Ford’s very own ATM or rather F-Series machine that keeps dispensing profits spurred the rating improvement.
Standard & Poor’s today raised its credit ratings on Ford Motor Company and Ford Motor Credit to an investment grade of ‘BBB-‘ from ‘BB+’, and revised the outlook on both companies to stable from positive.
S&P noted that the depressed European auto market continues to make that region Ford’s worst performer, but claimed Ford’s restructuring efforts and recent gains in retail market share (8.4% in Q2 2013, an improvement of about two-percentage points year over year) provide “evidence that it can return to eventual profitability.”
The upgrade also notes Ford’s recent strong sales growth in China, helping bolster its Asia-Pacific and Africa segment to an expected profit this year, and Ford’s “reasonable performance in South America despite a variety of trade, tariff, and foreign exchange issues, and greater production capacity in the industry.”
“The upgrade reflects our expectation that Ford’s credit measures will improve meaningfully as a result of its solid performance in North America and improved pension funding status,” said credit analyst Dan Picciotto.
“The fact that we are now rated investment grade by all four major ratings agencies is further evidence of the continued progress the Ford team is making delivering our One Ford plan,” said Bob Shanks, executive vice president and chief financial officer, Ford Motor Company. “Our plan is to maintain investment grade throughout an economic cycle.”
S&P said its expectations for the U.S. market include:
- The U.S. economy will continue its fragile recovery, with GDP growth of 1.7% in 2013 and 2.9% in 2014
- The housing market will continue to rebound (to 1.23 million units in 2014, up about 30% year on year), which will support demand in the profitable full-size pickup truck market
- Its base case assumes U.S. industry light-vehicle sales will improve to 15.6 million units in 2013 and 16.1 million units in 2014
For a higher rating, S&P said it would expect Ford to sustain debt to EBITDA of less than 2.5x and automotive free cash flow to adjusted debt of 20% or more. It also wants the company to maintain “prudent levels of liquidity” comparable to the about $30 billion or more at the automotive parent that exists today. In addition, expects Ford Credit to be profitable and continue to demonstrate underwriting standards consistent with an investment-grade rating.
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