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Rating Action:

MOODY'S REVIEWS A2 LONG-TERM AND PRIME-1 SHORT-TERM RATINGS OF FORD AND FORD CREDIT FOR POSSIBLE DOWNGRADE; ALSO REVIEWS THE A3 LONG-TERM AND PRIME-1 SHORT TERM RATINGS OF HERTZ FOR POSSIBLE DOWNGRADE

17 Aug 2001
MOODY'S REVIEWS A2 LONG-TERM AND PRIME-1 SHORT-TERM RATINGS OF FORD AND FORD CREDIT FOR POSSIBLE DOWNGRADE; ALSO REVIEWS THE A3 LONG-TERM AND PRIME-1 SHORT TERM RATINGS OF HERTZ FOR POSSIBLE DOWNGRADE

Approximately $140 Billion of Debt Securities Affected.

New York, August 17, 2001 -- Moody's Investors Service is reviewing the A2 long-term and Prime-1 short-term ratings of Ford Motor Company and Ford Motor Credit Company for possible downgrade. Moody's is also reviewing the A3 long-term and Prime-1 short-term rating of Ford's 100%-owned subsidiary Hertz for possible downgrade. The review follows Ford's announcement today acknowledging that its operating performance for 2001 will be severely eroded due to the increasingly competitive environment in the U.S. automotive market. As a result of this challenging market, Ford expects that its fiscal 2001 net earnings before one-time charges will be approximately $1.3 billion versus $5.4 billion from continuing operations in 2000. In addition, the company will initiate a voluntary separation program for salaried employees that will result in an after-tax charge of $700 million, and it will also consider further restructuring initiatives for its North American operations.

Moody's review will focus principally on the operating strategy that Ford will implement in response to the increasingly competitive environment it faces in both domestic and international markets. A key component of Ford's operating strategy will be the range of restructuring initiatives it ultimately implements. In assessing the potential impact and effectiveness of these restructuring initiatives, Moody's will focus on: 1) Ford's ability to reduce domestic capacity, lower hourly wage and benefit expenditures, consolidate platforms, and achieve additional efficiencies in both its supplier and dealer networks; and, 2) the timing and magnitude of the cash outflows and cash savings the restructuring will likely generate. Other factors that will be important in evaluating Ford's operating plan will include the company's assumptions for: 1) the overall demand levels in the U.S., Europe and South America; 2) the pricing environment in these markets; and 3) its market share position in key product categories. An important consideration in assessing Ford's market share and pricing outlook in the U.S. will be its ability to protect the reputation of its truck and SUV franchise in the face of recalls related to Firestone tires and product quality.

The second area of focus for the review will be the financial strategy Ford embraces as it attempts to reconfigure its operational structure. At the end of the second quarter Ford's manufacturing operations had a sizable liquidity position based on cash, marketable securities and VEBA balances of approximately $18.9 billion, and the exceptionally long 28-year average life of its $12.1 billion in debt. Nevertheless, several factors could motivate Ford to adopt a financial strategy that helps preserve cash and liquidity. These factors include the significant reduction in Ford's near-term operating cash generation, the uncertainty surrounding the ultimate success of its operational restructuring, and the potential for erosion in the residual value of Ford Credit's lease portfolio. Potential initiatives that could help preserve cash include a modification of Ford's current $3.0 billion annual dividend, or asset sales.

Ford Motor Credit Company's ratings are closely linked with Ford's given the interrelationship and business ties between the two companies. The primary business of Ford Credit is to support the sales of Ford vehicles by providing dealer and retail financing in the US. In addition to analyzing the overall credit impact of Ford's ongoing operating and financial strategy, the review of Ford Credit will address the finance company's operating and financial position going forward. Moody's believes that Ford Credit is a well-managed, technologically sophisticated finance company, with sound levels of alternative liquidity to support both its debt-paying ability and its ongoing business operations through market stresses. According to the rating agency, the finance company has demonstrated the ability to securitize several types of assets in both the long-term and short-term structured finance markets, and has been improving the level of bank line coverage of outstanding commercial paper. Moody's review will also evaluate how the finance company will be pressured by weakness in the auto market: the borrower quality mix may have peaked, Ford's new car volumes and pricing are suffering, and the residual valuations on off-lease vehicles are under stress.

The review of Hertz is driven by the significant operational and financial relationship between Hertz and Ford. Hertz is the single largest buyer of Ford vehicles; Ford is Hertz's largest supplier of fleet vehicles; and, Ford extends a $500 mil. liquidity facility to Hertz. In addition, Ford has recently increased its ownership of Hertz to 100% from 82%. This relationship has provided a lift to Hertz's long-term and short-term ratings. The review of the Hertz rating will be largely driven by the resolution of the Ford rating review.

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 world's largest rent-a-car company and is a leader in the rental and lease of construction and material handling equipment.

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

New York
J. Bruce Clark
Senior Vice President
Corporate Finance
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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Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

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

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