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Ford's Credit Rating Has Gone Up

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On: Wed, Aug 4, 2010 at 10:52AM | By: Sherry Christiansen


Ford's Credit Rating Has Gone Up

Ford Motor Company has received notice that the company’s credit rating increased by 2 levels by Standard and Poor (S&P), a division of McGraw-Hill that publishes financial research and analysis on stocks and bonds.

Ford is seen as being more profitable with a stronger customer base than it has in the past. S&P has raised Ford’s rating to a B+ from a B- due to the company’s financial picture showing “substantial” cash balances. Ford has “substantial” cash balances and likely will continue to generate free operating cash flow, the ratings firm said. The retail market has an “improved perception” of Ford's vehicles and its efforts to introduce more fuel-efficient models in the next few years, S&P said.

"The upgrade reflects our reassessment of Ford's business risk profile to weak from vulnerable, and its financial risk profile to aggressive from highly leveraged," said Standard & Poor's credit analyst Robert Schulz. “

“It's a step in the right direction,” said Kirk Ludtke, senior vice president of CRT Capital Group in Stamford, Conn. “It was largely anticipated. It will be a while before they get back to investment grade.”

Ford said it will have a positive automotive net cash position by the end of 2011, and although the company has substantial debt (partially incurred in order to allow the company to avoid bankruptcy), future cash flow looks promising. On June 30th the company had $21.9 billion in cash, and in the beginning of the second quarter, reported total cash assets at $34.3 billion.

Ford’s debt reduction has lowered the risk that Ford’s cash flow could fall to “dangerously low levels” in the near future, according to S&P. Ford has made great progress in staying on the cutting edge with new technology, such as the Ford Sync, and redesigning popular models such as Taurus and Fusion. Quality has improved and overall profitability of its products have increased, all factors that influenced the decision to raise the company’s credit rating.

“Ford is making progress in stabilizing, and perhaps improving its U.S. market share,” according to a recent statement by S&P.




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