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11 Jan 2002
MOODY'S REVIEWS A3 RATING OF FORD, A2/P-1 RATINGS OF FORD MOTOR CREDIT AND Baa1 RATING OF HERTZ FOR POSSIBLE DOWNGRADE.
Approximately $140 Billion of Debt Affected
New York, January 11, 2002 -- Moody's Investors Service has placed the A3 long-term rating of
Ford Motor Company, and the A2 long-term and Prime-1
short-term ratings of Ford Motor Credit Company (FMCC) under review
for possible downgrade. Moody's has also placed the Baa1 long-term
rating of Hertz under review for possible downgrade; Hertz's Prime-2
short-term rating is confirmed at the current level.
The review follows Ford's announcement of a revitalization plan that contemplates
a number of critical initiatives which include: plant closures and
hourly head count reductions, further reductions in the salaried
work force, $1 billion in asset dispositions, a 33%
reduction in the common dividend following last year's 50% reduction,
a $700 million equity contribution to FMCC, and the issuance
of $3 billion in preferred securities. The plan will result
in a $4.1 billion after-tax charge for the fourth
quarter of 2001, but is expected to yield $9 billion in annual
savings. Moody's anticipates completing its review prior to the
sale of the proposed preferred securities.
The review will consider the increasingly challenging environment in which
Ford operates, the need for significant cost reductions to succeed
in this environment, and the extent to which the revitalization
plan will enable Ford to generate sufficient cash flow and debt protection
measures during 2003 and beyond. The review will also assess the
potential that the underwriting standards and financial strategy of FMCC
might require additional capital contributions to the finance company
beyond those contemplated in the plan.
We expect that the initiatives announced today will reduce Ford's cost
structure, help restore profitability during 2003, and ensure
ample near-term liquidity. Despite these benefits,
the competitive and operating environment that Ford faces in its domestic
and international markets continue to be increasingly challenging.
These conditions may limit the company's ability to generate revenues
and returns that are supportive of the current ratings even after the
plan has been fully implemented and the global automotive markets begin
to recover during 2003. In order for Ford to sustain the A3 long-term
rating, this plan must enable the company to generate a strong recovery
in earnings and cash generation after the current downturn. Consequently
the review will assess the timing and magnitude of the cash costs associated
with the restructuring initiatives, the level of cash savings likely
to be achieved, the fixed cost burden and break-even level
inherent in the new operating model, as well as the pricing,
product mix, and market share assumptions that Ford has made in
formulating its operational and financial plan. The agency will
also evaluate the company's domestic and international new-product
development and introduction programs.
The competitive and operating environment that Ford faces is characterized
by ongoing cyclicality in the key markets of the U.S.,
Europe and Latin America; growing competition and pricing pressure
in the high-margin U.S. truck and SUV market;
industry-wide over capacity in all of the major geographic markets;
and, a large number of competitors that are committed to expanding
their product line and growing their market share within each of these
geographic regions. In addition to these macro pressures,
Ford is burdened by the fact its non-luxury car operations -
in which it has a significant capital investment - have generated
chronically poor returns in the U.S., Europe,
and Latin America. Moreover, Ford's recent operating performance
has come under increasing stress. Pricing pressure in the U.S.
has been intense due to high level of incentives, the company has
lost market share in trucks and cars in its domestic market, and
its operating performance for the last quarter of 2001 will be well below
earlier expectations. In addition, recent senior management
changes reflect the company's decision to retreat from a number of operational
and financial strategies that have been pursued in the past, and
to which considerable capital and managerial resources had been committed.
Moody's anticipates that Ford's operating losses and restructuring charges
will result in a significant two-year cash burn from 2001 to 2002.
Nevertheless, we expect that the company will maintain ample liquidity
during this period. At September 30, 2001, the automotive
operations cash and VEBA position exceeded $15 billion, and
its $13 billion in debt has a lengthy average life of 28 years.
This liquidity position should be further enhanced by the $3 billion
issuance of trust preferred securities. Although these securities
are debt-like in nature, their long-dated maturity
will support intermediate-term liquidity.
FMCC's ratings are closely linked with Ford's given the interrelationship
and business ties between the two firms. If Ford's ratings are
lowered, FMCC's long-term and short-term ratings would
be lowered, although the one notch rating differential between the
two firms' long-term ratings is expected to be maintained.
FMCC's early December announcement regarding its decision to increase
its loss reserves was unexpected and raises concerns regarding asset quality.
Moody's intends to carefully review FMCC's asset quality and any enhancements
to FMCC's processes that may be undertaken to minimize the need to further
augment reserves. This is particularly important in light of FMCC's
aggressive posture toward its capitalization. Moody's does note
that, positively, FMCC suspended its fourth quarter 2001 dividend
to Ford, and Ford will contribute $700 million in equity
to the firm. Moody's plans to evaluate the potential need for similar
action by Ford in the future.
The review of the Hertz rating reflects 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; it provides most of these vehicles on a repurchase
basis; and, Ford extends a $500 million 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.
Consequently, the erosion in Ford's credit quality diminishes the
degree of ratings lift afforded to Hertz.
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.
Michael J. Mulvaney
Moody's Investors Service
J. Bruce Clark
Senior Vice President
Moody's Investors Service
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.
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