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S&P Upgrade of Ford Signals Dividend Is Closer (F, GM)
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Ford Motor Co. (NYSE: F) may not yet quite be investment grade, but the company is getting closer and closer. Friday morning brought the news that Standard & Poor’s has raised the debt and credit ratings of Ford. The new rating is “BB+” and that is now only one notch under “investment grade.” On top of lowering implied borrowing costs, this could have ramifications for Ford’s dividend policy ahead.
The upgrade is a continued sign of improvement. unfortunately, we do not expect an imminent move to “BBB-” for the investment grade rating because S&P said the rating is also “Outlook Stable” rather than positive. It was just on September 29, 2011 when Ford was put on a “Positive” outlook, but the jump went from “BB-” to “BB+” for a solid jump.
S&P did raise Ford’s counterparty credit rating on FCE Bank PLC, Ford Credit’s European bank, to ‘BBB-‘ from ‘BB’ to maintain a better differential than the auto company itself. That is now “investment grade” for that unit.
Issues cited for the upgrade are the new four-year UAW labor contract acting as a catalyst for
continued profitability and cash generation.
S&P is looking for mid-single-digit EBIT margins or higher. More importantly, S&P is calling for auto operating cash flows to be $5 billion or more this year. The base case calls for an improvement in the North America light-vehicle segment sales into 2012. S&P even sees good prospects for at least $2 billion in automotive operating cash flow for 2012.
Alan Mulally did a phenomenal job of getting Ford’s books in better order and he did not have to take a bailout like General Motors Corp. (NYSE: GM) or like Chrysler.
So, this brings up one close instance to consider. Ford has discussed the initiation of a shareholder dividend ahead as its credit ratings improve. We won’t look for that immediately, but Ford is now closer to paying a dividend than it was just yesterday.
JON C. OGG
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