NEW YORK — Fitch Ratings upgraded the long-term issuer default rating (IDR) of AmeriCredit Corp. to ‘B+’ from ‘B-’ and the senior debt rating to ‘BB-/RR3′ from ‘B/RR3′. The rating outlook is stable. Approximately $532.6 million of debt, at par, is affected by this action.

The ratings firm said the upgrade reflects AmeriCredit’s improved credit trends, profitability prospects, capitalization and access to market liquidity. Tighter underwriting standards since March 2008 have combined with strong used-car recovery values and a stabilizing economic environment to yield an improvement in year-over-year net loss rates, despite continued portfolio contraction. Poorer performing 2006 and 2007 vintages are nearing peak loss rates and stronger 2008 and 2009 vintages are contributing to better overall portfolio performance. Net charge-offs in the March 31, 2010 quarter were 7.6 percent compared to 7.8 percent a year ago. Fitch said it expects this trend will continue over the balance of calendar 2010.

Earnings through the first nine months of fiscal 2010 amounted to $135 million compared to a net loss of $42.7 million in the comparable 2009 period. While net finance charge income has declined due to 28.1 percent contraction in the average receivable portfolio, net margins have grown 110 basis points year-over-year with higher average annual percentage rates and a lower cost of funds, given interest rate levels. Fitch expects AmeriCredit to remain solidly profitable.

AmeriCredit’s leverage ratio, as measured by debt-to-equity, has declined from 7.5 times (x) at fiscal year-end 2008 to 3.3x at March 31, 2010. Receivable contraction, debt repurchases, a debt exchange, positive earnings, and higher enhancement levels on secured borrowings have all contributed to this reduction. Fitch believes leverage will continue to decline until the portfolio troughs later in 2010, before gradually rising to the low-to-mid 5.0x range over time. AmeriCredit’s leverage is not expected to return to historical levels over the medium-term.

The company’s access to liquidity has improved significantly in recent quarters with the upsizing and extension of its primary warehouse facility in February 2010 and with the completion of three asset-backed securities (ABS) transactions, aggregating $1.4 billion, since January 2010.

AmeriCredit’s most recent senior subordinate transaction, completed in May, was its first transaction after the expiration of the TALF program. The company sold $600 million of debt, with a weighted average cost of funds of 3.8 percent, down through the ‘BB’ notes. AmeriCredit was also able to complete a $200 million bond insured transaction in March, which was not TALF-eligible, its first wrapped deal since May 2008. While credit spreads remain higher than historical levels, spreads have tightened significantly in recent quarters. Fitch views the company’s access to ABS market liquidity favorably.

The stable outlook reflects Fitch’s expectation for favorable credit comparisons on a year-over-year basis, consistent earnings generation, adequate liquidity relative to planned origination targets, the retention of sufficient capitalization for the rating category, and economically attractive access to the ABS markets.

TOKYO – Toyota Motor Corp.’s credit rating was cut today by Moody’s Investors Service, and Fitch Ratings said it may also downgrade the world’s biggest carmaker as recalls of more than 8 million vehicles ravage profit, Bloomberg reported.

The rating was reduced to Aa2, the third-highest grade, from Aa1, according to a statement from Moody’s, which stripped Toyota of the top Aaa rating last year. Fitch will examine the company’s creditworthiness and a downgrade is a “possibility,’ senior analyst Jeong Min Pak said in an interview.

Toyota faces at least 180 consumer and shareholder lawsuits stemming from recalls due to unintended acceleration and may suffer $2 billion in lost sales and warranty repairs. The company recalled its Lexus GX 460 SUV and agreed to pay a record $16.4 million U.S. fine this month, further tarnishing its reputation for safety under President Akio Toyoda.

Increased costs related to the recalls “will hurt Toyota down the road,” said Pearlyn Wong, an investment analyst in Singapore at Bank Julius Baer Co., which manages about $350 billion worldwide. “Litigation costs are very hard to model.”

Toyota faces a “material risk” that its operating profit margin will remain well below what is appropriate for its rating “until 2012 at the earliest and possibly beyond,” Moody’s analyst Tadashi Usui wrote.

Fitch will examine Toyota “closely” in the next six months, said Jeong Min Pak, a senior director at the company, by phone from Seoul.

Separately, Moody’s also downgraded Denso Corp.’s credit rating to Aa3 from Aa2. Denso, which is 22.54 percent owned by Toyota, produces electronic and other parts for automobiles.

Fitch Ratings has upgraded the issuer default rating for Ford Motor Company and Ford Motor Credit Company to ‘B-’ from ‘CCC’; the outlook remains positive.

The upgrade is based on an improved macroeconomic environment, Ford’s current cost/pricing/margin trends, product competitiveness, solid near-term product pipeline, liquidity position and cashflow prospects.

