Ford's turnaround program has won the endorsement of Moody's, which has increased its ratings on the automaker's still substantial debt.
Ford Motor Co. got some good news last week as Moody’s Investor Service raised its rating of the company’s corporate debt for the first time in 14 years.
However, Moody’s continues to rate Ford as junk, or below investment grade, but changed the “Corporate Family Rating of Ford to Caa1 from Caa3. Moody’s also raised the company’s Speculative Grade Liquidity (SGL) rating to SGL-3 from SGL-4.
Moreover, Ford’s rating outlook was changed to stable from negative. In a related action, Moody’s placed the Caa1 senior unsecured rating of Ford Motor Credit Company LLC on review for a possible upgrade.
It was of course the rating agencies that said mortgage backed securities and other derivatives were AAA rated or virtually risk free, which was at the heart of the collapse of the global financial markets that led to the Great Recession, which is ongoing. With U.S. unemployment growing to almost 10% in August, the economy continues to shed workers, as businesses return to profitability by eliminating middle class jobs or moving them offshore.
“The rating actions reflect Moody’s belief that after a period of intensive restructuring of its operations and balance sheet, Ford’s business viability has significantly improved. The positioning of the CFR rating at Caa1 balances the substantial achievements the company has made in restructuring its operations and rebuilding competitiveness against the expectation that even with these improvements meaningful earnings and cash flow generation will not be evident before 2011,” said Moodys in a statement.
Translation: more red ink until two years from now.
It's Debt Free!
“Moody’s believes that Ford has adequate liquidity to bridge itself until 2011 as reflected in the upgrade of the SGL rating to SGL-3.”
Ford has been receiving some good news, lately, but there had been some concern about the fact that the company, by not going into bankruptcy, like General Motors and Chrysler, remained saddled with a significant amount of debt. But while Ford does continues to carry substantial debt on its balance sheet, the upgrade reduces the automaker’s borrowing costs, freeing up cash for other uses such as product development.
“A number of factors have contributed to the greater sustainability of Ford’s business model and the improvement in its CFR rating to Caa1. These factors include: the restructuring of the wage, work-rule and retiree health care elements in the UAW agreement, the reduction in debt associated with its exchange offer for approximately $10 billion in obligations, the maintenance of a sizable liquidity position, and a more competitive new product portfolio,” Moody’s said in a statement.
“These improvements in Ford’s cost structure and longer-term prospects also contributed to Moody’s view that Ford’s enterprise value can be sustained at a higher level than previously expected,” it concluded.