TEXT-Fitch rates Ford's proposed senior unsecured notes 'BBB-'
Jan 3 - Fitch Ratings has assigned a rating of 'BBB-' to Ford Motor Company's (Ford) proposed senior unsecured notes due 2043. Ford's Issuer Default Rating (IDR) is 'BBB-' and the Rating Outlook is Stable. Ford plans to use proceeds from the proposed notes to prepay existing debt and make voluntary contributions to its pension plans. Although the proposed notes will likely result in a net increase to the company's long-term debt, Fitch views the increase as consistent with the current ratings, and believes the company remains committed to its mid-decade debt target of about $10 billion. In addition, by applying a portion of the proceeds to its pension plans, Ford is essentially offsetting any debt increase with a reduction in its substantial pension liabilities. As such, the proposed issuance has no effect on the company's current ratings or Outlook. Ford's ratings reflect the automaker's strong liquidity position, relatively low leverage, declining pension obligations and much-improved North American profitability. The company's competitive product portfolio and lower cost structure puts it in a solid position to withstand the significant cyclical and secular pressures faced by the global auto industry. Importantly, Ford's ratings are based on Fitch's projections that the company has sufficient financial flexibility to maintain an investment-grade credit profile in a period of severe economic stress. Ford's financial position has improved significantly over the past four years, but the company continues to face a number of risks, including continued uncertainty around the durability of global auto demand. Although worldwide vehicles sales continue to rise, declining demand in Western Europe and slowing growth in many emerging markets has resulted in slower sales growth than seen immediately after the last global slowdown. The company's European restructuring will require a material use of cash over the next two years, while at the same time, Ford continues to make significant cash investments in Asia and Latin America to strengthen its presence in those markets. This will increase the need for the company to continue to perform well in the competitive North American market. Additional risks include a relatively high absolute debt level, a large pension deficit, highly competitive industry dynamics, and increasingly stringent global safety and emissions regulations. The Stable Rating Outlook on Ford suggests that a near-term change in the company's ratings is not likely. Longer term, Fitch could consider a positive rating action if the company's margins and free cash flow continue to grow, leading to further financial flexibility. This would most likely result from continued increases in both net vehicle pricing and market share in Ford's largest markets, while operating costs remain contained. Further declines in debt and pension obligations could also contribute to a positive rating action. An increase in the proportion of sales in emerging markets, particularly China, could contribute to a positive rating action as well, as it would lessen the company's reliance on the mature North American and Western European markets. On the other hand, Fitch could consider a negative rating action if a very severe downturn in the global auto market leads to a significant weakening of Ford's liquidity position. As noted, however, the effect that a severe downturn would have on Ford's credit profile has already been incorporated into the ratings. Fitch could also consider a negative rating action if the company increases its long-term debt to finance an acquisition or fund shareholder-friendly activities, although, as noted, the current issuance is consistent with Fitch's existing ratings. Problems with operational execution or declining market share trends could also result in a negative rating action, particularly if combined with a market downturn. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --Corporate Rating Methodology (Aug. 8, 2012); --Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers (Nov. 13, 2012); --Evaluating Corporate Governance (Dec. 12, 2012) --2013 Outlook: U.S. Auto Manufacturers and Suppliers (Dec. 17, 2012); --2013 Outlook: Global Automotive Manufacturers (Dec. 21, 2012). Applicable Criteria and Related Research: 2013 Outlook: U.S. Auto Manufacturers and Suppliers Evaluating Corporate Governance Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers 2013 Outlook: Global Automotive Manufacturers Corporate Rating Methodology