Ford’s credit rating was raised two levels by Standard & Poor’s

Article by Christian A., on August 29, 2010

Standard & Poor's raised the credit ratings of Ford Motor Co. by two levels due to expectations that it will remain profitable and signs that that its vehicles are having a better impression on customers. In a statement, S&P said that the rating was raised to B+, the fourth level below investment-grade, from B-. The outlook is positive.

S&P said that Ford has substantial cash balances and it's likely that it will still generate free operating cash flow. The ratings firm added that the retail market has an improved perception of Ford's vehicles and its moves to launch more fuel-efficient models within the next few years.

Kirk Ludtke, senior vice president of CRT Capital Group in Stamford, Conn., said that this step is in the right direction. He added that it was largely anticipated and that it will be a while before they return to investment grade. The reason for Ford having more debt than its US rivals is because it borrowed $23 billion in late 2006.

Ford incurred the debt before credit markets froze, helping the company avoid the bankruptcies that struck General Motors Corp. and Chrysler LLC.

However, Ford is now left with obligations that put it at a competitive disadvantage, according to CEO Alan Mulally. On June 30, Ford's automotive operations had $21.9 billion in cash, a drop from $25.3 billion on March 31.

During the second quarter, Ford paid down $7 billion in automotive debt, reducing it to $27.3 billion from $34.3 billion at the beginning of the quarter. Ford claims that by the end of 2011, it will have a positive automotive net cash position. S&P added that Ford's annual automotive debt maturities are less than $2 billion until 2013.

This debt reduction has lessened the risk that Ford's liquidity could fall to dangerously low levels in the succeeding years. Ford overhauled its vehicle lineup, launching redesigned versions of the Taurus and Fusion, and installing added features such as heated leather seats and voice-activated electronics.

Quality was also improved. In the second quarter, it won price gains of $1.1 billion on cars and trucks, contributing to all of its auto units worldwide to become profitable.

Topics: ford, united states

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