DETROIT (Reuters) - Ratings agency Moody’s Investors Service may raise Ford Motor Co’s (F.N) corporate credit rating now that the company and the United Auto Workers union have reached a tentative four-year contract, Moody’s said on Wednesday.
Moody’s is considering raising Ford’s current rating of Ba2 two notches below investment grade.
“Our initial assessment of the proposed UAW contract is that it should enable Ford to maintain its operating flexibility, fixed cost position, break-even point, and liquidity position near current levels,” Moody’s said in a statement.
Moody’s said that if the contract was ratified and if initial assessments were maintained, Ford could get a higher upgrade.
“Ford has built a much stronger operating model and financial profile during the past year,” said Bruce Clark, senior vice president at Moody‘s. “We want to determine if it can maintain this position if markets conditions become more difficult.”
Returning to investment grade rating has been a goal for Ford executives since the company borrowed $23 billion for restructuring in 2006.
Credit rating agencies, including Moody‘s, cut Ford’s credit rating to non-investment grade in 2005.
Last week, ratings agency Standard & Poor’s raised the rating for Ford’s cross-town rival, General Motors Co (GM.N), by two notches to BB+ from BB-. The rating left GM one notch below investment grade. GM fell into non-investment grade in 2005.
Ford and the UAW said on Tuesday that they had reached a tentative deal that each said would allow Ford to remain competitive on labor costs in the United States.
The UAW said the ratification vote was expected to be completed by October 16.
In January, Moody’s changed its outlook for Ford to “positive” from “stable.” An improved credit rating will make it cheaper for the company to borrow money.
Auto sales in September, reported this week, were the strongest in a half year, indicating that a gradual recovery in the industry was under way.
Ford’s shares closed up 4.7 percent at $10.55 on Wednesday.
Reporting by Bernie Woodall