Ford Motor Company (NYSE: F) shares climbed almost 2 percent in mid-day trading Wednesday, a day after Moody's Investors Service upgraded the Dearborn, Mich.-based automaker's credit rating to investment grade.
The boost to an investment-grade rating will allow Ford to reclaim assets such as its trademark Blue Oval logo, which it had put up as collateral for its loan. The loan was paid off in full in September 2011.
Moody's upgraded Ford's unsecured ratings to Baa3 from Ba2. Ford Motor Credit Company LLC was also upgraded to Baa3 from Ba1. Ford shares rose 1.77 percent in midday trading Wednesday to reach $10.37.
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, senior VP for Moody's, said. We concluded that the improvements Ford has made are likely to be lasting.
The biggest factor that Moody's considered in upgrading Ford was the company's North American break-even level, which has declined 45 percent since the company reached a labor agreement with the UAW in 2009. Ford's North American break-even level has fallen to 1.8 million units from 3.4 million in 2009. Moreover, Ford has maintained shipment levels over 50 percent above its break-even point for the previous year as of March, providing the company with a large margin and $6.2 billion in North American profits in 2011.
Importantly, Moody's believes that Ford has demonstrated its commitment to maintaining sound operating and financial disciplines by preserving a low break-even level; matching production levels to retail demand; limiting the use of incentives and price discounting and improved vehicle platforms and supplier relationships, the report said.
Ford may face difficulties in the next two years due to troubles in the European market, which is plagued by overcapacity and the ongoing euro zone debt crisis. Europe accounts for 25 percent of Ford's global revenue and the company is predicting losses in the neighborhood of $500 million to $600 million for 2012 after breaking even the year before. However, 90 percent European capacity use and a strong North American position are expected to help Ford weather the continuing crisis in Europe.
In 2006, Ford raised $23.5 billion, much of it in debt and credit facilities secured by domestic assets such as its iconic Blue Oval, F-150 and Mustang trademarks. The company faced several lean years during the financial crisis, although it avoided asking for a government bailout or selling itself as General Motors Company (NYSE: GM) and Chrylser LLC had to do. Ford paid its first dividend in almost six years in March.