July 12, 2009

Ford’s debt burden said worrisome

U.S. automaker Ford Motor Co. has avoided bankruptcy like its Detroit competitors, but it faces a weighty debt burden, an analyst says.

Even if Ford is successful in meeting its sales goals, it may still be as much as $36 billion in debt by 2011 when it expects to reach profitability, Citibank analyst Itay Michaeli said in an interview published Sunday by the Detroit Free Press.

Michaeli said that level of debt would be four times the company's hoped-for earnings, about twice as much debt that is considered healthy. Meanwhile, General Motors Corp. will emerge from Chapter 11 bankruptcy proceedings with a $17 billion debt load.

So even with a pretty impressive turnaround "¦ you are still talking about leverage likely to be double that of their competitors, Michaeli said of Ford's situation. The question "¦ is what do they do between now and then to ensure their balance sheet is where it needs to be?

That creates somewhat of a disadvantage (for Ford) with respect of cost of capital and financial flexibility, Bruce Clark, a senior vice president for Moody's, told the Free Press.