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Fitch raises Ford’s credit rating to investment grade from junk

By Tiffany Hsu, Los Angeles Times –

LOS ANGELES — Fitch Ratings likes what it currently sees in Ford Motor Co., upgrading the automaker’s credit rating Tuesday to investment grade from its long-held junk status.

Determining the Dearborn, Mich., giant to now have “sufficient financial flexibility,” the ratings agency boosted Ford’s rating to BBB-minus from BB-plus.

Fitch said it “believes that the work that has been accomplished has put the company in a solid position to withstand the significant cyclical and secular pressures faced by the global auto industry.”

Ford, now the second-largest automaker in the U.S., maneuvered itself out of a near-collapse in 2006. The company borrowed more than $23 billion, using collateral such as its Blue Oval logo.

Bill Ford that year handed over the reins to current chief executive Alan Mulally, a move that many experts have credited with making the company’s right-sizing efforts possible.

Under Mulally’s direction, Ford achieved “significantly improved financial performance, balance sheet repair and product portfolio improvement,” according to Fitch. The ratings agency also said it was impressed by the automaker’s heavy focus “on increasing profitability, growing liquidity, lowering debt and reducing … pension obligations.”

Ford’s vehicle lineup has performed well since the recession, though Fitch said competitors such as Chrysler, Volkswagen and some Asian brands may start poaching market share. But the ratings agency expects autos such as the Focus, the Fusion and the Escape to help boost sales and pricing. Even with high gas prices, Ford’s pickup sales are also doing well.

But the Fitch boost is just one down, two to go: Both Standard & Poor’s and Moody’s still have Ford rated at below investment grade — a level at which a company is considered unlikely to default on its debt.

Ford was last rated at investment grade by all three agencies in May 2005. An across-the-board rating could help the automaker land better borrowing rates for its customers.

Fitch now says its outlook for Ford is stable, though the agency pointed to several risks, including Ford’s relative feebleness in Asia and the uncertain global economic recovery.

A recessionary environment in Europe and slowing demand in China and India, along with high unemployment, a weak housing market and soaring energy prices in the U.S. may temper auto sales, Fitch said.

But the company, according to Fitch, had nearly $10 billion in cash and a much more balanced portfolio of autos at the end of last year, giving it a significant buffer if the auto market were to take a severe tumble.

Ford’s chief financial officer, Bob Shanks, said the company was “very pleased” with its new rating, calling it “an important proof point of the continued progress the Ford team is making.”

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