Ford Reclaims ‘Heritage’ With Investment-Grade RatingKeith Naughton
Ford Motor Co. was raised to investment grade by Moody’s Investors Service, enabling Executive Chairman Bill Ford, great-grandson of the founder, to reclaim the blue oval logo he put up as collateral for a loan.
“When we pledged the blue oval it was enormously emotional for me personally and for my family, because we weren’t just pledging an asset, we were pledging our heritage,” Ford told reporters yesterday on a conference call. “To get that back feels wonderful and this is one of the best days I can remember.”
Moody’s boosted Ford’s senior unsecured ratings two levels to Baa3 from Ba2 and raised its finance arm, Ford Motor Credit, to Baa3 from Ba1. Moody’s followed Fitch Ratings in assigning an investment-grade status. With two such ratings, Ford regains control of the logo and other assets pledged as collateral to obtain a $23.4 billion loan to keep the business going in 2006.
When the upgrade came, Bill Ford said he announced it to employees on the public-address system normally used for fire drills in Ford’s Dearborn, Michigan, headquarters. Moody’s had ranked the second-largest U.S. automaker’s debt as junk since August 2005. Fitch returned Ford to investment grade last month after assigning it junk status in December 2005.
“The upgrade of Ford recognizes the strength of the company’s position in North America, its robust liquidity position, and our expectation that the company will continue to embrace sound operating and financial disciplines,” Moody’s said in a statement. “We believe that these strengths will enable Ford to maintain an investment-grade profile in the face of the sector’s ongoing cyclicality and weakness in the European market.”
Moody’s said the outlook for Ford and Ford Credit is stable.
For Chief Executive Officer Alan Mulally, achieving investment grade removes a burden he inherited when he assumed the job in September 2006. While Mulally, 66, called the rating a “milestone,” he didn’t reveal a timetable for retirement.
“This is way up there on the highlight film, for sure,” Mulally told reporters yesterday. “But it changes none of my plans to continue to serve this great corporation.”
Ford’s 6.7 year journey from junk to investment grade is the second longest among companies in the Standard & Poor’s 500 since 2000, according to data compiled by Bloomberg. Only Southwestern Energy Co., which fell to speculative grade July 8, 2002, and returned to investment grade Feb. 22, spent longer with non-investment grade ratings.
The upgrade will lower Ford’s borrowing costs and its bonds will now be more widely traded, said Bob Shanks, Ford’s chief financial officer.
“Operationally, it doesn’t have too much effect,” Shanks said on the call. “We had pledged the assets, but it hadn’t affected our operating flexibility to any significant degree.”
The greatest impact is emotional, Bill Ford said. The automaker pledged all of its major assets, including factories and its headquarters, as collateral for the 2006 loans, helping the company avoid the 2009 bankruptcies and bailouts that befell the predecessors of General Motors Co. and Chrysler Group LLC.
Moody’s yesterday reiterated its Ba1 rating on GM, one level below investment grade, and a positive outlook.
Ford has repaid more than $21 billion of the loans, Mulally said in an April 27 interview on Bloomberg Television.
“When we had to hock the blue oval, that was a very tough thing,” Bill Ford, 55, said in a May 10 interview. “I will never forget signing those papers. My heart stopped for a moment. It will start beating again when we get it back.”
Out of Hock
Getting the logo out of hock will signify that Ford’s comeback is complete, Lewis Booth, Ford’s former chief financial officer, said in a Feb. 28 interview with reporters before his April 1 retirement.
“The psychological impact will be enormous,” Booth said of reclaiming the company’s logo. “Wherever I am in the world that day, I shall be celebrating.”
Booth, at his retirement home in Florida, said through a spokesman yesterday: “We’re with friends in Naples, about to open a bottle of champagne. The Ford oval is back where it belongs, shining brightly.”
After speaking to reporters, Bill Ford gathered employees on the front lawn of Ford’s headquarters, where they formed themselves into the shape of the blue oval logo for a photo.
“The timing is somewhat earlier than expected and thus a positive surprise,” Itay Michaeli, a New York-based analyst with Citigroup Inc. who rates Ford a buy, said in a note to investors. “That an auto company can be upgraded to investment grade in today’s choppy macro backdrop only supports our view that ‘new auto’ fundamentals have indeed been established since the 2008-09 downturn.”
Moody’s said Ford’s North American “break-even level,” where it can begin making money after covering its costs, has fallen 45 percent to 1.8 million vehicles today from 3.4 million in 2009. Shanks said Ford can now make money when industrywide sales in the U.S. fall as low as 10 million vehicles. The pace of U.S. auto sales in the year’s first quarter was 14.3 million.
“The key factor in our considering an investment-grade rating for Ford was whether or not the company would be able to sustain its strong performance,” Bruce Clark, Moody’s senior vice president, said in a statement. “We concluded that the improvements Ford has made are likely to be lasting.”
Fitch, in its April statement, said its upgrade reflected “improved financial performance, balance-sheet repair, and product-portfolio improvement that have taken place over the past several years.”
Ford still has more work to do to improve its balance sheet, such as reducing automotive debt to $10 billion by mid-decade from $13.7 billion on March 31, Shanks said.
“We still have nearly $4 billion to go,” Shanks said today on “The Hays Advantage” on Bloomberg Radio. “I don’t think we’ll get there in a linear way, but we’re certainly on our way.”
The automaker has had 12 consecutive profitable quarters through 2012’s first three months. Ford earned $29.5 billion in the last three years after $30.1 billion in losses from 2006 through 2008.
Credit-default swaps on Ford dropped by the most this year after the upgrade.
Contracts on Ford fell 57.3 basis points to a mid-price of 262 basis points as of 4:28 p.m. yesterday in New York, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
The company’s $1.25 billion of 8.125 percent notes maturing in January 2020 rose 2.5 cents to 130.5 cents on the dollar today in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt has climbed from 123 cents on May 21.
Ford bonds will shift to Barclays Plc’s U.S. Corporate Investment-Grade index at the end of the month and be reflected in June returns, Brandon Ashcraft, a New York-based spokesman for the bank, said today in an e-mail.
Ford common stock rose 2.2 percent to $10.41 at the close in New York. The shares have fallen 3.3 percent this year.
While recovering the collateral for the 2006 loan is a capstone to Mulally’s tenure, Bill Ford reiterated that he can remain CEO as long as he wants. Ford was Mulally’s predecessor as CEO, running the automaker from late 2001 until September 2006. Ford said he isn’t going anywhere, either, and will ensure the company never has to hock to blue oval again.
“I do plan to be here a long time,” Ford said. “And I can provide some institutional memory and make sure we never do slide back.”
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