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Ford Ratings Get a Boost

Partially closes a competitive disadvantage.

by on Mar.19, 2010

Ford is still saddled with more debt than its domestic rivals, but a better debt rating helps offset this competitive disadvantage.

Ford Motor Co. comeback drive got another boost this week when Moody Investor Services bumped up the rating on Ford’s outstanding debts. The rating change should reduce Ford’s borrowing costs – a critical matter since while the automaker was able to avoid bankruptcy, last year, it now carries significantly more debt than Chrysler and General Motors, which both used Chapter 11 to wipe out most of their own liabilities.

Ford had no official comment on the upgrade but senior executives, such as chief financial officer Lewis Booth, have been quietly lobbying for the move, which offsets one of the last remaining competitive disadvantages facing Ford.

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Moody’s raised Ford Motor’s senior unsecured debt rating by one notch to B3, which is still six notches into junk status. It also raised the corporate family rating and probability of default rating by a notch to B2, which actually means Ford is less likely to default on its securities, and secured credit facility by a notch to Ba2, placing it two notches into junk.

“Ford clearly has a much more robust and competitive business model that is capable of supporting significant improvement in performance over time,” said Moody’s senior vice president Bruce Clark.

“The key issue we’re assessing is the degree to which this pace of improvement could be delayed by things like a slowdown in demand, or an escalating use of incentives by competitors,” he added.

Meanwhile, Moody’s Investors Service raised its rating on the captive finance subsidiary, Ford Motor Credit, by one notch, citing an improved capital position and moves to preserve liquidity during the economic downturn.

Though Ford Credit’s asset quality deteriorated during the economic downturn, it held up better than its auto-lender peers and should improve as the economic recovery progresses, Moody’s said in a statement. Higher unemployment rates contributed to a rise in auto repossessions, but improved used-car values cushioned the impact on Ford Credit last year, the rating agency said.

“Moody’s expects that Ford Credit will be profitable in 2010, that leverage will continue to be managed prudently, and that the company will make advances in expanding its access to funding as market conditions improve,” the agency said.

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