Fitch expects that Ford will turn cashflow positive in 2010 as an improving economic outlook and stabilizing retail financing availability allow the U.S. market to achieve an annualized run-rate of more than 11.5 million units in the second half of 2010.

An important factor in the upgrade is Ford Credit’s improving access to capital for retail and dealer financing. Fitch had previously cited the factors listed below as rationale for an upgrade.

These points have been largely met, and will remain the drivers of future upgrades:

• Industry sales rebound to an annual 12 million sales level more quickly than currently forecast;
• Ford’s products continue to hold or gain share;
• Inventory management at Ford and the industry allows Ford to hold or improve product prices;
• A clear path to positive free cash flow is projected;
• Liabilities continue to be managed or addressed;
• Independent access to capital by Ford Credit improves.

Fitch said Ford’s 1.2 percent gain in market share in 2009 demonstrated its competitiveness across product segments. Even in the event of a relatively flat rebound, Ford’s cost-cutting realizations, market share performance, and pricing indicate that any cash drains will be limited and can be very comfortably managed within Ford’s liquidity position.

Ford has been consistently disciplined in its production and inventory management, and this has allowed the company to demonstrate solid price performance through the first nine months of 2009. The step-changes to Ford’s cost structure will have largely played out in the first half of 2010 (although a new buyout program was recently announced) meaning that margin restoration will become increasingly dependent on price/volume improvement.

Although pricing will remain a challenge for the overall industry, Ford’s product competitiveness, technology features and healthy product pipeline over the next several years indicate that Ford should continue to outperform the industry. On the smaller end of its product lineup, where the consumer is migrating, Ford is exhibiting strong competitiveness.

Margins on these products are also expected to benefit from technology and content. Looking into 2011, it is assumed that the U.S. market could eventually reach an annualized sales level of 12.5 million units, at which point Ford’s free cash flow could reach $4 billion-$5 billion. Further upgrades could occur in 2010 if the outlook for U.S. economic growth and industry sales continues to improve.

Liquidity remains strong at approximately $24 billion. Ford has demonstrated steady access to capital, including $2.9 billion in convertibles at Ford, repeated unsecured debt issues at Ford Credit in the last six months, and two non-TALF dealer floorplan issuances in the amount of $2 billion.

The improved access to credit by Ford Credit (although at a cost) is a primary factor in the upgrade. Ford will be receiving a total of $5.9 billion in loans from the Department of Energy. With improved liquidity prospects, Ford should be in a position in 2010 to begin the long process of repairing its balance sheet.

Ford’s retention of Ford Credit is a positive to the company’s credit and earnings profile, but the company will remain at a competitive disadvantage to transplant competitors with better access to capital and a lower cost of capital.

The upgrade of Ford Credit and its related subsidiaries reflects the strong linkage between the ratings of Ford Credit and Ford. In addition, Ford Credit has demonstrated the ability to finance its business independent of government programs on both a secured and unsecured basis, one key element driving the upgrade of Ford.

With approximately $24 billion available, Ford Credit’s liquidity position is considered strong for the current rating.

NEW YORK — Fitch Ratings has lifted the moratorium on rating auto dealer floorplan transactions and published a revised Global Dealer Floorplan (DFP) ABS criteria report. It supersedes, in its entirety, the reports titled “Rating Criteria for U.S. Dealer Floorplan ABS”, dated May 14, 2008, and “European Auto Dealer Floorplan ABS Criteria”, dated Feb. 6, 2008.

The orderliness of the bankruptcy process has been a key assumption in Fitch’s prior criteria particularly for non-diversified DFP such as those issued by auto-related captive finance companies. As a significant departure from former criteria, Fitch now assumes the likelihood of catastrophic dealer failures and highly disorganized collateral liquidations upon a rapid and disorderly bankruptcy of the manufacturer/lender.

Fitch’s new approach for non-diversified platforms assumes the following:

• High dealer default rates (up to 100 percent of dealer network) adjusted based on an assessment of dealer network strength and its ability to survive independently of manufacturer support (e.g. based on concentration of multi-franchised dealers); absent relevant dealer network data, Fitch will not make adjustments (or accord any credit) to dealer default frequency estimates.
• High severity of collateral losses due to disorderly unwinding and liquidation of failed dealers.

By assuming a high dealer default frequency regardless of the Issuer Default Rating (IDR) of the manufacturer/lender, Fitch effectively de-links the DFP asset-backed security (ABS) rating from the financial strength/IDR of the manufacturer/lender.

Additionally, Fitch’s revised criteria places a notable emphasis on analyzing operational risks inherent in DFP platforms by focusing on the logistical feasibility of repossessing, transporting and disposing repossessed inventory under a liquidation scenario, and capacity/depth of the secondary market to absorb large potential increases in auction volumes. Fitch will cap ratings for DFP ABS platforms that lack infrastructure to support such operational risks.

