile. However, since the lender has less reassurance of repayment with unsecured debts, these options often come with higher interest rates.


Personal loans and lines of credit: When to use each one

As for how to decide between a personal loan and personal line of credit, James Lambridis, CEO of DebtMD, a fintech startup based in Wayne, NJ, said:

“A personal loan is best for financing a purchase that will have a known, fixed cost. On the other hand, a line of credit is best when you are not sure how much money you will need to borrow.”

With that in mind, below are a few scenarios where you might use each one:

When to use a personal loan

  • Consolidation of other debts like student loans
  • One-time expenses like a car repair or a one-off bill

When to use a personal line of credit

  • Ongoing medical expenses
  • Education costs 
  • Home renovations 

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