DBRS Assigns BBB (low) Rating to Ford Motor Company New Issue

DBRS has today assigned a rating of BBB (low) with a Stable trend to the planned Senior Unsecured Notes (the Notes) to be issued by Ford Motor Company (Ford or the Company). The Notes will have an aggregate principal amount of $2 billion and will feature a coupon of 4.75%. Settlement is scheduled for January 8, 2013, with the Notes due on January 15, 2043.

Proceeds of the Notes are to be primarily applied toward the prepayment of existing higher-cost debt obligations as well as discretionary contributions to the Company’s pension plans. In an associated announcement, Ford recently indicated its intention to redeem at par on February 4, 2013, all of its outstanding (approximately $593 million) 7.50% notes due June 10, 2043.

On September 14, 2012, DBRS upgraded the Issuer Rating of Ford to BBB (low) (for further details, please see the related press release). While the Company’s business profile remains somewhat constrained by ongoing significant headwinds in Europe, DBRS notes that this is more than offset by Ford’s solid financial profile, with income and cash flow-based credit metrics well within investment-grade levels. Moreover, the balance sheet of the Company’s industrial operations is sound, with Ford enjoying a net cash position of $9.9 billion as of September 30, 2012.

Ford’s financial profile is expected to remain solid given the Company’s ongoing strong profitability generated in North America, which represents the majority of earnings. DBRS notes that the recovery of the automotive sector in the United States continues to well exceed that of the general economy. In 2012, U.S. light vehicle industry sales increased by 13% year over year to approximately 14.5 million units. Growth is expected to remain solid this year as demand progressively reverts to secular trend levels, with industry volumes in 2013 expected to exceed 15 million units.

DBRS does not formally include pension obligations in its calculations of indebtedness for any given company. As such, the Notes issue will result in a moderate increase in Ford’s leverage, as calculated by DBRS. However, DBRS notes that the Company’s balance sheet is solid enough to readily absorb such an increase in indebtedness, with Ford’s credit metrics remaining well consistent with (in fact exceeding) the current ratings. Ford has also indicated that it remains committed to its gross Automotive debt target level of approximately $10 billion by mid-decade. Moreover, DBRS views positively the Company’s intentions to accelerate contributions to its pension plans and to continue de-risking these pension plans.

The Stable trend incorporates DBRS’s expectations that Ford’s ratings are likely to be constant over the near-to-medium term, with ongoing solid performance in North America more than offsetting weakness across the Company’s international operations. However, should the Company’s positive performance momentum persist and Ford demonstrate significant progress in Europe, as well as an ability to successfully turn around the Lincoln brand, the ratings could be subject to further positive action.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Companies in the Automotive Industry, which can be found on our website under Methodologies.