Standard & Poor’s Ratings Services has downgraded its issue rating on Ford Motor Co.’s (F) revolving credit facilities of $9.3 billion to ‘BB+’ from ‘BBB’ citing that the company’s bank facilities are unsecured following the release of the collateral on May 22, 2012. The credit facilities include $9 billion due November 2015 and $300 million due November 2013.
Ford succeeded in reclaiming its collateral for $23.5 billion loan, including the blue oval logo that is embossed on its vehicles, after securing investment grade ratings from two of the three main agencies – Moody’s rating agency and Fitch Ratings.
Moody’s rating agency, controlled by Moody’s Corp. (MCO), raised the senior unsecured ratings of Ford to Baa3 from Ba2 and of Ford Credit, its financial arm, to Baa3 from Ba1, as well as dropped its speculative grade liquidity rating on the company. The agency left unchanged its “stable” rating outlook for the company and its financial arm.
The upgrade was driven by the company’s strong market position and higher profitability in North America, high cash balance, ability to match production with market demand and sound operating and financial management. Moody’s upgrade was preceded by Fitch Ratings’ upgrade to investment grade last month.
S&P’s ‘BB+’ rating reflects Ford’s ability to generate free cash flow and profits from its global automotive manufacturing business due to the improvement in its competitive position. It also considers challenges in Europe and the company’s under-funded postretirement obligations.
Ford lost its investment grade rating in 2005 soon before it borrowed $23.5 billion for restructuring in 2006. The automaker pledged all its domestic assets including the trademarks for its logo, the F-150 truck and the Mustang sports car for securing the loan.
Moody’s and other agencies pushed Ford to “junk” status following the sharp fall in demand for its vehicles. Since then, the automaker had been eager to obtain the investment grade rating from the rating agencies.
Ford now made a comeback after six years by undertaking effective restructuring measures. The measures include cost reductions, renegotiating UAW contracts, and streamlining global operations.
Ford, a Zacks #3 Rank (Hold) stock, posted a sharp 20% fall in profits to $1.6 billion in the first quarter of 2012 from $2.0 billion in the same quarter of 2011. On per share basis, profits ebbed 17% to 39 cents from 47 cents in the first quarter of 2011. Nevertheless, it was higher than the Zacks Consensus Estimate of 35 cents.
The automaker has attributed the decrease in profits to higher tax expense, lower operating results and higher charges emanating from buyouts of hourly workers in the U.S. as part of its UAW agreement in 2011.
The company’s profits drastically fell in all its operating regions, except North America. In fact, it recorded a loss in Europe and Asia Pacific Africa compared with a profit in the comparable quarter of 2011.
Total revenue in the quarter slipped 2% to $32.4 billion, barely surpassing the Zacks Consensus Estimate of $32.0 billion. The fall in revenues was attributable to lower wholesale volumes in Europe and Asia, partially offset by higher volumes in North America and South America.
FORD MOTOR CO (F): Free Stock Analysis Report
MOODYS CORP (MCO): Free Stock Analysis Report
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