S&P upgrades Ford Motor's credit ratings

Standard & Poor's Ratings Services raised its credit ratings on auto maker Ford Motor Co. and its related entities, but kept the ratings in highly speculative territory, following the completion of the company's debt-reduction efforts last week.

The ratings agency, which last week had placed its corporate credit rating on Ford at selective default amid the completion of the tender offers, boosted its rating to CCC+. Before the debt exchange, the rating was four notches lower at CC.

The outlook for the ratings is negative, meaning further downgrades aren't out of the question.

Last week, Ford completed its tender and exchange offers to reduce its debt by $9.9 billion. S&P said the transaction improved Ford's capital structure, but estimates that annual cash interest savings will be less than $600 million, a fraction of the company's automotive cash outflows in 2008 and for what is projected in 2009.

Additionally, S&P said it expects fundamental business risks to remain for at least the rest of the year, and perhaps longer, amid a drop in global vehicle demand as the company continues its restructuring efforts. The economic downturn and a shift in the market away from sport-utility vehicles have hurt the Big Three auto makers.

On top of its concerns about Ford's cash and liquidity during the next year, S&P said the company may need to revisit its informal request for $9 billion of loans from the U.S. government, unless industry sales begin to recover later this year.

Still, S&P said Ford's credit profile remains superior to that of its main U.S. competitors, General Motors Corp. and Chrysler LLC, who are scrambling to avoid bankruptcy filings. Ford is seen has having better access to credit recently, which boosts its ability to provide financing for Ford customers.

S&P warned it could lower its ratings on Ford if cash balances significantly fall below $10 billion or if the company's financing unit fails to maintain its sufficient funding. A bankruptcy by a major rival could also place the company's ratings on watch for downgrade, as S&P would need to evaluate any potential industry ripple effects.

Last week, Moody's Investors Service revised its probability of default rating to Caa3 from Ca and left its other ratings unchanged, including the company's corporate family rating of Caa3. Fitch Ratings, meanwhile, called Ford's actions a positive step but didn't change the company's ratings or outlook.

Shares were up 6 cents to $4.30 in recent trading. The company's stock has been rebounding from a steep drop in October, but has still lost half its value from its 52-week high in May.