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Skittishness About TXU, Ford Trigger Heavy Sell-Off

Securities: Utility firm drops as much as 39% and automaker loses 9% on shaken confidence in their financial health.

October 09, 2002|From Reuters and Times Staff

Investors continue to exhibit extraordinary skittishness over the financial condition of some of the nation's biggest companies.

That was hammered home for two big names Tuesday:

* Shares of TXU Corp., a major energy services company, plunged as much as 39% on liquidity concerns before trading was halted, and TXU made a statement saying that its financial condition is "strong." That helped the stock rebound, though it still closed down $5.46, or 24%, at $17.18 on the New York Stock Exchange.

* Ford Motor Co. stock dropped nearly 9%, down 75 cents to a 10-year low of $7.75 on the NYSE, after brokerage Credit Suisse First Boston downgraded the shares, citing concerns about Ford's ability to maintain its investment-grade credit rating.

Shocked by the surprise bankruptcy filings of such giants as Enron Corp. and WorldCom Inc. in the last year, many investors are bailing out of stocks if there is even a remote hint that a company could face financial difficulty.

TXU said it did not know why its stock lost so much ground early Tuesday. The price has been plunging for a week.

Some analysts attributed the heavy sell-off Tuesday to a ratings cut of TXU's European unit to "junk" status by Fitch Ratings.

But the drop also came a day after TXU held a meeting with analysts in New York that yielded more questions than answers about the firm's decision last week to slash its profit forecast through next year by more than a quarter.

Analysts and investors also were frustrated by management's refusal to clarify the financial position of its European operation.

"The company's recent change in guidance this late in the year combined with a widespread lack of confidence in the [utility] sector

TXU has long been considered a stalwart of the utility sector, even amid all the problems of the last year after Enron's collapse.

But the Dallas-based company last week slashed its profit outlook through next year because of low power prices and fierce competition in Britain.

TXU said Tuesday that it has "ample liquidity," but credit analyst Robert Rubin at Deutsche Bank said the firm's financial flexibility "is not particularly strong."

Utility investors also were spooked Tuesday by Allegheny Energy Inc., which said it was in default under its credit agreements and is talking to its lenders to obtain extra funding. That stock fell $3.72 to $3.80 on the NYSE.

In the auto sector, brokerage CSFB's suggestion that Ford's credit rating could be cut to junk status sent investors fleeing.

Ford and its finance arm are the largest U.S. issuers of corporate debt. A downgrade to junk status would be nothing short of disastrous for Ford, analysts say.

Fears about Ford's credit rating have been exacerbated by mounting concerns about its pension fund liabilities and by worries about the profitability of its luxury car division, which includes Volvo, Land Rover and Jaguar, CSFB said.

The CSFB report pushed prices of Ford's bonds down sharply, even though the brokerage said it thought the chances of a rating cut were low. Indeed, credit-raters Moody's Investors Service and Standard & Poor's both said Tuesday that speculation about a downgrade of Ford was inconsistent with their ratings view.

"It's our view that Ford is basically a sound company," said S&P auto analyst Scott Sprinzen.

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