S&P Upgrades Ford Motor's Credit to Investment Grade

S&P Global Ratings upgraded Ford Motor Co.'s credit rating to BBB- late on Monday, restoring it to investment grade status after it was downgraded to junk in 2020. Fitch had already raised Ford's rating to investment grade in September, while Moody's still maintains a speculative grade rating. To return to full investment grade status, Ford requires at least two out of the three major credit rating agencies to deem it as such.

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S&P stated that they anticipate Ford Motor Co.'s EBITDA margins to surpass 8% in 2024 and 2025, with a comfortable margin, thanks to strong performance in its commercial vehicle division and ongoing cost reduction efforts. The credit agency also highlighted Ford's strong financial position, with a cash balance of approximately $29 billion as of September 30 and overall liquidity of about $51 billion, providing the company with ample flexibility to compete in its markets.

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S&P noted that Ford has addressed issues related to overcapacity and higher costs in Europe and successfully restructured its unprofitable South American operations by shifting the business towards a more profitable, asset-light model.

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This upgrade came shortly after Ford reached an agreement with the United Auto Workers (UAW) union, resulting in a 25% increase in base wages over a four-year contract. The deal also significantly increased top wages and starting wages. Ford workers had previously gone on strike, but the agreement ended the strike and brought them back to work.

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In recent news, Ford reported lower-than-expected quarterly earnings and withdrew its guidance for the year, citing the pending UAW agreement. Additionally, the company's core electric vehicle business experienced a larger adjusted loss of $1.3 billion, partly due to consumer reluctance to pay premium prices for electric vehicles. This led Ford to pause several billion dollars in long-term investments in electric vehicles.

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Ford has approximately $72.4 billion in outstanding bonds, with the majority, worth $15.9 billion, maturing in 2026. The performance of Ford's bonds in the last two weeks has shown a modest increase, returning them to levels seen two weeks ago.

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Ford's stock price was up 1.1% on Tuesday, but it has experienced a 15% decline year-to-date, while the broader S&P 500 index has gained 8.5% during the same period.

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