Fitch Lowers Ford's Senior Unsecured To 'B/RR4'; To Rate New Facilities 'BB/RR1'

CHICAGO--Fitch Ratings has downgraded Ford Motor Company's (Ford) senior unsecured debt to 'B/RR4' from 'B+/RR3' following the announcement that Ford intends to raise $18 billion in new financing. The downgrade is based on the expected subordination of unsecured debtholders, as the financing includes approximately $15 billion in secured bank facilities. The components include a $7 billion term loan and an $8 billion revolving credit facility. Total secured facilities of $15 billion would compare to total unsecured automotive debt of approximately $18 billion at Sept. 30, 2006. Ford's Issuer Default Rating (IDR) remains at 'B'. The ratings of Ford Motor Credit are unaffected. The Rating Outlook is Negative.

Fitch's analysis indicates that unsecured debtholders would be expected to recovery approximately 34% in the event of default, (down from 68%, see recovery rating report dated Sept. 13, 2006 available at www.fitchratings.com) placing Ford's unsecured debt at the low end of the RR4 category (expected recovery of 30-50%). The recovery value for unsecured debtholders incorporates a significant restructuring of Ford's North American manufacturing operations in a bankruptcy scenario, value from Ford's 100% ownership in Ford Credit and certain international holdings, with minimal value ascribed to Ford's PAG holdings. Significant non-debt liabilities were also factored into the recovery rating. With the recovery rating at the low end of the 'RR4' range, any changes to Fitch's assumptions or Ford's liability structure could result in a review of the unsecured rating for further downgrade. It is also expected that as Ford Credit's balance sheet continues to shrink, the value of Ford Credit equity to Ford unsecured holders will also diminish, and Fitch will update the recovery ratings as necessary.

The transactions, as announced, are expected to raise $10 billion in funded debt, plus further availability of $8 billion under the revolving credit facility. Coupled with Ford's projected cash portfolio of approximately $20 billion at year-end 2006 (excluding $3 billion in VEBA that is expected to be depleted over the near term), the new financings are expected to allay liquidity concerns during 2007 despite very heavy cash outflows. Annual negative cash flows are expected by Fitch to exceed $8 billion in 2006 and 2007, due to operating losses, restructuring costs and working capital outflows.

Despite some progress in Ford's passenger car segment, revenues are projected to remain under severe pressure in 2007 as a result of slowing economic conditions, production cutbacks, continued share loss, and competitive and economic pressures in the critical pickup category. Progress on the cost side will be insufficient to offset revenue pressures in 2007 given the extended timetable for cost-reduction actions to be realized (including the hourly worker buyout program), high commodity costs, and the severe stresses in the supply base. Recent efforts to reduce costs will still leave Ford with a high fixed cost structure, and the bulk of capacity reductions will not be completed until 2008. The September 2007 UAW contract re-opening will be a critical component of Ford's ability to achieve a competitive cost structure, and the possibility of labor actions cannot be ruled out.

Fitch expects to assign a rating of BB (RR1) to the new secured facilities, given expected overcollateralization and full recovery under Fitch's recovery analysis. The facilities are expected to be secured by first-priority liens on Ford's principal domestic manufacturing facilities, substantially all of the Company's U.S. automotive assets, all or a portion of the stock of certain subsidiaries including Ford Motor Credit Company, and inter-company notes. Fitch's recovery analysis is based on a going-concern basis of a restructured Ford, and Ford's U.S. assets would be expected to have very limited value under an alternate-use scenario.

Fitch downgrades the following ratings with a Negative Rating Outlook:

Ford Motor Co.

--Senior unsecured debt to 'B' from 'B+'.

Ford Holdings, Inc.

--Senior unsecured debt to 'B' from 'B+'.

Ford Motor Co. of Australia

--Senior unsecured debt to 'B' from 'B+'.

Fitch's Recovery Ratings (RR), introduced in 2005, are a relative indicator of creditor recovery on a given obligation in the event of a default. A broad overview of Fitch's RR methodology as it relates to specific sectors, including a Case Study webcast, can be found at www.fitchratings.com/recovery.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.