Canadian Manufacturing

Fitch upgrades Ford from ‘junk’ status to investment grade

Ford's cash generation and lower costs will give it the financial flexibility it needs to stay at investment grade in a period of economic stress.



DETROIT—The Fitch Ratings agency lifted Ford’s credit rating from junk status to investment grade, a sign Ford has almost completed its turnaround from near collapse.

But another credit agency, such as Standard & Poor’s or Moody’s, must also make the upgrade before Ford’s blue oval logo, factories and other assets are released from hock.

Ford lost its investment grade status in 2005 as it was losing billions of dollars when the SUV and truck boom went bust.

The company mortgaged most of its assets to borrow $23.5 billion to revamp its cars and trucks and avoid bankruptcy protection.

Investment grade means that debt has a low risk of default, while junk status is considered poor credit quality. Companies with higher credit ratings can charge more for their bonds and generally get lower interest rates on their borrowing.

Fitch raised Ford’s credit to “BBB minus” from “BB plus” Tuesday. The ratings agency said that Ford’s work to repair its balance sheet and improve its array of vehicles in recent years, “has put the company in a solid position to withstand the significant cyclical and secular pressures faced by the global auto industry.”

Ford’s cash generation and lower costs will give it the financial flexibility it needs to stay at investment grade in a period of economic stress, Fitch expects.

Ford still has risks, including how it plans to deal with sales declines and large losses in Europe, and whether its massive China expansion plan will work.

But Fitch’s outlook for Ford is stable. In a statement, the agency said the biggest risk is the strength and pace of the global economic recovery and the “durability” of demand for automobiles, especially as Western Europe heads into recession conditions.

But Fitch said the company’s net cash of $10 billion at the end of last year and other sources of cash should give Ford enough money to weather a severe auto sales downturn and break even at a lower sales volume because of its restructuring.

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