Ford’s Mulally Closer to Winning Bet

Fitch boosts automaker to investment grade, putting it halfway to regaining control of $23 bln in assets.

Chief Executive Officer Alan Mulally moved closer to reclaiming Ford Motor Co.’s valuable blue oval logo, headquarters building and Mustang trademark yesterday, as Fitch Ratings raised the automaker’s credit rating to investment grade.

Fitch had ranked the second-largest U.S. automaker’s debt as junk since December 2005. With yesterday’s upgrade, Ford now needs only Standard & Poor’s or Moody’s Investors Service to follow suit to regain control of the major assets it put up as collateral to avoid the bankruptcy that engulfed other U.S.-based automakers.

The higher rating “is an important milestone for the company and can have real strategic implications on the funding side,” Adam Jonas, a Morgan Stanley analyst, wrote in a note.

For Mulally, returning Ford to investment grade would remove a burden the CEO inherited when he assumed the job in September 2006. Ford’s borrowing costs would shrink and it would have access to collateral it used to obtain $23.4 billion in loans in late 2006. That gamble allowed Ford to avoid the fates of the predecessors of General Motors Co. and Chrysler Group LLC that restructured under government-backed bankruptcies in 2009.

Fitch yesterday lifted Ford to BBB-, the first level of investment grade, from BB+, the ratings company said in a statement. Fitch first cut Ford’s rating below investment grade Dec. 19, 2005, as rising fuel prices began curtailing sales of sport-utility vehicles and pickups that accounted for most of the automaker’s profit.

Getting Ford’s blue oval logo out of hock will signify that Ford’s comeback is complete, Lewis Booth, Ford’s former chief financial officer, said in Feb. 28 interview with reporters before his April 1 retirement. Whenever the second ratings company officially upgrades Ford, Booth said he will stop what he is doing and toast the company’s success.

“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.”

Both remaining major ratings companies still have Ford at one level below investment grade. S&P rates Ford BB+ and Moody’s Ba1. Fitch, in its statement yesterday, said the upgrade reflects “improved financial performance, balance sheet repair, and product portfolio improvement that have taken place over the past several years.”


No Retirement Plans

Fitch raised the issuer default rating of Ford and its finance unit, Ford Motor Credit, and said the outlook for both was stable.

“Since the last recession, Ford’s management has been heavily focused on increasing profitability, growing liquidity, lowering debt and reducing the company’s pension obligations,” Fitch said.

Mulally, 66, has said he has no plans to retire. Executive Chairman Bill Ford has that Mulally can remain CEO as long as he wants. Bill Ford was Mulally’s predecessor as CEO.

“This upgrade has come at least several weeks earlier than our credit team had expected,” Morgan Stanley’s Jonas wrote. “Our credit team does not expect an upgrade from Standard & Poor’s within the next six months and thinks it is more likely that Moody moves Ford to investment grade within the next three months.”

Ford bonds yielded 3.09 percentage points more than government debt on average two days ago, according to Bank of America Merrill Lynch index data. That’s down from about 36 percentage points at the peak of the credit crisis in March 2009 and compares with an average spread of 2.55 percentage points for bonds rated BBB, the lowest tier of investment grade.

Ford rose 0.4 percent yesterday to $11.39 at the close in New York. The shares gained 5.9 percent this year through April 24.

The automaker ended 2011 with its 11th consecutive profitable quarter, with fourth-quarter net income of $13.6 billion, or $3.40 a share, compared with $190 million, or 5 cents, a year earlier. Ford earned $29.5 billion in the last three years after $30.1 billion in losses from 2006 through 2008.

Ford resumed paying a dividend last month following a five- year suspension. The automaker March 14 declared a second- quarter dividend of 5 cents a share payable June 1 to shareholders of record on May 2.

“This is just the natural next step for the company,” said Jody Lurie, a credit analyst at Janney Montgomery Scott LLC in Philadelphia. “The debt markets are pretty much seeing investment grade and have factored this in already.”

“Getting the collateral back, getting the blue oval back has been a huge rallying cry and one that we all feel emotionally connected to,” Neil Schloss, Ford’s treasurer, told reporters March 15. “Investment-grade companies feel better about themselves.”



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