Bloomberg News

Ford Credit Swaps Fall Most in 4 Months After Fitch Boost

April 24, 2012

The cost to protect against a default by Ford Motor Co. (F:US) dropped the most since November after Fitch Ratings raised the automaker to investment grade.

Credit-default swaps on Dearborn, Michigan-based Ford fell 34.8 basis points to a mid-price of 269.6 basis points as of 5:29 p.m. in New York, according to prices compiled by Bloomberg. That’s the biggest decline since Nov. 30 when the contracts fell by 34.9 basis points, Bloomberg data show.

Fitch boosted the issuer default rating of Ford and its Ford Motor Credit unit to BBB-, the lowest investment grade, from BB+, the ratings firm said in a statement today, citing the automaker’s improved liquidity, lower debt and reduced pension obligations.

“We have for long considered Ford as worthy of investment grade ratings given the superior turnaround in its earnings, focused balance sheet repair alongside a product portfolio revitalization,” Hitin Anand, an analyst at bond researcher CreditSights Inc, wrote in an e-mail.

“The writing is on the wall for it to achieve full investment grade ratings in the near term from even the other two rating agencies,” he said. Moody’s Investors Service rates Ford Ba1 while Standard & Poor’s gives the company BB+, both below investment grade.

Fitch may change its outlook to positive or consider an upgrade of the ratings, “if Ford’s margins and free cash flow continue to grow.”

The company’s 7.45 percent notes maturing in 2031 rose 3.5 cents to 126 cents on the dollar at 11:53 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Home Sales

A benchmark gauge of U.S. company credit risk fell as U.S. home sales in March topped estimates, indicating a stabilization in the real estate market.

The Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell 1.3 basis points to a mid-price of 99.7 basis points at 5:37 p.m. in New York, Bloomberg prices show.

The measure decreased as sales of new U.S. homes were stronger than projected in March, running at a 328,000 annual rate, figures from the Commerce Department showed today in Washington. That’s a decline of 7.1 percent from a revised 353,000 pace in February which was better than initially projected.

The swaps gauge typically falls as investor confidence improves and rises as it deteriorates. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

Ford had $13.1 billion of total debt as of Dec. 31, according to its Feb. 21 annual filing.

Fitch warned that Ford’s rate of growth will be slower than earlier projections because of “recessionary conditions” in western Europe and slowing demand from “key emerging markets like China and India,” according to the report.

To contact the reporter on this story: Sridhar Natarajan in New York at snatarajan15@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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  • F
    (Ford Motor Co)
    • $17.47 USD
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