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Rating Action:

MOODY'S CONFIRMS Baa1 RATING OF FORD AND A3/P-2 RATINGS OF FORD CREDIT; LIQUIDITY OF BOTH COMPANIES REMAINS SOUND

13 Nov 2002
MOODY'S CONFIRMS Baa1 RATING OF FORD AND A3/P-2 RATINGS OF FORD CREDIT; LIQUIDITY OF BOTH COMPANIES REMAINS SOUND

Approximately $225 Billion of Debt Affected

New York, November 13, 2002 -- Moody's Investors Service confirmed the Baa1 long-term rating of Ford Motor Company, and the A3 long-term and Prime-2 short-term ratings of Ford Motor Credit Company (Ford Credit). The outlook for the long-term ratings remains negative.

The confirmation reflects Moody's expectation that during the next eighteen months Ford will make steady progress in reducing material costs as part of its restructuring program, and that the company's new product pipeline will help support the competitiveness of its truck and PAG franchises. Over the longer-term, it is highly likely that Ford will achieve a major portion (about 2/3) of the $9 billion in restructuring-related pre-tax earnings improvements targeted by mid-decade. A critical factor in the confirmation is the sound liquidity positions of both Ford's automotive operations and Ford Credit. The automotive operation's $25 billion of cash, marketable securities and VEBA balances will afford the company an exceptional degree of liquidity and financial cushion as it implements the restructuring program, contends with intensifying competition in the US, and faces the possibility of a slowdown in the domestic automotive market. Ford Credit has good continuing funding capacity as a result of its access to the ABS market (both term and ABCP) and $12 billion in committed bank facilities. Moreover, due to Ford Credit's having substantially reduced its commercial paper borrowings and extended its debt maturity during the past two years, the company's receivable portfolio now has a maturity profile which is shorter than that of its outstanding debt. Consequently, if Ford Credit elected to take this approach, it could liquidate its receivables and convert them to cash faster than its debts mature.

Despite recent declines in equity values and the resulting rise in Ford's unfunded pension liability, required contributions to the company's plans should remain manageable. This liability is a long-term obligation whose reported value will change over time based on market conditions. Consequently, the key consideration in Moody's analysis will remain the ongoing cash contributions made to the plan.

The negative outlook reflects three principal concerns. First, despite some recent success in implementing various components of the restructuring program, Ford has not yet demonstrated that it can achieve the full $9 billion in earnings improvements that it has targeted by mid-decade. Second, pricing pressure in the US market could intensify further, particularly if Asian manufacturers elect to become more aggressive in response to the incentives embraced by the Big-3. Finally, the rebound in Ford's operating performance could be delayed to 2005 or beyond if the US economy weakens and auto shipments fall much below 16 million units.

Ford's outlook has been negative since February of 2002. Over the coming quarters the degree of success that Ford will ultimately have in realizing $9 billion in restructuring benefits should become more evident. To the extent that Ford demonstrates a viable groundwork for harvesting these benefits, for re-establishing a sustainable competitive position, and for delivering a robust financial performance beyond 2004, Moody's may change the outlook for Ford to stable from negative. A stable outlook would also require that Ford continue to maintain more-than-ample liquidity (at both the manufacturing company and Ford Credit) to carry it through an intermediate-term period of weak operating performance and cash generation. It would also require that Ford show that it will able to realize the vast majority of the planned $9 billion in operating earnings improvements, and achieve a significant portion of the soon-to-be-identified $1 billion in additional cost savings.

Conversely, if Ford does not demonstrate that it is positioning itself for a strong, long-term recovery based on an improving competitive position, the current long-term ratings could be placed on review for possible downgrade. If such a review, and subsequent downgrade were to occur, Moody's expects that a one-notch downgrade would be the extent of the adjustment, and that the outlook would be stable.

Under either scenario - the designation of a stable outlook at the current Baa1 rating level or at the Baa2 level - it is Moody's view that much of the past erosion in Ford's competitive position, as well as the secular shifts in the North American competitive landscape, will have been adequately reflected in the 2001 to 2002 downgrades from A2 to the Baa category. The rating agency reiterated its view that Ford will remain solidly positioned in the Baa category for the foreseeable future.

In assessing Ford's likely success at realizing the full benefits of its revitalization plan, Moody's will focus on the following areas during the next several quarters: 1) Material Cost Reductions and Operating Efficiency Improvements: A key consideration will be Ford's ability to make progress relative to measurable benchmarks in achieving the targeted $3 billion in material cost savings and in improving its operating efficiencies in areas similar to those tracked in the Harbour Report. 2) Brand Image Improvement: Positive trends in brand image could be evidenced by a lack of major recalls, favorable evaluations in consumer survey publications, and an ability to preserve market share in key segments without having to rely on incentives that are more aggressive than those of competitors; 3) $1 Billion in Additional Cost Savings: It will be important for the company to formulate a credible plan for reducing costs by an additional $1 billion; 4) Operating Performance and Cash Burn: The automotive business must remain on track for a minimum breakeven operating performance for 2003, and the rate of operating cash burn (after working capital, capex and dividends, but excluding extraordinary items and any dividend from Ford Credit) should be $2 billion or less. 5) Ford Credit: The portfolio quality of Ford Credit must demonstrate improvement, and its earnings should be substantially more stable and commensurate with the risks that it undertakes in its business.

Moody's noted that Ford Credit's recent profitability, although lower than historic levels, is stabilizing. The company's reduced profits are primarily due to its working through a period of higher loss provisioning that results from historically aggressive credit underwriting. Asset quality continues to be challenging, with both default frequency and loss severity affecting results. As such, asset quality continues to be an area of focus for Moody's. Asset quality metrics have been and will continue to be negatively affected by the lower quality receivables that Ford Credit booked prior to its restructuring plan, announced in December 2001. However, Moody's expects that over time Ford Credit's asset quality will demonstrate improvement as a result of a portfolio mix shift to its more recent, better quality originations. Moody's noted that weak general economic conditions, particularly consumer credit quality, would be expected to reduce some of this benefit.

Ford Credit's liquidity profile remains sound, in Moody's opinion. Ford Credit has a substantial amount of debt outstanding and large financing needs, which is typical of a non-bank financial institution. However, Moody's believes Ford Credit can manage its maturities very well through the use of multiple sources of financing. It maintains access to $12 billion in committed bank credit facilities, it has access to a substantial amount of ABS commercial paper conduits, and it is a frequent issuer in the term ABS market. Moody's expects that in the near-term, Ford Credit will continue to utilize the asset-backed securities market to a great extent. This is true particularly given the volatility in the US unsecured debt market for Ford Credit obligations. In Moody's view, Ford Credit should be able to continue to tap the asset-backed market extensively given the quality of its assets and the depth of the asset-backed market for its paper. Moody's will continue to monitor this market's appetite for Ford Credit-originated asset-backed securities.

Ford Motor Company, headquartered in Dearborn, Michigan, is the world's second largest automobile manufacturer. Ford Motor Credit Company, also headquartered in Dearborn, Michigan, is the world's largest auto finance company.

New York
Michael J. Mulvaney
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
J. Bruce Clark
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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