Ford's Credit Rating Threatened by Negative Moody's OutlookBy
Rating company sees challenges to Ford improving its ‘fitness’
Move comes years after carmaker earned back its blue oval logo
Nearly six years after Ford Motor Co. reclaimed its good name in the credit community, the automaker was put on notice Tuesday when Moody’s Investors Service signaled its investment-grade rating could again be at risk.
Moody’s changed its rating outlook on Ford to negative from stable, citing “a more challenging operating environment” as new Chief Executive Officer Jim Hackett seeks to get the 114-year-old automaker back in shape. Dubbed a “fitness redesign,” the turnaround plan includes cutting $14 billion in costs, curbing lower-margin car models and investing $11 billion in an expansive portfolio of electric-powered vehicles.
“The negative outlook reflects the challenges Ford will face in implementing its ‘Fitness Redesign’ initiatives, and restoring operating performance,” Moody’s said in a statement. “During the past 18 months the company has allowed an erosion in many of the operating disciplines that it established following the 2009 restructuring of the North American auto sector.”
Switching to a negative outlook historically has translated to about a one-third chance of a company being downgraded in the next 18 months.
Ford “has delivered year after year of solid financial results” since coming through the recession, the company said in an emailed statement. “We continue our intense focus on improving the operational fitness of the business to deliver stronger results while building toward our vision of the future. We’re confident that as these fitness actions take hold, the market will recognize our progress.”
Ford was the only major U.S. automaker to avoid bankruptcy during the recession in 2009, largely thanks to a $23 billion loan the company took out using its blue oval logo as collateral just before credit markets collapsed. The carmaker reclaimed the rights to the symbol after a return to investment grade in 2012.
Now Ford faces a new challenge: catching up to rivals like Tesla Inc. and General Motors Co. that are further along in an age of ascendant electric and self-driving cars.
Figuring out how to better invest in new vehicles and sectors could result in large restructuring charges if the company decides to exit major businesses, products, or markets, Moody’s said.
Hackett, a former officer furniture executive, took the CEO job in May after the automaker’s directors ousted his predecessor Mark Fields. After rising 3 percent in 2017, Ford’s shares have fallen more than 11 percent this year. The stock dropped sharply after the company issued a profit warning for 2018, which Hackett has said will be a “bad year.”
Ford is one of the 15 biggest U.S. corporate bond issuers with investment-grade ratings, excluding financial companies, according to Bloomberg Barclays index data. Moody’s rates its senior unsecured debt Baa2, or two steps above speculative grade.
The carmaker’s rating could be downgraded, Moody’s warned, unless its overhaul plans show clear signs of progress. The rating service added: “Prospects for an upgrade of Ford’s ratings through 2020 are very modest.”