NEW YORK (Reuters) – Standard & Poor’s Rating Services on Friday lowered its debt ratings on Chrysler loans due in 2013 and 2014, citing a lower potential recovery by debtors in the event of payment defaults by the carmaker.
Standard & Poor’s said it lowered by two notches its issue-level ratings on Chrysler’s senior secured first-lien term loan due 2013 to ‘CC’ from ‘CCC’. S&P said its downgrade indicates lenders can expect an average 30 to 50 percent recovery in the event of a payment default.
The ratings agency said its corporate credit rating was left unchanged, at ‘CC’, reflecting no change in its view of the likelihood of default by Chrysler from either a bankruptcy or a distressed debt exchange.
Standard & Poor’s lowered its issue rating on the carmaker’s senior secured second-lien term loan due 2014 by one notch to ‘C’ from ‘CC’, suggesting lenders can expect a negligible to a 10 percent recovery if a default occurs.
“The lowering of our issue ratings reflects lower recovery estimates, given our current view that Chrysler would be unlikely to emerge from bankruptcy as one reorganized entity,” Standard & Poor’s recovery analyst Greg Maddock said in a release.
“If Chrysler goes into bankruptcy, I would expect it to go into liquidation — that its assets would be sold in whole or in part,” Maddock said in an interview.
“Instead of being reorganized, there would be no carmaker after bankruptcy,” he said. (Reporting by Ransdell Pierson; Editing by John Picinich)