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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.
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