MOODY'S LOWERS LONG-TERM RATINGS OF FORD AND FORD MOTOR CREDIT COMPANY TO A2 FOLLOWING ANNOUNCMENT OF SHAREHOLDER ENHANCEMENT PLAN; RATING OUTLOOK IS STABLE. ALSO CONFIRMS RATINGS OF HERTZ.
Moody's Investors Service lowered the long-term ratings of Ford Motor Company and Ford Motor Credit Company (FMCC) to A2 from A1, and confirmed FMCC's Prime-1 commercial paper rating; the rating outlook is stable. These rating actions were taken in response to the approval by Ford's board of directors of the following proposals: a shareholder enhancement plan that could distribute as much as $10 billion of cash to shareholders; a spin-off of its Visteon auto parts subsidiary; and, an expansion of the existing joint venture with ALFA to include Ford's Windsor Aluminum and Essex Aluminum plants.
The downgrade reflects Moody's view that the proposed distribution of up to $10 billion to shareholders, in combination with the recently approved acquisition of Land Rover for $3 billion, will weaken Ford's debt protection measures and significantly reduce its net liquidity position (cash and short-term investments less automotive-related debt). Historically, this position has been exceptionally strong, averaging about $13 billion over the past three years. Moreover, we believe that the board's approval of the recapitalization program reflects a willingness to embrace a higher degree of financial risk than in the past. Despite Ford's formidable operating fundamentals in North America, this distribution will narrow the financial cushion the company has to weather future cyclical downturns and to support the liquidity and capital requirements of FMCC.
Moody's noted, however, that Ford continues to pursue initiatives that should help reduce its vulnerability to future downturns and preserve its solid competitive position. These initiatives include: continuing to improve its operating efficiencies; strengthening its global branding position; expanding its Automotive Consumer Service Group; spinning-off Visteon; enhancing the profitability of FMCC; and, preserving FMCC's strong access to liquidity through the securitization of its receivables. Successfully pursuing these operational initiatives should enable Ford to better contend with the operational and financial challenges it may face. These challenges include the ongoing cyclicality of the global automotive sector, an increasingly competitive operating environment, the continuing operating losses of its international operations, and the potential need to provide capital and liquidity support to FMCC.
The stable rating outlook reflects our expectation that Ford will maintain a highly competitive position in the U.S. automotive market, and that industry-wide shipment levels and pricing will support strong profitability and cash generation through 2000. We also expect that the company will begin to rebuild its net liquidity position and strengthen debt protection measures following the proposed distribution. Moreover, should Ford undertake future material acquisitions, we anticipate that they will be funded in a manner that preserves a level of financial flexibility which is supportive of the A2 rating.
In a related rating action, Moody's also confirmed the A3 long-term and Prime-1 short-term ratings of Hertz Corporation, and maintained a stable rating outlook. This action reflects Hertz's strong competitive position and improving operating performance in the U.S. car rental industry, and the continued ability of Ford to adequately provide an important degree of support to the potential liquidity requirements of this 81%-owned subsidiary.
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.
Hertz Corporation, headquartered in Park Ridge, New Jersey, is the largest car rental company in the world, and is an 81%-owned subsidiary of Ford.
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