Ford's Drive Towards an Investment Grade Credit Rating

Includes: F, GM
by: World Market Pulse

Even as Ford's (NYSE:F) impressive quarter underlined the company’s strong fundamentals, it was also offering a case that the automobile sector could very well be back on track as far as domestic sales in the United States was concerned. Now, after an impressive IPO by GM boosted incredible interest in the automobile sector, Ford has put its plans of moving towards an investment-grade credit rating by cutting out its debt and borrowing costs in top gear.

Ford Debt Cutting Spree: Ford Motor Corporation, meanwhile, expects to be solidly profitable this year, as the company repaid $2 billion of debt in the third quarter and analysts expect the company to pay off a debt to an union retiree healthcare trust fund later this week. The company has also launched an offer to encourage holders of two issues of its convertible notes to exchange them for shares, in an effort to further reduce its debt. According to the company launched offers, holders of its convertible 4.25 percent notes due in 2016 and 2036 would receive cash premiums to convert the notes to Ford common stock while the offerings would not change the share count used to calculate diluted earnings per share.

According to a recent report by Thomson Reuters, Ford Motor is cutting its debt by $1.9 billion in a bid to strengthen its balance sheet and get itself rated as investment grade again. In Ford's tender offer to reduce its automotive operations debt, holders of some $2.55 billion of senior convertible notes due in 2016 and 2036 accepted cash and company stock for debt. Ford not only expects a solid profit in 2010, but is also expecting to be net cash positive in its automotive operations by the end of 2010. If Ford manages to achieve this target, it would be the first time that this would have happened since the second quarter of 2008. The automaker expects to take a $960 million charge in the fourth quarter because of the offer.

Ford Or GM: While Ford boasts an impressive line-up of new and revamped vehicles to keep its momentum going and is powering ahead on performance GM has yet to match, wiping out tens of billions of dollars in debt in bankruptcy has helped GM. But even though GM has recovered well, and has the benefit of a larger emerging markets business and a chunky stake in parts maker Delphi to unload, it still has a long way to go, but the surge in Ford's quarter results could very well act as a trigger for GM.

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