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Ford Motor Co. has received its second credit upgrade, marking the automaker’s return to investment-grade status after its downgrade to junk in 2020.
S&P Global Ratings raised the Dearborn, Michigan-based company’s rating to BBB- from BB+, the ratings firm said in a release Monday. The credit grader said the company’s margins will likely exceed expectations as part of the upgrade.
S&P’s move follows a boost to investment-grade by Fitch Ratings in September. Two investment-grade ratings are typically required for a company to be included in a blue-chip corporate bond index.
“Returning to investment-grade has been an objective since the pandemic roiled our industry, on the way to bigger things,” a spokesperson for Ford said. “We think this recognizes both the progress and potential of our Ford+ growth plan,” the person said, referring to the company’s shift toward electric vehicles.
The upgrade comes just five days after Ford reached a tentative agreement to end a six-week strike by the United Auto Workers that has impacted production and hurt the company’s finances.
The company, the first of the Detroit Three to reach an agreement with its union, agreed to give its 57,000 UAW-represented workers a 25% wage increase, restore cost-of-living allowances and give workers a quicker path to achieve the top wage of $42.60 an hour.
“S&P’s upgrade of Ford to BBB- after nearly two years of maintaining a positive outlook is historic as the only automaker with three trips into investment grade,” Joel Levington, an analyst at Bloomberg Intelligence, wrote in a note. “While we have anticipated such an action, the timing is surprising,” he said, pointing to the company’s third-quarter performance and the expected increase in costs from the pending UAW agreement.
Ford on Thursday pulled its forecast of adjusted earnings before interest and taxes in a range of $11 billion to $12 billion — which it had boosted in July — and missed quarterly expectations due to the cost of the strike and high warranty expenses caused by quality issues.
Ford said the total cost of the strike was $1.3 billion, with $100 million of that occurring in the third quarter. The company reported $19.3 billion in debt during its latest quarter, alongside $74.7 billion held by its financing arm.
Chief Financial Officer John Lawler last week said that the new UAW contract would add extra costs of about $850 to $950 for each car the company builds, shaving margins by 60 to 70 basis points.
The carmaker is struggling to make the transition to electric vehicles and said it would push back $12 billion in spending on battery powered models and is throttling back ambitious EV production plans.
Moody’s Investors Service in July boosted Ford’s rating to Ba1, the highest rung of junk. Fitch Ratings has Ford rated at BBB-.
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