Credit rating agency Moody's Investors Service raised its senior unsecured ratings for automaker Ford Motor Co. (F) by two notches to Baa3, and for Ford Motor Credit Co. LLC by a notch to Baa3, with rating outlook for both being 'stable'. Moody's bestowed the investment grade ratings on the company's debt for the first time since it was assigned junk status in August 2005.
Moody's attributed that upgrade to Ford's low breakeven level in North American, robust liquidity position, and the expectations that Ford will continue to embrace sound operating and financial disciplines.
The announcement comes just less than a month after Fitch Ratings also upgraded Ford to investment grade after assigning it junk status in December 2005.
Bruce Clark, senior vice president with Moody's said, "The key factor in our considering an investment-grade rating for Ford was whether or not the company would be able to sustain its strong performance. We concluded that the improvements Ford has made are likely to be lasting."
Moody's said Ford's North American annual breakeven level has declined by about 45 percent to 1.8 million units from the 3.4 million units in 2009. Related to liquidity, Ford had a $32 billion gross liquidity position at March 2012, consisting of $23 billion in cash and over $9 billion in committed credit facilities.
With about 25 percent of its global revenues being generated in Europe, Ford will face major challenges stemming from its high exposure to the depressed European auto market and its modest position in Asia, particularly in China.
Moody's noted that Ford will have to now focus on building profitability outside of North America in order to support a positive outlook or higher rating. This will require sustained turnaround of its European operations and a profitable expansion of its position in China.
Further, the rating of Ford's secured credit facility is lowered to Baa3 from Baa2 in anticipation of the imminent fall away of the bank agreement's security interest, while Ford Credit's stand-alone credit profile remains unchanged at a mid-Ba level.
Following Moody's announcement of the upgrade, Ford President and CEO Alan Mulally said, "We are so proud of today's decision by Moody's and the resulting release of all collateral - particularly the Ford Blue Oval."
Ford had put up its blue oval logo as collateral to obtain a $23.4 billion loan to keep the business going in 2006. Ford said pledging the blue oval was not like pledging an asset, but its heritage.
"Moving forward, we will continue to focus on driving profitable growth for all of our stakeholders. We are confident that, by staying focused on our plan and working together, we will maintain strong investment grade ratings through all economic cycles," Mulally added.
Separately, Moody's affirmed the corporate family rating for General Motors Co. (GM) at Ba1, a notch away from investment grade, citing the company's credit quality continuing to improve. Moody's outlook for General Motors remains positive.
F closed Tuesday's regular trading session at $10.19, down $0.01 or 0.10% on a volume of 44.30 million shares. However, the stock gained $0.16 or 1.57% in after-hours trading.
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