* Moody's, S&P rate Ford one notch below investment grade
* Credit rating will lower borrowing costs; represents
* One other agency must upgrade Ford to reclaim Blue Oval
* Ford was last at investment grade from all major agencies
By Deepa Seetharaman
DETROIT, April 24 Fitch Ratings upgraded Ford
Motor Co to "investment grade" on Tuesday, a key step that
could lower borrowing costs and brings the second-largest U.S.
automaker closer to reclaiming its Blue Oval insignia.
The upgrade reflects Ford's improved balance sheet since its
near-collapse in 2006, Fitch said. Since then, Ford lowered its
break-even point, reduced its pension risk and revamped its
vehicle lineup as part of its "One Ford" turnaround plan.
Fitch is the first of the three major ratings agencies to
upgrade Ford to investment grade, ending a seven-year period in
which Ford debt was rated as "junk."
"Fitch believes that the work that has been accomplished has
put the company in a solid position to withstand the significant
cyclical and secular pressures faced by the global auto
industry," the ratings agency said in a release.
Chief Executive Alan Mulally mortgaged most of Ford's
assets, including factories and its iconic Blue Oval, in 2006 to
borrow more than $23 billion for the company's turnaround.
Should a second ratings agency upgrade Ford to investment grade,
the collateral underpinning of those loans will be released.
Reclaiming the logo, which is stamped on the grills of Ford
cars and trucks, would be a major symbolic milestone for the
automaker. Executives have described the goal as a "rallying
cry" within Ford's headquarters.
The Fitch move also sets Ford up for lower borrowing costs.
Once another agency upgrades Ford's credit rating, the interest
rate on its $9.3 billion revolver will fall by a quarter of a
percentage point, Reuters Loan Pricing Corp data shows.
Fitch upgraded Ford and its captive finance arm, Ford Motor
Credit, to "BBB-" from "BB+." Its outlook on both is "stable."
Chief Financial Officer Bob Shanks called the move an
"important proof point" validating the Ford's business plan.
"Our One Ford plan includes achieving strong investment
grade ratings and maintaining 'investment grade' throughout an
economic cycle," Shanks said in a statement.
Mulally's mandate, which has been the centerpiece of Ford's
strategy since 2006, centers on unifying the automaker's
once-disconnected business units, and taking advantage of its
scale to drive down costs and build a global brand.
MOODY'S, S&P EXPECTED TO FOLLOW SUIT
The last time Ford was rated as investment grade by all
three major ratings agencies was in May 2005.
The Fitch upgrade came earlier than some projected and
analysts expect Moody's Investors Service and Standard
and Poor's Ratings Service will follow suit this year.
Morgan Stanley analyst Adam Jonas predicts Moody's will
upgrade Ford within three months and S&P will do the same after
six months. Moody's and S&P each rate Ford a single notch below
"We maintain our view that mid-2012 is a realistic timeframe
for Ford to achieve investment grade ratings at all three rating
agencies," Barclays Capital analyst Brian Johnson said.
Once all three agencies give Ford "investment grade" rating,
Ford Credit can obtain lower borrowing rates that it could pass
on to consumers, Morningstar analyst David Whiston said.
"It will allow Ford to sell more cars," Whiston said.
In keeping with standard practice in the industry, Ford
Credit lends money to consumers and dealers, often at a lower
interest rate than it can obtain for itself. These rates can be
as low as zero percent and help boost vehicle sales. Upgrades by
Moody's, Fitch and S&P would lower the cost of this strategy.
The Ford upgrade could also benefit the automaker's larger
Detroit rival General Motors Co, which Fitch rates two
notches below investment grade, Barclays' Johnson said.
"It is unlikely that Fitch will upgrade GM to investment
grade immediately," he wrote in a note. "The more likely result
is a one-notch upgrade over the coming months ... followed by a
move to investment grade later in 2012."
BACK FROM THE BRINK
Since the downturn, Ford has invested more heavily in cars,
such as its Focus compact car and Fusion midsize sedan, to
satisfy consumers' growing demand for fuel-efficient vehicles.
The new Focus car can better compete against rivals
including Honda Motor Co Ltd's Civic and Toyota Motor
Corp's Corolla, Fitch said.
"Ford's more balanced product portfolio has put it in a
better position to weather the likely mix shifts to smaller
vehicles typically seen in economic downturns," Fitch said.
Still, Ford also faces the risk of slower-than-expected
global demand for vehicles, particularly in Europe, and a
relatively weak position in Asia, Fitch said.
Recessionary conditions in Western Europe and a slowdown in
growth in China and India also pose a potential problem for
Ford. High energy prices, high unemployment and a weak housing
market present a risk to U.S. auto demand.
Ford would still burn a "substantial" amount of cash in a
downturn, Fitch said, but Ford's stockpile of cash and access to
liquidity would help the automaker withstand its cash burn. Ford
ended 2011 with a net cash position of nearly $10 billion.
The automaker is expected to report first-quarter earnings