Fitch Ratings gave Ford Motor Company a BBB- rating to the company’s planned 30-year bond issuance, but there were some strings attached. That is, there were caveats to how the company can spend the new cash.
This is a good reminder for lower credits that just because cash is cheap and can be a positive for a company, it doesn’t mean rating agencies will see it in the same light. Raters like prudence of course. A few years ago Moody’s went so far as to suggest that trapped cash was a way to keep companies on the prudence path. “The constraints on using overseas cash acts as a disciplinary force, limiting companies from paying huge dividends, engaging in large share buybacks, or making credit-weakening acquisitions,” wrote Moody’s analyst Richard Lane.
As it stands for Ford currently, Fitch likes the automaker’s “strong liquidity position, relatively low leverage, declining pension obligations and much-improved North American profitability.” This is enough that Ford could withstand a downturn in the economy. And even though the issuance will result in a net increase to the company’s long-term debt, Fitch felt it “consistent with the current ratings, and believes the company remains committed to its debt targets.
But it could all go negative, Fitch said, if the company seemingly so much as moves a muscle. On the other hand, Fitch said, it “could … consider a negative rating action if the company increases its long-term debt to finance an acquisition or fund shareholder-friendly activities,” Fitch wrote.
So it’s always prudent to check with the raters before succumbing to the allure of those attractive low rates.