New York, May 22, 2012 -- Moody's Investors Service raised the senior unsecured ratings of
Ford Motor Company (Ford) to Baa3 from Ba2 and Ford Motor Credit Company
LLC (Ford Credit) to Baa3 from Ba1. Ford's Corporate Family
and Probability of Default Ratings, as well as its Speculative Grade
Liquidity rating, are withdrawn.
The rating of Ford's secured credit facility is lowered to Baa3
from Baa2 in anticipation of the imminent fall away of the bank agreement's
security interest. This fall away, which would be consistent
with the facility's terms, would result in any outstandings
being pari passu with Ford's other senior unsecured debt.
The upgrade of Ford recognizes the strength of the company's position
in North America, its robust liquidity position, and our expectation
that the company will continue to embrace sound operating and financial
disciplines. 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.
The upgrade of Ford Credit's ratings results from the upgrade of the Ford
ratings. Ford Credit's strategic importance to Ford as a
provider of critical dealer and consumer auto financing, as well
as Ford's explicit and implicit support of Ford Credit tie Ford
Credit's ratings to those of its parent. Based on the liquidity
and capital positions of Ford and Ford Credit, Moody's estimates
that Ford has the capacity to support Ford Credit to a level equivalent
to the Baa3 rating. Ford Credit's stand-alone credit profile
remains unchanged at a mid-Ba level.
The rating outlook for both Ford and Ford Credit is stable.
RATINGS RATIONALE
Bruce Clark, senior vice president with Moody's said,
"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. We concluded that the improvements Ford has made are
likely to be lasting."
Moody's notes that one of Ford's key strengths is its low
North American breakeven level. The rating agency estimates that
since the 2009 restructuring of the US auto industry and the adoption
of a new UAW labor agreement, Ford's North American annual
breakeven level has declined by approximately 45% from 3.4
million units to 1.8 million units. Moreover, for
the last twelve months through March 2012, Ford's North American
wholesale shipments were 50% above its estimated breakeven point.
This large margin over breakeven, combined with the improving outlook
for US auto demand and the $6.2 billion in segment profits
Ford North America generated during 2011, reflect a healthy and
sustainable business position.
This sound North American business model is further supported by a product
portfolio that is increasingly competitive with that of Asian OEMs.
In addition, we believe that Ford will maintain a robust new product
renewal program.
Importantly, Moody's believes that Ford has demonstrated its
commitment to maintaining sound operating and financial disciplines by
preserving a low breakeven level; matching production levels to retail
demand; limiting the use of incentives and price discounting;
capitalizing on the use of global vehicle platforms; and, building
healthy supplier relationships.
Ford's ability to contend with stress is also supported by its strong
liquidity profile. At March 2012, the company had a $32
billion gross liquidity position consisting of $23 billion in cash
and over $9 billion in committed credit facilities. We estimate
that after accounting for maturing debt and the minimal levels of cash
needed to run the business and fund intra-period working capital
requirements, Ford has approximately $20 billion in incremental
liquidity that would be available to contend with stress.
The major challenges facing Ford stem from its high exposure to the depressed
European auto market and the company's modest position in Asia --
particularly China. Approximately 25% of Ford's global
revenues are generated in Europe and the company expects that losses in
the region will be in the range of $500 million to $600
million in 2012 after breaking even during the prior year. Due
to the high level of over-capacity in Europe, and the continuing
uncertainty surrounding the region's sovereign and banking debt
crisis, we believe that there is additional downside risk to Ford's
performance in 2012 and 2013. We note, however, that
compared with its mass-market OEM peers in Europe, Ford's
operations are relatively efficient and are near 90% capacity utilization.
Moreover, Ford's strong North American position and healthy
liquidity profile are critical elements of its ability to contend with
the risks posed in Europe.
Ford has a small position in the large and strategically important Chinese
auto market. Expanding its operations in this region represents
the most significant long-term challenge facing the company.
Success in this expansion initiative and in restoring the profitability
of its European operation will be necessary for Ford to establish a more
balanced global footprint.
Ford Credit's high encumbered asset levels constrain its stand-alone
profile. Additionally, Moody's anticipates that Ford Credit
will increase its leverage in the future, though not to the level
it maintained in the years prior to the financial crisis. Ford
Credit is seeking to modify its funding mix to incorporate more unsecured
debt issuance, which in time should cause encumbered asset levels
to decline and increase its financial flexibility. Ford Credit's
ratings are supported by asset quality performance that has significantly
recovered since the depths of the credit crisis and pre-tax pre-provision
profitability that compares with historical levels.
In order to support a positive outlook or higher rating, Ford will
have to demonstrate clear progress in building profitability outside of
North America. This would require a sustained turnaround of its
European operations and a profitable expansion of its position in China.
The company would also have to maintain its solid position in North America
and a healthy liquidity profile. For the LTM through March 2012,
Ford's performance (reflecting Moody's standard adjustments)
included: EBITA margin of 5.4%; debt/EBITDA of
3.0x; and EBITA/interest of 3.9x. Metrics that
would support a positive rating action include: EBITA margin above
8%; debt/EBITDA below 3.0x; and EBITA/interest
above 5x.
Metrics that might indicate pressure on the rating include: EBITA
margin below 4.5%; debt/EBITDA of approaching 4.0x;
and EBITA/interest below 3.0x.
The principal methodology used in rating Ford Motor Company was the Global
Automobile Manufacture Industry Methodology published in June 2011.
The principal methodology used in rating Ford Motor Credit Company LLC
was Analyzing The Credit Risks Of Finance Companies published in October
2000. Please see the Credit Policy page on www.moodys.com
for a copy of these methodologies.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
The person who approved Ford Motor Credit Company LLC credit ratings is:
Robert Young, Managing Director - Financial Institutions
Group, JOURNALISTS: 212-553-0376, SUBSCRIBERS:
212-553-1653
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
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the lead rating analyst and to the Moody's legal entity that has issued
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J. Bruce Clark
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's raises Ford and Ford Credit unsecured ratings to Baa3; outlook is stable
