Moody's Investors Service confirmed the A1 long term rating of Ford Motor Company (Ford) and A1 long term and Prime-1 short term ratings of Ford Motor Credit Corporation (FMCC). The outlook on both the long and short-term ratings is negative. Moody's confirmation is in response to the company's announcement that it plans to purchase Kwik-Fit Holdings plc (Kwik-Fit) for one billion Pounds sterling (approximately $1.6 billion). Moody's confirmation reflects the addition of a stable source of auto-related revenue to its European operations. It also reflects the potential benefits to Ford of having a more direct connection with retail auto owners to its strategy of becoming more customer focused. The confirmation also incorporates the financial flexibility of Ford post acquisition and the high probability of strong cash flow generation this year. The negative outlook reflects Moody's concern regarding the cost of integration of the company's planned acquisition of Volvo Cars and Ford's weakened liquidity positioned, due to both the Kwik-Fit and Volvo cash acquisitions, in the event of a near term recession in the auto markets.MOODY'S CONFIRMS RATINGS OF FORD MOTOR COMPANY AND FORD MOTOR CREDIT CORPORATION
Moody's believes that the addition of Kwik-Fit will add a more stable revenue and earnings base to Ford's UK operations, one of its stronger markets in Europe. The achievement of Ford's overall corporate return target has been a challenge for Ford Europe. In Moody's view, auto manufacturing will remain intensely competitive in Europe for the foreseeable future. The addition, of Kwik-Fit will provide some offset to the volatility of manufacturing earnings. The acquisition also provides Ford the opportunity to move forward in its strategy to become more customer focused. Ford seeks to better understand the issues of ownership throughout a car's life. The ongoing service and maintenance of automobiles is an important element in customer loyalty.
At yearend 1998, Ford's cash liquidity had risen to $23.8 billion enhancing its financial flexibility. This will decline this year due to the $8 billion of combined cash purchases for Volvo Cars and Kwik-Fit, leaving Ford in an otherwise weaker position to withstand a downturn . Despite weakness in its Latin American and Asian operations, Ford's North American business is expected by Moody's to generate strong cash flows this year and to a lesser extent in 2000, allowing the company to partially recoup this cash outflow. Nonetheless, Moody's believes the company has sufficient financial flexibility to maintain its product spending and financial protection measures in a recession scenario.
Moody's views the integration of Volvo as an important uncertainty and near term risk. Potential disruptions to normal operations may occur as management seeks to integrate the Volvo operations with its own. To rationalize the cost structure between Volvo Cars and Ford could entail substantial integration costs, particularly in Europe. These added costs raise some uncertainty regarding the financial and operational impact of Volvo Cars on Ford over the intermediate term.
Ratings confirmed include:
Ford Motor Company
Ford Motor Company - A1 rated senior notes, bonds, debentures, pass-thru certificates, and industrial revenue bonds; (P)A1 shelf registrations; "a2" rated preferred stock; and A1 rated counterparty rating.
Ford Holdings, Inc. - A1 rated guaranteed notes, debentures, and euronotes;(P)A1 rated shelf registration; "a2" rated preferred stock and (P)"a2" shelf registration for preferred stock.
Ford Capital B.V. - A1 rated guaranteed notes, debentures and euronotes.
Ford Motor Company SA De C.V. - Prime-1 rated commercial paper.
Ford Motor Credit Company
Ford Motor Credit Company - A1 rated notes, bonds, eurobonds, euronotes, global notes, medium term notes, euro-medium term notes, global medium term notes, floating rate notes; (P) A1 rated shelf registration for debt securities; and Prime-1 rated commercial paper.
Ford Motor Credit Canada - A1 rated guaranteed eurobonds and Canadian medium term notes; and Prime-1 rated guaranteed commercial paper.
Ford Credit Europe plc - A1 rated bonds, euronotes, and eurobonds; and Prime-1 rated commercial paper and French certificate of deposit program.
Ford Credit Australia Ltd. - A1 rated guaranteed eurobonds, euronotes, and Australian medium term notes; and guaranteed Prime-1 rated commercial paper program.
The A3 long term and Prime-1 short term rating of Hertz, an 81% owned affiliate are also confirmed with a negative outlook.
Ford Motor Company, headquartered in Dearborn, Michigan, is the world's second largest automobile manufacturer. Ford Motor Credit Corporation, also headquartered in Dearborn, Michigan, is the world's largest auto finance company. Hertz Corporation, headquartered in Park Ridge, New Jersey, is the world's largest rent-a-car company and is a leader in the rental and lease of construction and material handling equipment. Volvo Car Corporation is headquartered in Goteborg, Sweden and represents the car operations of AB Volvo. Based in Edinburgh, Scotland, Kwik-Fit is Europe's largest independent automotive parts repair and replacement specialist with over 1,900 service points.
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