The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.

Credit downgrades: More or less junk

Everyone expected the downgrade of Ford and General Motors to junk status. Now it has happened, the long-term consequences for the market are unclear. The move threatens to wipe out the trading profits of hedge funds and banks, with CDOs causing particular concern. Mark Brown reports.

IT WAS ALWAYS going to take something special to make the WorldCom debacle look a little insignificant. The Standard & Poor's corporate auto ratings team managed it on May 5 when they announced a downgrade of Ford Motor Company by one notch to BB+ and General Motors by two notches to BB with a negative watch, turning both into high-yield credits. The downgrades hit nearly $90 billion of index-eligible debt. That's almost three times the $30 billion affected by the WorldCom downgrade in 2002. The debt capital markets have never experienced anything like this.

"The magnitude is unprecedented," says Craig Abouchar, senior fund manager at Insight Investment in London. The other difference is the level of uncertainty that S&P has created in the debt and credit markets – an uncertainty that could last for months. "When WorldCom happened – boom! Two weeks later it was out of the index. You had to find buyers and sellers all at once." At the time of writing, it was still not certain whether Moody's Investor Services would follow S&P's lead in making Ford and GM junk, but Fitch downgraded GM and its subsidiary GMAC to BB+ before the end of May.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree