Bloomberg News

Moody’s Reviews Ford for Possible Upgrade After UAW Accord

October 05, 2011

(Updates with analyst’s comment in the third paragraph.)

Oct. 5 (Bloomberg) -- Moody’s Investors Service said it’s reviewing Ford Motor Co.’s debt ratings for a possible upgrade after the automaker reached a tentative labor agreement with the United Auto Workers yesterday.

Ratings under review include the company’s corporate family rating and probability of default rating at Ba2, two steps below investment grade, Moody’s said today in a statement. Moody’s also said it is reviewing the rating of the automaker’s finance arm, Ford Motor Credit, which also is rated Ba2.

“Ford has built a much stronger operating model and financial profile during the past year,” Bruce Clark, senior vice president with Moody’s, said in the statement. “We want to determine if it can maintain this position if markets conditions become more difficult.”

Moody’s said any action is contingent upon Ford’s 41,000 UAW members approving the tentative contract. Voting will conclude Oct. 16. The agreement includes no raises for senior workers and bonus payments totaling this year of $10,000. Entry- level workers, who now make about half the $28 wage of senior employees, receive raises that will take their hourly rate to as much as $19.28 by 2015, according to the UAW.

Ford, the second-largest U.S. automaker, will also make annual $1,500 payments to its UAW workers, which replace cost- of-living adjustments. If Ford earned $5 billion annually, workers could receive $20,000 in profit-sharing payments during the four-year contract, the UAW said.

Adding Jobs

Ford committed to add 12,000 U.S. hourly jobs by 2015, most of them at the lower entry-level wage. The Dearborn, Michigan- based company also said it is transferring work to the U.S. from Mexico, China and Japan. Ford said it would begin building its Fusion sedan in a factory in Michigan. The mid-sized car will also continue to be made in Mexico.

“Our initial assessment of the proposed UAW contract is that it should enable Ford to maintain its operating flexibility, fixed cost position, break even point, and liquidity position near current levels,” Clark said.

Moody’s said Sept. 22 that it was reviewing General Motors Co., Ford’s larger rival, for a possible upgrade after the automaker reached its deal with the UAW. The ratings company viewed Detroit-based GM’s accord as “constructive” and capable of preserving the automaker’s competitiveness, Clark said in a phone interview.

Standard & Poor’s raised its rating on GM by two levels to BB+, the highest non-investment grade, on Sept. 29. S&P said it may raise Ford to the same rating from BB-, depending on the outcome of its talks with the Detroit-based union.

Ford’s 7.45 percent bonds due July 2031 rose 2 cents to 110 cents on the dollar at 3 p.m. in New York, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority.

Ford rose 48 cents, or 4.8 percent, to $10.56 at 4 p.m. in composite trading on the New York Stock Exchange.

--With assistance from Craig Trudell in Southfield, Michigan. Editors: Bill Koenig, Jamie Butters

To contact the reporter on this story: Keith Naughton in Southfield, Michigan at knaughton3@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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