Moody’s upgrades Ford’s debt ratings to investment grade

Article by Christian Andrei, on May 24, 2012

Ford Motor Co.'s debt was recently upgraded by Moody's Investors Service to investment grade, ending its six-year struggle to get back the Blue Oval and other assets mortgaged in 2006. Moody’s is the second ratings agency to move Ford’s debt from having had a junk status. This puts the company nearer to its goal to recover assets that had been mortgaged in 2006 to avoid bankruptcy.

Ford was able to raise $23.5 billion and this made it capable of avoiding government bailouts or bankruptcy when the industry faced a crisis in 2008. In a statement, executive chairman Bill Ford Jr. said that the Ford Blue Oval is “back where it belongs” and its Ford family now has 166,000 employees globally again.

He added that this achievement is the product of many years of hard work by everyone involved with Ford. Moody’s said that this upgrade was decided after having seen how Ford has become stronger in North America. Moody’s expects that Ford’s improvements will probably be “lasting.” Moody’s said that Ford will still manage its balance sheet well and that it is confident that Ford will be able to retain its investment grade rating even with the European downturn.

Moody's thinks that Ford has proven how committed it was to maintain sound operating and financial disciplines by preserving a low break-even level; match production levels to retail demand; limit the use of incentives and price discounting; capitalize on the use of global vehicle platforms; and to form “healthy” relationships with suppliers.

Moody’s warned that Ford will need to boost its strength outside its North America stronghold before the agency will increase its rating further. So that Ford cold have a positive outlook or attain a higher rating, Ford will have to show clear progress in building profitability outside of North America. This would need a turnaround of its European operations and the profitable expansion in China. It added that Ford will need to keep its solid position in North America and to have a “healthy” liquidity profile.

Topics: ford

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