Moody’s Investors Service, the credit rating agency of Moody’s Corporation (MCO), has upgraded its ratings outlook on Ford Motor Co. (F) based on improved operating performance of the automaker.
The rating agency raised Ford’s corporate family rating from B1 to Ba2, two notches below investment grade. This is, in fact, an upgrade from CAA3 — nine levels below investment grade — assigned by the rating agency in December 2008, when the global economic crisis kicked in.
The rating agency has also raised Ford’s probability of default rating from Ba2 to B1 and senior unsecured ratings of Ford Motor Credit Company and related companies from Ba3 to Ba2. It has affirmed the rating outlook for Ford and Ford Credit as stable.
Moody’s has been impressed by Ford’s competitive product portfolio and restructuring activities. Currently, the automaker focuses on its namesake, Lincoln and Mercury branded cars. It has decided to expand its luxury Lincoln line-up at the cost of its Mercury line-up, which will be phased out by the end of 2010. The company plans to launch as many as 7 new Lincoln vehicles in the next 4 years, including a small car.
In the second quarter of the year, Ford reduced its total automotive debt by $6.8 billion to $27.3 billion. The debt reduction includes payment of $3.8 billion to the United Auto Workers (UAW) Retiree Medical Benefits Trust and a repayment of $3 billion of Ford’s revolving credit facility. It saved more than $470 million in annualized interest expense for Ford.
Moody’s believes Ford will continue to generate strong earnings and improved cash flow. In the second quarter, the automaker posted a profit of $2.7 billion or 68 cents per share (before special items that include sales of Volvo cars among other things), overshadowing the Zacks Consensus Estimate of 40 cents per share.
The profit improved $3.34 billion from a loss of $638 million or 21 cents per share (before similar adjustments) in the second quarter of 2009. In the first half of the year, the company’s Automotive operating-related cash flow improved $7.3 billion to $2.5 billion, driven by higher profit and favorable changes in working capital.
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