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Rating Action:

Moody's downgrades Ford senior debt rating to Ba2 from Ba1; places rating under review for further downgrade

25 Mar 2020

New York, March 25, 2020 -- Moody's Investors Service, ("Moody's") downgraded Ford Motor Company's (Ford) corporate family rating (CFR) and senior unsecured debt rating to Ba2 from Ba1, with the Speculative Grade Liquidity unchanged at SGL-1. The ratings were placed under review for downgrade.

RATINGS RATIONALE

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The automotive industry has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment. Ford remains vulnerable to shifts in market sentiment in these unprecedented operating conditions and the company is vulnerable to the outbreak continuing to spread. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on Ford of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

Ford's ratings, including the Ba2 CFR, reflect what is an already-stressed credit profile and a very long- term restructuring program. The company is now additionally burdened by the prospect of a severe and prolonged decline in automotive markets precipitated by the coronavirus.

Ford's financial performance is weaker than Moody's expected. For the year ending December 31, 2019, Ford's automotive operations had an EBITA margin of 0.9%, EBITA/interest of 0.8x, and free cash flow of negative $3.8 billion.

Moreover, there was an unexpected erosion in operating efficiencies in the company's core North American market, as well as a problem-plagued launch of the strategically important Explorer SUV. These factors contributed to Ford's North American EBIT margin falling to 6.7% in 2019, continuing a steady decline from a margin of 9.7% in 2016. The company's China operations have seen profits fall substantially to a loss of $771 million in 2019 .

The company is in the midst of a multi-year restructuring program largely intended to address its weak operations in Europe and South America. The program will entail total cash charges approximating $7 billion, of which Ford has already incurred expenditures of about $1.1 billion. Future expenditures under the plan will approximate $5.9 billion.

Moody's review is focusing on Ford's prospects to reverse a prolonged erosion in operating performance and competitive position in all of its key markets which are now further burdened by what could be a lengthy period of weak demand and economic uncertainty. Moody's will also assess the company's ability and time frame for improving its automotive and North American profitability, its free cash flow, and its interest coverage.

In its review for downgrade, Moody's considers that the demand for new vehicles will be reduced meaningfully over the coming months, especially in the EMEA and North American markets. This is likely to extend through the early summer at least, with a reasonable recovery from the low points commencing at that point. Moody's current assumptions are that global demand will shrink by about 15% for all of 2020, and could be down in the range of 30% for the second quarter. Accelerating incidence of the coronavirus across the US and EMEA could lead to even more extended production shutdowns and a much-delayed recovery in unit sales. Production facilities in Europe and North America are mostly closed, as are the factories for the extended supply chain. This should enable field inventories of unsold vehicles to be somewhat restrained, but also leads to potential for meaningful disruption even once new vehicle production starts back up unless the OEMs and the extended supply chain cooperate carefully. Even without production for a couple months, there will be an overhang of inventory which could lead to considerable manufacturer incentives before the new model year shipments. For now, Moody's assumes a reasonable pace of recovery of demand as the third quarter develops, especially spurred by the new product introduction common during the late third quarter. Moody's assumes Ford's full year unit shipments would drop by upwards of 18%, however the risk to the downside is considerable and further downside scenarios around the severity and duration of the pandemic are uncertain.

Liquidity

Ford's liquidity position is very good, reflected in the Speculative Grade Liquidity Rating of SGL-1, as it heads into the current crisis. To better contend with a weakening demand outlook, Ford has drawn the full amount available under its $15.4 billion in bank credit facilities. The company has also suspended its $2.4 billion annual dividend (quarterly distributions of $600 million). Drawing funds on a committed credit facility does not improve Ford's liquidity. However, the elimination of the $2.4 billion annual dividend is constructive.

As a result of these initiatives, Ford's year-end 2019 liquidity position, pro-forma for the facility draw, consisted of $37.7 billion in cash and markable securities. Moody's estimates that the company's automotive cash requirements during the coming twelve months will approximate $18.5 billion. These requirements include: $1.5 billion in maturing debt; an $8 billion cash burn resulting from the coronavirus-related downturn in demand; and, Moody's estimate of $10 billion in minimum cash necessary to fund ongoing corporate and operating activities.

The $8 billion cash burn reflects the elimination of Ford's $2.4 billion dividend, and Moody's expectation that full-year global auto shipments in 2020 will decline by approximately 14%. The decline in industry sales will be most extreme during the second calendar quarter, during which year-over-year quarterly shipments could decline by as much as 30%. The $10 billion minimum cash position includes Moody's estimate of approximately $7 billion needed to fund the unwind of negative working capital that occurs when sales decline. The liquidity profile for Ford's finance arm, Ford Motor Credit Company, is solid.

Ford has been focused on addressing environmental risks and will remain a priority in its strategic planning. Even so, Ford's current product line-up puts the company at risk for potentially large emission penalties in 2020 and 2021. In response, Ford's new product launch will include a number of battery electric and full hybrid vehicles as important contributors in Ford's ability to comply with increasingly challenging emission regulations in the US and Europe. However, customer acceptance and Ford's ability to earn an economic return on them are uncertain.

Downgrades:

..Issuer: Ford Holdings, Inc.

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ba2 (LGD4) from Ba1 (LGD4); Placed Under Review for further Downgrade

..Issuer: Ford Motor Company

.... Corporate Family Rating, Downgraded to Ba2 from Ba1; Placed Under Review for further Downgrade

.... Probability of Default Rating, Downgraded to Ba2-PD from Ba1-PD; Placed Under Review for further Downgrade

....Senior Unsecured Bank Credit Facility, Downgraded to Ba2 (LGD4) from Ba1 (LGD4); Placed Under Review for further Downgrade

....Senior Unsecured Conv./Exch. Bond/Debenture, Downgraded to Ba2 (LGD4) from Ba1 (LGD4); Placed Under Review for further Downgrade

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ba2 (LGD4) from Ba1 (LGD4); Placed Under Review for further Downgrade

Outlook Actions:

..Issuer: Ford Holdings, Inc.

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Ford Motor Company

....Outlook, Changed To Rating Under Review From Stable

The methodologies used in these ratings were Automobile Manufacturer Industry published in June 2017, and Captive Finance Subsidiaries of Nonfinancial Corporations published in August 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Ford Motor Company, based in Dearborn, Michigan, is a global automotive manufacturer with operations in North America, South American, Europe, Africa and the Middle East, China and the broad Asia Pacific region. For the twelve months ending December, 2019, total automotive revenues were about $144 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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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