Moody's Investors Service raised its rating on Ford Motor's debt to investment grade this afternoon, an important milestone that allows the carmaker to get its Blue Oval trademark out of hock.
Executive Chairman Bill Ford Jr., great-grandson of company founder Henry Ford, used the company's rarely-employed public address system to share the news with employees at Ford's Dearborn, Mich., headquarters. "It's typically only used for fire drills," he chuckled during a hastily arranged conference call with reporters. "This is all happening very quickly." After the call, he and other senior executives met employees outside for a photo opportunity in front of Ford's 11-story "Glass House," the giant Blue Oval on top visible for miles in all directions.
In 2006, Ford pledged its famous logo, along with virtually all of its U.S. assets, as collateral to secure a $23.5 billion loan to restructure its ailing business. At the time, Ford was criticized for betting the company, including all its factories and other trademarks like Mustang and F-150, to take on more debt, but the loan ended up being Ford's savior, providing an important cushion that allowed it to escape bankruptcy a few years later, unlike General Motors and Chrysler Group.
Under terms of the loan, all collateral would be released when two of the three major credit rating agencies restored Ford's debt rating to investment grade. Standard & Poor's upped its rating on Ford a few weeks ago. Today, Moody's did the same, raising Ford's senior unsecured ratings to Baa3 from Ba2 and Ford Credit to Baa3 from Ba1.
"When we pledged the Blue Oval as part of the loan package, it was enormously emotional for me especially because we were not just pledging an asset. We pledged our heritage," said Bill Ford. "To get that back feels wonderful and this is one of the best days of my life."
Much of the credit for Ford's turnaround goes to chief executive Alan Mulally, who was hired from Boeing to replace Bill Ford as chief executive in 2006, a few months before the company borrowed the huge sum. Under Mulally, Ford restructured its labor agreements, closed unprofitable dealerships and invested heavily in new products and technologies while its competitors were struggling. In 2011, Ford reported its third year of improved operating profits and it has reduced its debt by more than $20 billion since 2009. Ford paid back the entire loan by September 2011 and in March of this year made its first dividend payment to shareholders in almost six years.
Ford stock has been languishing, however, closing at $10.19 per share, prior to the Moody's announcement. In early 2011, Ford shares traded at about $18 per share.
Mulally, who was meeting with Ford dealers in California when Ford's return to investment grade was announced, said the milestone was "further proof that, by staying laser-focused on our One Ford plan, the Ford team can deliver great products, build a strong business and contribute to a better world even through the most challenging external environment."
Bill Ford said he was always sure the company would get its trademark back. "I said, even in the darkest days, I was absolutely confident we had the right leadership. The only question was whether we had enough time. Luckily, the plan started to work very quickly and the rest, thankfully, is history."