The criteria report is intended to encompass both diversified and non-diversified (including auto captives) DFP platforms. Although the key analytical considerations of Fitch’s rating methodology for diversified DFP ABS remain largely unchanged from former criteria, under the revised criteria, Fitch’s expectations for credit enhancement (CE) levels for both diversified and non-diversified platforms will be higher than they have been in the past at all rating categories.

The revised criteria may impact ratings of currently outstanding auto DFP ABS transactions. Fitch expects to conclude its review of the existing portfolio by the first quarter of 2010. The rating actions and their magnitude will depend on the degree to which available CE deviates from expected coverage levels under the revised methodology based on the assessment of dealer network strength and cash flow modeling results. The dealer strength assessment and consequently, dealer default frequency will largely depend on the additional dealer level information furnished by the issuers.

Fitch will also consider current performance metrics and qualitative factors such as remaining time to maturity to determine if any rating actions are warranted. Fitch expects the potential rating actions to be within one rating category.

The Fitch report, “Global Rating Criteria for Dealer Floorplan ABS” is available on the Fitch Ratings web site at www.fitchratings.com under the sectors: Structured Finance >> Asset-Backed Securities.

NEW YORK — Annualized net losses (ANL) on U.S. auto ABS rose again in November in a trend likely to continue into 2010, according to Fitch Ratings.

Elevated loss frequency will also pressure U.S. auto loan ABS performance in the coming year. Another likely driver will be unemployment, which Fitch projects will hit a peak of 10.5 percent by mid-2010.

“Rising unemployment coupled with low consumer credit and wage growth levels will prolong the pressure on auto ABS loss frequency,” said Senior Director Hylton Heard. As a result, Fitch expects increases in net loss rates (although below the high of 2.23 percent witnessed in January of this year). This is due to the expectation of greater stability in vehicle values in 2010.

Risk on the loss severity side remains muted due to reduced supply in the used-car market, among other factors. The Manheim Used Vehicle Value Index, which tracks the health of the wholesale vehicle market, was unchanged in November despite seasonal weakness due to new models being introduced during this period. Vehicle values remain nearly 20 percent higher than their December 2008 lows.

According to Fitch’s auto indices, ANL levels increased by 2.4 percent to 1.61 percent in November 2009 on U.S. prime auto loan ABS while 60+ day delinquencies declined by 10.7 percent from October’s level to 0.67 percent. Fitch attributes the improvement in delinquency performance, which is unusual during this seasonally weak period, to additions to the index. In November approximately $4 billion of new, less seasoned securitizations with low delinquency levels were added to the index reducing the effect of more seasoned transactions with higher delinquencies.

Rating performance has remained stable despite the declining asset performance in 2009. Fitch has upgraded 32 classes of notes through Nov. 30 of this year, compared to 36 through the same period in 2008. Fitch’s rating outlook for the auto loan asset class is stable for 2010.

Fitch’s indexes track the performance of over 100 transactions totaling $52.6 billion worth of prime and subprime auto ABS. Prime loans compose 81 percent, and subprime loans the remaining 19 percent.

CHICAGO & NEW YORK – Fitch Ratings assigned a ‘CC/RR6′ rating to Ford Motor Company’s issuance of $2.875 billion seven-year senior unsecured convertible notes, a positive ratings outlook.

The Positive Outlook reflects the better-than-expected progress on Ford’s cost reduction program, production and inventory discipline that has resulted in solid pricing performance and continued market share gains. Although Fitch expects a weak rebound in industry sales in 2010, Fitch expects that cash drains will be materially reduced and comfortably within Ford’s liquidity position.

Fitch expects that industry sales will show only modest improvement in 2010, based on macroeconomic factors, including increased unemployment, reduced wealth, consumer spending pressures and a higher savings rate. Other factors muting a rebound in industry sales include more limited financing capacity, potential increases in gas prices and evolving consumer thinking that may stretch average vehicle age. Nevertheless, the combination of Ford’s cost reduction efforts and price performance has led to sharply reduced cash drains in a trough environment.

Fitch expects that even if U.S. industry sales were to remain flat at roughly 10.5 million vehicles in 2010, Ford’s cash drain would be less than $5 billion. As U.S. industry sales climb above an 11.5 SAAR rate, Ford should be able to achieve positive free cash flow.

Although cost reductions should continue to be realized through fourth-quarter-2010, the step change in fixed cost reductions have largely been completed, and margin expansion going forward will need to be derived primarily from capacity utilization and scale efficiencies associated with increases in industry volumes. The recent contract talks demonstrate, however, that full labor-cost parity may still be a challenge.