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I AGREE
29 Aug 2018
New York, August 29, 2018 -- Moody's Investors Service ("Moody's") downgraded
the senior unsecured rating of Ford Motor Company (Ford), and its
supported subsidiaries and affiliates to Baa3 from Baa2. The outlook
is negative.
RATINGS RATIONALE
The downgrade of Ford's rating reflects the erosion in the company's
global business position and the challenges it will face implementing
its Fitness Redesign program. Negative developments impacting Ford
include: softening margins in North America driven by higher costs;
reversal of its Chinese operations in which EBIT has fallen from a $70
million profit in the first half of 2017, to a $633 million
loss in the first half of 2018; strain in the South American operations
that lost $750 million in 2017; and, continued losses
in Europe which are likely to worsen because of Brexit related costs from
Ford's UK operations. These pressures have contributed to
an erosion in Ford's key credit metrics between 2016 and the twelve
months ending June 2018, including: EBITA margin falling from
4.2% to 2.0%; debt/EBITDA rising from
2.6x to 3.3x; and EBITA/interest declining from 4.5x
to 1.8x.
Under the Fitness program, Ford will reassess all parts of its business
portfolio with the goal of restructuring, contracting or exiting
businesses that will not be able to generate adequate returns.
Restructuring initiatives could entail $11 billion in charges with
$7 billion in related cash expenditures over the next 3 to 5 years.
For example, the company's decision to wind-down its
car business in North America, which we viewed as credit-positive,
reflects its willingness to make aggressively-disciplined capital
allocation decisions.
Despite these challenges, Ford's Baa3 rating is supported
by several factors. The company has a highly competitive and profitable
position in North America; the Fitness program is targeting the major
areas of weakness in the company's business portfolio; the
program is being implemented while global auto markets are reasonably
healthy; and, the company has demonstrated the ability to successfully
restructure operations in the past. In addition, Ford has
a strong liquidity profile consisting of $25 billion in cash,
which is well in excess of funded debt, and $11 billion in
committed credit facilities. This provides flexibility to implement
the Fitness program and meet approximately $4 billion in automotive
debt maturities over the coming twelve months.
The Fitness program is a necessity, but it will take several years
for material financial and operating benefits of the program to be realized.
Success could be challenged by having to address the serious performance
problems in multiple business units simultaneously. At the same
time, Ford will have to continue investing in the areas critical
for the future of the auto industry. These areas include alternative
propulsion, autonomous driving, ride sharing and connectivity.
Investments will also have to be made in meeting the carbon emissions
regulations in a number of regional markets. Of particular near-term
concern is China, where Ford must rapidly renew its product lineup
and rebuild relationships with dealers in order to regain lost market
share. As it pursues the revitalization in China, Ford will
have to contend with an environment in which domestic Chinese producers
are being more competitive, pricing pressure is growing, and
non-Chinese manufacturers are attempting to expand their presence.
Ford's negative outlook recognizes the significant challenges of
effectively executing the full scope of the Fitness program, and
the extended time period over which material benefits might be achieved.
In addition, the considerable financial and managerial resources
devoted to the Fitness program will reduce Ford's ability to contend
with any unexpected cyclical downturn.
The ratings could be downgraded absent clear progress in pursuing the
Fitness initiatives by early to mid-2019, with evidence that
the company is on a strong trajectory for recovery. The rating
could also be lowered if Ford is unable to address operational inefficiencies
in each of its major regions, while at the same time showing progress
under the Fitness program's objective to generate adequate returns
across all aspects of its automotive business. Evidence of such
improvement could be reflected in the following areas: 1) North
America: achieving an EBIT margin above 8%, maintaining
market share of at least 14.5%, and lowering the breakeven
level; 2) China: successfully launching new products that help
grow market share, improve dealer relationships and restore historic
levels of profitability; and 3) consolidated automotive operations:
making steady progress toward restoring positive free cash flow.
The prospects for an upgrade of Ford's ratings through 2020 are
very modest. However, if the company is able to successfully
execute the Fitness program, an upgrade, over the long-term,
could be possible. This would require achieving a 10% EBIT
margin in North America, and re-establishing its former competitiveness
and profitability in China. Metrics that could support an upgrade
include: a consolidated automotive EBIT margin approaching the high
single digits, and sustainable above 8%; debt/EBITDA
below 2.75x, and EBITA/interest 5.0x.
The following rating actions were taken:
Downgrades:
..Issuer: Ford Capital B.V.
....Senior Unsecured Shelf, Downgraded
to (P)Baa3 from (P)Baa2
..Issuer: Ford Holdings, Inc.
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Baa3 from Baa2
....Senior Unsecured Shelf, Downgraded
to (P)Baa3 from (P)Baa2
..Issuer: Ford Motor Company
....Senior Unsecured Bank Credit Facility,
Downgraded to Baa3 from Baa2
....Senior Unsecured Conv./Exch.
Bond/Debenture, Downgraded to Baa3 from Baa2
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Baa3 from Baa2
Outlook Actions:
..Issuer: Ford Capital B.V.
....Outlook, Remains Negative
..Issuer: Ford Holdings, Inc.
....Outlook, Remains Negative
..Issuer: Ford Motor Company
....Outlook, Remains Negative
The methodologies used in these ratings were Automobile Manufacturer Industry
published in June 2017, and Captive Finance Subsidiaries of Nonfinancial
Corporations published in December 2015. Please see the Rating
Methodologies page on www.moodys.com for a copy of these
methodologies.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Bruce Clark
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
No Related Data.
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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.
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