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US: Moody's raises Ford credit ratings

Moody's Investors Service has announced it has raised Ford's corporate family rating and probability of default rating by one notch to 'B1' from 'B2'. Moody's also upgraded Ford Motor Credit's corporate family and senior debt ratings one notch to 'Ba3' from 'B1'. The ratings remain non-investment grade. The outlook for both is 'stable'.
The upgrades, the first since 17 March and which cover several other ratings as well, affect US$65bn in debt.
Moody's noted in a statement: "The upgrade of Ford's long-term ratings anticipates that the company's restructured business model, supported by recovering demand in the US market, will generate significantly improved operating and financial performance."
The ratings agency also asserted: "The prospect of growing free cash generation could enable Ford to undertake meaningful deleveraging during 2011 and beyond," adding that massive restructuring, especially with the United Autoworkers' contract, is helping on the cost side, while revenue will be helped by the company's much more robust product portfolio.
Moody's has estimated that Ford has US$22bn in cash and US$3bn in available credit, and it needs US$2bn to repay maturities in the next 12 months and US$8bn in cash for quarterly capital requirements. Liquidity to cushion against what is referred to as "unanticipated stress" is US$10bn to US$15bn available. However, Moody's has also cautioned that the company's debt-to-EBITDA was seven times in Q1, and the company is still facing US$12bn of unfunded pension liabilities.
At the end of April 2010, Standard and Poor's Ratings Service and Fitch Ratings also indicated growing confidence in Ford by lifting the OEM's outlook and ratings, respectively, citing the recent positive Q1 results and competitive products. However, both acknowledged that Ford will continue to face challenges if domestic vehicle sales are weaker than forecast.

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