Fitch Raises Issuer Default Ratings on Ford (F) and Ford Crdit's to BB+
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Fitch Ratings has upgraded the Issuer Default Ratings (IDRs) for Ford Motor Company (NYSE: F) and its captive finance subsidiary, Ford Motor Credit Company LLC (Ford Credit), to 'BB+' from 'BB'. The Rating Outlook for both Ford and Ford Credit is Positive. A full list of the rating actions taken on Ford and each of its subsidiaries, including a two notch upgrade of Ford's unsecured ratings, is included at the end of this release.
The upgrades to Ford's ratings reflect the automaker's strong financial performance and continued debt reduction through the first nine months of 2011, as well as the recent completion of the United Auto Workers (UAW) labor agreement. The U.S. industry seasonally adjusted annual rate (SAAR) of light vehicle sales of 12.5 million units through September 2011 is somewhat lower than expectations earlier this year. However, continued net pricing strength and Ford's lower post-recession cost structure continue to allow the company to produce relatively strong margins and automotive free cash flow (FCF) in what remains an historically weak market. Ford, in turn, has targeted its FCF toward significantly reducing its debt load over the past two years.
The Positive Outlook reflects Fitch's expectation that Ford's ratings could be upgraded in the next 12 to 24 months. An upgrade to an investment-grade IDR of 'BBB-' or higher would require further conviction that the company's operating and financial profile are sufficiently strong to withstand the myriad secular and cyclical pressures present within the industry. In particular, Fitch's ratings are based on an issuer's projected performance through the economic cycle, and assigning investment-grade ratings to Ford will be predicated on an expectation that the company's liquidity profile, cost structure and FCF generating potential are adequate to maintain an investment-grade credit profile even in a period of economic stress. The significant work that Ford has undertaken to reduce its debt obligations, lower its cost structure and increase the competitiveness of its global product offerings have meaningfully improved the ability of the company to withstand a future deterioration in the global auto market. A further rating upgrade to 'BBB-' or higher is likely if Ford continues with its plan to reduce debt to $10 billion by mid-decade; maintains total liquidity (including revolver availability) near (or above) current levels; and continues to produce strong FCF on an annualized basis. Ongoing customer acceptance of the company's vehicles, reflected in a combination of market share durability and net pricing strength, will be important contributors to higher ratings, as will a continued ability to control operating costs.
The upgrades to Ford's ratings reflect the automaker's strong financial performance and continued debt reduction through the first nine months of 2011, as well as the recent completion of the United Auto Workers (UAW) labor agreement. The U.S. industry seasonally adjusted annual rate (SAAR) of light vehicle sales of 12.5 million units through September 2011 is somewhat lower than expectations earlier this year. However, continued net pricing strength and Ford's lower post-recession cost structure continue to allow the company to produce relatively strong margins and automotive free cash flow (FCF) in what remains an historically weak market. Ford, in turn, has targeted its FCF toward significantly reducing its debt load over the past two years.
The Positive Outlook reflects Fitch's expectation that Ford's ratings could be upgraded in the next 12 to 24 months. An upgrade to an investment-grade IDR of 'BBB-' or higher would require further conviction that the company's operating and financial profile are sufficiently strong to withstand the myriad secular and cyclical pressures present within the industry. In particular, Fitch's ratings are based on an issuer's projected performance through the economic cycle, and assigning investment-grade ratings to Ford will be predicated on an expectation that the company's liquidity profile, cost structure and FCF generating potential are adequate to maintain an investment-grade credit profile even in a period of economic stress. The significant work that Ford has undertaken to reduce its debt obligations, lower its cost structure and increase the competitiveness of its global product offerings have meaningfully improved the ability of the company to withstand a future deterioration in the global auto market. A further rating upgrade to 'BBB-' or higher is likely if Ford continues with its plan to reduce debt to $10 billion by mid-decade; maintains total liquidity (including revolver availability) near (or above) current levels; and continues to produce strong FCF on an annualized basis. Ongoing customer acceptance of the company's vehicles, reflected in a combination of market share durability and net pricing strength, will be important contributors to higher ratings, as will a continued ability to control operating costs.
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