CHICAGO & NEW YORK--(Business Wire)--
Fitch Ratings assigns a 'CC/RR6' rating to Ford Motor Company's (Ford) issuance
of $2.875 billion seven-year senior unsecured convertible notes. The Rating
Outlook is Positive. Proceeds will be used for general corporate purposes.
As stated in the Nov. 2, 2009 press release, the Positive Outlook reflects the
better than expected progress on Ford's cost reduction program, production and
inventory discipline that has resulted in solid pricing performance and
continued market share gains. Although Fitch expects a weak rebound in industry
sales in 2010, in part recognizing the hangover from the Cash-for-Clunkers
program, Fitch expects that cash drains will be materially reduced and
comfortably within Ford's liquidity position.
Fitch expects that industry sales will show only modest improvement in 2010,
based on macroeconomic factors including increased unemployment, reduced wealth,
consumer spending pressures and a higher savings rate. Other factors muting a
rebound in industry sales include more limited financing capacity, potential
increases in gas prices and evolving consumer thinking that may stretch average
vehicle age. Nevertheless, the combination of Ford's cost reduction efforts and
price performance has led to sharply reduced cash drains in a trough
environment.
Fitch expects that even if U.S. industry sales were to remain flat at roughly
10.5 million vehicles in 2010, Ford's cash drain would be less than $5 billion.
As U.S. industry sales climb above an 11.5 SAAR rate, Ford should be able to
achieve positive free cash flow. Although cost reductions should continue to be
realized through fourth quarter-2010, the step change in fixed cost reductions
have largely been completed, and margin expansion going forward will need to be
derived primarily from capacity utilization and scale efficiencies associated
with increases in industry volumes. The recent contract talks demonstrate,
however, that full labor-cost parity may still be a challenge.
A Fitch upgrade of Ford would be driven by a combination of the following
(unchanged from Fitch's Aug. 29 press release):
--Industry sales rebound to an annual 12 million sales level more quickly than
currently forecast;
--Ford's products continue to hold or gain share;
--Inventory management at Ford and the industry allows Ford to hold or improve
product prices;
--A clear path to positive free cash flow is projected;
--Liabilities continue to be managed or addressed, including the maturity of the
company's bank agreement;
--Independent access to capital by Ford Credit improves.
An Outlook revision back to Stable or a ratings downgrade could result from some
combination of the following factors:
--U.S. industry sales revert to new lows versus 2009 levels in the event of a
double-dip recession;
--A market disruption in oil prices which sends gas prices sharply higher and
drives consumers away from vehicle purchases;
--A breakdown in the supply chain resulting from further supplier bankruptcies
and lack of access to capital, or from dislocations caused by the dissolution of
a major competitor;
--Inability of Ford Credit to obtain financing on competitive terms.
Ford is currently riding a wave of consumer goodwill resulting from its ability
to avoid a direct government rescue and from favorable quality reports. Product
winnowing and capacity reductions at GM and Chrysler indicate that several
points of U.S. market share may be up for grabs over the next several years,
with Ford in a good position to capture a portion of it. Ford's competitive
product lineup across market segments, a good recent history of product
introductions, and a rapid cadence of new products and refreshenings indicate
that recent share gains could persist.
Ford's liquidity position remains adequate to finance dramatically reduced
negative cash flows, even if they persist through 2010. Even in the weak
industry recovery forecast by Fitch, Ford should be able to sustain liquidity at
more than twice the minimum required level. Scheduled proceeds from the
Department of Energy loans ($5.9 billion in total), contributions from Ford
Credit, and working capital inflows from increased production should offset
near-term operating losses persisting from weak market conditions. Ford has been
able to manage its liability structure through the 2009 debt exchange and
regular equity issuance.
Fitch expects that Ford will continue to tap the equity markets as conditions
permit, and that Ford will issue equity to the maximum extent permitted (50%) to
finance its upcoming obligations under the VEBA agreement. Fitch notes that
minimal or no contributions to the company's underfunded U.S. pension
obligations could create more onerous contributions at a later date given recent
asset performance, but the contribution of equity for these obligations would
limit the potential claim on cash over the next five years. Proceeds from Volvo
are expected to be limited, and may be largely offset by retained liabilities.
Ford's cash at the end of 3Q was $23.8 billion, providing an adequate cushion in
the event of persistent weakness in U.S. industry sales. The balance sheet
remains burdened by debt, unfunded pensions and obligations under Ford's VEBA
agreement, with only marginal improvement potential over the near term, outside
of material equity issuance. Of primary concern is the December 2011 maturity of
the bank agreement. Fitch expects that given Ford's operating performance and
the improvement in the capital markets, Ford is in a position to address the
maturity of the facility.
Fitch continues to recognize the strong linkage between the ratings of Ford
Credit and Ford. In addition to the rating drivers cited for its automotive
parent, continued improvement in operating performance and the ability to
finance its business independent of government programs would support an upgrade
for Ford Credit.
Fitch's Ford and Ford Credit ratings are as follows:
Ford Motor Co.
--Long-term Issuer Default Rating (IDR) 'CCC';
--Senior secured credit facility 'B/RR1';
--Senior secured term loan 'B/RR1';
--Senior unsecured 'CC/RR6'.
Ford Motor Co. Capital Trust II
--Trust preferred stock 'C/RR6'.
Ford Holdings, Inc.
--Long-term IDR 'CCC';
--Senior unsecured 'CC/RR6'.
Ford Motor Co. of Australia
--Long-term IDR 'CCC';
--Senior unsecured 'CC/RR6'.
Ford Motor Credit Company LLC
--Long-term IDR 'CCC';
--Senior unsecured 'B/RR2';
--Short-term IDR 'C';
--Commercial paper 'C';
--Short-term deposits 'C'.
FCE Bank Plc
--Long-term IDR 'CCC';
--Senior unsecured 'B/RR2';
--Short-term IDR 'C';
--Commercial paper 'C';
--Short-term deposits 'C'.
Ford Capital B.V.
--Long-term IDR 'CCC';
--Senior unsecured 'B/RR2'.
Ford Credit Canada Ltd.
--Long-term IDR 'CCC';
--Senior unsecured 'B/RR2';
--Short-term IDR 'C';
--Commercial paper 'B'.
Ford Credit Australia Ltd.
--Long-term IDR 'CCC';
--Short-term IDR 'C';
--Commercial paper 'B'.
Ford Credit de Mexico, S.A. de C.V.
--Long-term IDR 'CCC'.
Ford Credit Co S.A. de CV
--Long-term IDR 'CCC';
--Senior unsecured 'B/RR2'.
Ford Motor Credit Co. of New Zealand
--Long-term IDR 'CCC';
--Senior unsecured 'B/RR2';
--Short-term IDR 'C';
--Commercial paper 'C'.
Ford Motor Credit Co. of Puerto Rico, Inc.
--Short-term IDR 'C'.
Additional information is available at 'www.fitchratings.com'.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF
CONDUCT' SECTION OF THIS SITE.
Fitch Ratings
Mark Oline, +1-312-368-2073 (Chicago)
Ford Motor Co.
Nathan Spunt, +1-212-908-0202 (New York)
Ford Motor Credit Co.
Vincent Arscott, CFA, +1-212-908-9172 (New York)
Christopher D. Wolfe, +1-212-908-0771 (New York)
Media Relations:
Cindy Stoller, +1-212-908-0526 (New York)
cindy.stoller@fitchratings.com
Copyright Business Wire 2009
