The Blue Oval is Ford's again as credit upgrade frees automaker's assets from mortgage

Moody’s upgraded Ford’s credit rating today in a move that means the automaker’s Blue Oval logo and other assets are no longer held captive as collateral for the loans that helped the company restructure.

The ratings agency restored Ford to investment-grade, boosting its senior unsecured rating from Ba2 to Baa3.

“This is a truly great day for everyone at Ford and our extended family because the Blue Oval is back,” Ford Executive Chairman Bill Ford Jr. told reporters on a conference call.

Moody’s decision – which comes less than a month after Fitch Ratings’ decision to boost Ford’s grade – reflects yet another mark of approval from the financial community for the Dearborn-based automaker’s turnaround.

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“We are clearly so proud of today’s decision by Moody’s,” Ford Chairman and CEO Alan Mulally told reporters. “We knew we could get this done.”

He added: “This is a very exciting day for everybody associated with Ford, our employees, our dealers, our suppliers. It’s way up there on the highlight film for sure.”

The announcement came too late to affect Ford shares, which closed at $10.20, unchanged from Monday.

Moody’s said it was confident that Ford’s turnaround was sustainable and that the company’s restructuring moves have positioned it to thrive. By reducing debt, cutting labor costs in cooperation with the United Auto Workers and introducing competitive new products like the Focus compact and Fiesta subcompact, Ford has surged.

Ford posted a $1.4 billion profit in the first quarter, bolstered by a $2.1 billion profit in North America but weighed down by a $149 million loss in Europe.

"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,” said Bruce Clark, senior vice president with Moody's, in a statement. “We concluded that the improvements Ford has made are likely to be lasting."

The ratings upgrade, which could eventually lower Ford’s borrowing costs and thus boost its profitability, is significant in part because it triggers a release of Ford assets that were held as collateral during the company’s global restructuring.

Ford pledged its U.S. assets and major intellectual property like the company’s logo to secure $23.5 billion in loans in December 2006. As part of that agreement, according to an SEC filing, Ford could not claim back its collateral until it achieved investment-grade rating with two of the three major credit ratings agencies.

"We had been expecting a return to investment grade this year, though the timing is a somewhat earlier than expected and thus a positive surprise," Citi Investment Research analyst Itay Michaeli wrote in a research note.

“That an auto company can be upgraded to investment grade in today’s choppy macro backdrop only supports our view that “new auto” fundamentals have indeed been established since the 2008-09 downturn.”

"We had been expecting a return to investment grade this year, though the timing is a somewhat earlier than expected and thus a positive surprise," Citi Investment Research analyst Itay Michaeli wrote in a research note. “That an auto company can be upgraded to investment grade in today’s choppy macro backdrop only supports our view that “new auto” fundamentals have indeed been established since the 2008-09 downturn.”

Bill Ford said the company’s decision to mortgage its assets more than five years ago was necessary but concerning.

“It was enormously emotional for me personally and for my family because we weren’t just pledging an asset, we were pledging our heritage,” he said.

Ford said that even in “the darkest days,” he was “absolutely confident” the turnaround plan would succeed.

“The only question was did we have enough time?” he said. “Our plan fortunately began to work very quickly. The rest, thankfully, is history.”

Moody’s said it was encouraged by Ford’s $23 billion in cash and $9 billion in committed credit facilities – which puts the company in a solid operating position. The company estimated Ford’s restructuring had reduced its break-even level from annual U.S. sales of 3.4 million units to 1.8 million.

Ford Chief Financial Officer Bob Shanks did not confirm those figures. He said the company’s break-even point is an industry-wide U.S. sales of 10 million units annually.

Moody’s suggested that Ford’s “most significant long-term challenge” is to improve its position in China, where the company trails rival General Motors and other competitors. It also said the European economic contraction presents a problem because the continent represents 25% of Ford’s revenue.

But Mulally described Europe as a “near-term” problem and said the company has “very strong operations for the long-term” there.

Moody’s move was also particularly noteworthy because industry observers are wondering whether it was one of the benchmarks that could prompt Mulally to retire after leading the company’s revival.

“Well, clearly this is a very significant milestone, but it changes none of my plans to continue to serve this great corporation,” Mulally said.

Bill Ford, pressed to discuss the company’s executive succession plan, later added: “Alan isn’t going anywhere. The process that Alan has put into place has worked so beautifully that I can’t imagine anyone on the management team wanting to abandon that process.”

As for himself, Ford said, “I do plan to be here a long time and I can provide some institutional memory to ensure that we don’t slide back.”

Contact: Nathan Bomey at 313-223-4743 or nbomey@freepress.com. On Twitter, follow @NathanBomey or @freepautos.