Ford credit rating boost: 'The Blue Oval is back'
By Nathan Bomey, Detroit Free Press 5/23/2012
Moody's Investors Service raised Ford's senior unsecured creditrating from Ba2 to Baa3, making it the second ratings agency to restore the automaker's investment-grade debt rating, ending a nearly seven-year period during which Ford paid higher junk bond interest rates.
The move means the automaker can reclaim its iconic Blue Oval logo and billions of dollars' worth of other assets pledged as collateral on $23.4 billion in loans taken out in late 2006. Equally important, Ford (F) will be able to borrow money at lower interest rates because it has a financially solid balance sheet.
"This is a truly great day for everyone at Ford and our extended family because the Blue Oval is
back," Ford Executive Chairman Bill Ford told reporters on a conference call.
Moody's decision — which comes less than a month after Fitch Ratings' decision to boost Ford's debt rating — reflects the financial community's renewed confidence in the Dearborn-based automaker.
"We knew we could get this done," Ford President and CEO Alan Mulally told reporters. "This is a very exciting day for everybody associated with Ford, our employees, our dealers, our suppliers. It's way up there on the highlight film for sure."
Moody's also said its outlook for Ford and Ford Credit is stable.
The decision appears to vindicate the company's bold but risky decision in 2006 to borrow the staggering $23.4 billion that Mulally often referred to as "a little home improvement loan." The money enabled Ford to survive the worst economic downturn since the Great Depression without emergency loans from U.S. taxpayers.
As part of that agreement, according to an SEC filing, Ford could not claim back its collateral until it achieved investment-grade ratings with two of the three major credit ratings agencies.
By reducing debt, cutting labor costs in cooperation with the UAW and introducing competitive new products like the Fiesta subcompact, a new Focus and a variety of fuel-efficient technologies, Ford has surged. The company posted a $1.4-billion profit in the first quarter, bolstered by a $2.1-billion profit in North America that offset losses in Europe and Asia.
"We had been expecting a return to investment grade this year, though the timing is somewhat earlier than expected and thus a positive surprise," Citi Investment Research analyst Itay Michaeli wrote in a research note.
Bill Ford said the company's decision to mortgage its assets more than five years ago was necessary, but stressful.
"It was enormously emotional for me personally and for my family because we weren't just pledging an asset, we were pledging our heritage," he said.
Ford said that even in "the darkest days," he was "absolutely confident" the turnaround plan would succeed.
"The only question was did we have enough time?" he said. "Our plan fortunately began to work very quickly. The rest, thankfully, is history."
Moody's estimated Ford's restructuring had reduced its minimum U.S. break-even sales from 3.4 million vehicles a year to 1.8 million.
The agency suggested that Ford's "most significant long-term challenge" is to improve its position in China, where the company trails rival General Motors and other competitors. It also said the European economic contraction presents a problem because the continent represents 25% of Ford's revenue.
But Mulally described Europe as a "near-term" problem and said the company has "very strong operations for the long term" in the region.
Bill Ford, who preceded Mulally as CEO from late 2001 until September 2006, has said that Mulally can remain CEO as long as he wants. Moody's move was also noteworthy because industry observers have wondered whether it was a benchmark that could prompt Mulally to retire after leading the company's revival.
"Well, clearly this is a very significant milestone, but it changes none of my plans to continue to serve this great corporation," Mulally said.
Moody's also affirmed General Motors' credit rating at Ba1 and said GM's credit rating could be restored to investment-grade within 12 months.
No comments:
Post a Comment