Fitch Rates Ford's Proposed Senior Unsecured Notes 'BBB-'
CHICAGO -- January 3, 2013
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
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Stephen Brown, +1-312-368-3139
Fitch Inc., 70 West Madison Street, Chicago, IL 60602
Craig D. Fraser, +1-212-908-0310
Mark A. Oline, +1-312-368-2073
Brian Bertsch, +1-212-908-0549
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