Ford Motor has regained its investment grade rating from Moody’s, triggering the release of all the assets the US carmaker put up to secure its loans, including its iconic blue oval logo.
Alan Mulally, Ford chief executive, called the upgrade “an important milestone” for the carmaker, which emerged less scathed than rivals from the 2008 crisis that led to bankruptcy and government bailouts for General Motors and Chrysler.
Moody’s on Tuesday raised the senior unsecured ratings of Ford to Baa3 from Ba2 and of Ford Motor Credit, its finance unit, to Baa3 from Ba1.
“The key factor in our considering an investment-grade rating for Ford was whether or not the company would be able to sustain its strong performance,” said Bruce Clark, Moody’s senior vice-president. “We concluded that the improvements Ford has made are likely to be lasting.”
Moody’s credited the upgrade to Ford’s strong position in North America, its high cash and liquid assets – $32bn as of March – and its “sound operating and financial disciplines”. The agency also highlighted Ford’s “increasingly competitive” line-up of vehicles, its improved profitability levels in North American car production, and its success in matching production to retail demand.
“We believe that these strengths will enable Ford to maintain an investment grade profile in the face of the sector’s ongoing cyclicality and weakness in the European market,” Moody’s said.
Mr Mulally noted that the ratings improvement will help lower Ford’s borrowing costs and allow institutional investors to buy the stock.
As a consequence of the upgrade, Ford bonds – which represented almost 3 per cent of the market value of the Barclays US corporate high-yield index – will migrate to the investment grade index. To be included in the index, bonds must be rated investment-grade or higher by at least two of the major rating agencies.
“It’s encouraging on many levels. The company can borrow cash at lower cost thanks to a better credit rating,” said Jack Ablin, chief investment officer at Harris Private Bank. ”This should help the stock price as the company may look at buying back stock.”
Ford secured an upgrade from Fitch last month, and with investment grade ratings from two of the three main agencies, the company was able to reclaim its collateral. Standard & Poor’s still rates Ford below investment grade. GM and Chrysler are rated as “junk” by all three agencies.
Moody’s and other agencies cut Ford to junk status in 2005 amid a sharp drop in demand for trucks and SUVs as consumers faced high petrol prices.
In 2006, the company pledged all of its domestic assets – including the trademarks for its logo, the F-150 truck and the Mustang sports car – to secure $23.5bn in loans. That proved to be a lifeline two years later, when the financial crisis froze credit markets and led to the near-collapse of Detroit’s auto industry.
In the past six years Ford under Mr Mulally’s direction has undertaken a wide-ranging restructuring, including cutting costs, renegotiating contracts with its labour union and streamlining global operations, which analysts credit with helping it weather the recent economic turmoil.
Last month Ford reported its 12th consecutive profitable quarter, and in March the company resumed dividend payments after more than five years.
Ford shares closed flat at $10.19 on Tuesday, down 5.3 per cent so far this year and off 21.4 per cent from a peak of $12.96 in February.
Additional reporting by Michael MacKenzie and Vivianne Rodrigues