(Reuters) – Standard & Poor’s on Monday lowered its corporate credit rating on Chrysler LLC [CBS.UL] after the company said it will likely seek concessions from secured lenders as part of the $4 billion in emergency loans it received from the government on Friday.
S&P cut the rating by three notches to “CC,” a speculative grade that is just two notches above “D”, or default.
The agency also cut the issue-level ratings on the company’s senior secured debt and said the outlook is negative, meaning it could lower ratings again in the next two years.
Analyst Robert Schulz said he interpreted comments made by Chrysler on Friday as meaning the company will attempt to exchange secured debt for equity at a steep discount to face value.
“Given Chrysler’s weak liquidity, we consider such an offer to be a distressed exchange and, as such, tantamount to a default,” said the analyst.
S&P would cut Chrysler’s rating to “SD,” or selective default, if it completes an exchange offer and lower the exchanged issue ratings to “D,” he said. It would then assign a new corporate credit rating to the company based on its new capital structure and liquidity profile.
“Our preliminary expectation is that, even with substantial government support that enables Chrysler to avoid a bankruptcy filing, the corporate credit rating would likely not rise out of the “CCC” category immediately following the consummation of a debt exchange because of the various challenges the company faces, which we believe will keep bankruptcy risk high,” said Schulz. (Reporting by Ciara Linnane; Editing by Tom Hals)