Moody's Investors Service on Sept. 9 lowered Ford Motor Co.'s senior unsecured rating to Ba1 from Baa3 amid "considerable" operating and market challenges facing the Dearborn, Mich.-based automaker.
The rating agency assigned the U.S. carmaker a Ba1 corporate family rating and an SGL-1 speculative grade liquidity rating, but revised the outlook to stable from negative.
Moody's said Ford will likely see weak earnings and cash generation as it pursues a restructuring plan that is expected to extend for several years with $11 billion in charges and a cash cost of about $7 billion.
"Ford is undertaking this restructuring from a weak position as measures of cash flow and profit margins are below our expectations, and below the performance of investment-grade rated auto peers," Moody's said, adding that it expects these measures to remain weak through the 2020/2021 period on top of a long period of negative cash flow.
The agency also pointed out that the decline in Ford's performance took place during a period in which automotive conditions worldwide have been relatively healthy. It said the company now needs to address its operational problems amid weakening demand in major markets and changes in the auto industry relating to vehicle electrification, autonomous driving, ride sharing and emission regulations.
However, Moody's noted that the company has a sound balance sheet and liquidity position to operate. It said Ford's stable outlook reflects its expectations that the company's planned restructuring, as well as its introduction of new products, will help improve earnings, margins and cash generations even if it would take some time.
The rating agency said it can further downgrade Ford if its major initiatives fail to help improve key performance metrics. Moody's said that among the measures that could result in downward pressure include a North American EBIT margin below 7%, a drop in automotive cash position to below $20 billion, and free cash flow burn of more than $1 billion after restructuring expenditures but excluding dividends from Ford Credit.
Meanwhile, Moody's said robust progress in the initiatives Ford is undertaking could contribute to an upgrade.
