May 23, 2012 / 12:07 AM / 7 years ago

Ford gets second investment-grade nod from Moody's

DETROIT (Reuters) - Ford Motor Co (F.N) received its second “investment grade” credit rating on Tuesday, allowing the second-largest U.S. automaker to reclaim its Blue Oval insignia and other assets it mortgaged in 2006 to fund its turnaround plan.

Employees install car components at an assembly line at a Ford manufacturing plant in Chongqing municipality, April 20, 2012. REUTERS/Stringer

Moody’s Investors Service’s upgrade of Ford to Baa3 from Ba2 reflected its confidence that Ford can weather future downturns.

Moody’s also affirmed its Ba1 rating on General Motors (GM.N) and said the largest U.S. automaker is on track to regain an investment-grade credit rating within the next year.

Moody’s decision on Ford comes less than a month after Fitch Ratings made a similar move. The upgrade allows Ford to enjoy lower borrowing costs and expands the number of potential buyers for its bonds.

It also represents a symbolic win for Ford, which nearly collapsed six years ago before mortgaging most of its assets to borrow $23.5 billion to finance a restructuring. Ford continued to use the Blue Oval icon and the other assets. The icon is stamped on the grill of Ford’s cars and trucks.

But now that two of the three major ratings agencies have upgraded Ford to investment grade, the company will once again own those assets.

Chairman Bill Ford Jr described Tuesday as “one of the best days that I can remember.

“Today is a once in a lifetime event, which I couldn’t be happier about,” Ford told reporters on a call.

“It’s way up on there on the highlights film for sure,” Chief Executive Alan Mulally said.

Moody’s cited Ford’s improved lineup of cars and trucks, limited use of incentives to spur sales, and much lower break-even point in North America for its decision.

In 2009, Ford could break even in North America if it sold 3.4 million cars and trucks. Now, that level has dropped 45 percent to 1.8 million in sales, according to Moody’s.

“We concluded that the improvements Ford has made are likely to be lasting,” said Moody’s analyst Bruce Clark.

Ford wants to cut its automotive debt to $10 billion by the middle of the decade as well as reduce the risk posed by its pension obligations.

Ford’s automotive debt was $13.7 billion in the first quarter. Last month, Ford said it would offer lump-sum pension buyouts to current white-collar retirees, a move that may lower its U.S. pension obligation by one-third.


To mark the occasion, 900 Ford employees posed for a group photo on the lawn outside Ford’s headquarters in Dearborn, Michigan. Bill Ford also made the announcement over the company’s PA system, which is typically reserved for fire drills.

The last time Ford was rated as investment grade by all three major ratings agencies was in May 2005. Last month, Fitch said Ford was in a “solid” position to withstand the pressures of the global auto industry.

Standard & Poor’s could not be immediately reached for comment.

The upgrades from both Moody’s and Fitch came earlier than some analysts projected, Citi analyst Itay Michaeli said.

“This means that Ford now possesses a largely unencumbered balance sheet,” Michaeli said in a note. “It provides greater long-term financial and funding flexibility, particularly at Ford Motor Credit.”

The Moody’s upgrade does not change Mulally’s plans for retirement, Mulally told reporters during a call. Mulally, 66, has not given a timetable for his retirement, but many analysts expect him to retire within two years.

Under Mulally, Ford has moved to unify its once-disconnected business units, and is taking advantage of its scale to drive down costs and build a global brand.

Ford’s executive team, which was hobbled by infighting, also adopted a more collaborative approach. Bill Ford told reporters that the automaker is now focused on preventing complacency.

“I do plan to be here a long time and I can provide some institutional memory and make sure that we never do slide back,” Bill Ford, 55, said.

Reporting by Deepa Seetharaman; Editing by Bernard Orr, Matthew Lewis and Caorl Bishopric

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