Moody’s upgrade FMG’s corporate family rating to Ba1 from Ba2 and the senior unsecured and senior secured ratings to Ba2 and Baa3 from B1 and Ba1 respectively.

The agency said the upgrade reflected FMG’s substantial debt reduction, continued cost improvements, limited near-term capital expenditure, and reduced refinancing risk.

“Fortescue has been able to capitalise on higher iron ore prices and utilise the incremental cashflow generated to make sustainable improvements to its balance sheet and debt levels,” Moody’s vice president and senior credit officer Matthew Moore said.

“The upgrade also reflects Moody's expectation that Fortescue's ongoing cost and debt reduction will allow it to maintain conservative financial metrics for the rating, even in a weaker iron ore price environment.”

FMG has already repaid $US1.7 billion of debt this financial year.

The company is benefitting from lower costs and higher iron ore prices, which remain above $80 a tonne.

Moody’s said under its forecast of $45-65/t, FMG should achieve debt to earnings before interest, tax, depreciation and amortisation of around 2x or lower over the next 12-24 months.

"While Moody's expects iron ore prices to remain volatile and fall from the current high levels, Fortescue's initiatives to reduce breakeven costs and debt balances, combined with the prospects for further debt reduction, improve its ability to manage this volatility and maintain solid metrics for the rating,” Moore said.

FMG CEO Nev Power has said that debt reduction would continue to be a priority for the company.

“Our productivity and efficiency initiatives continue to achieve sustained cost reductions, with significant free cashflow being applied to ongoing debt repayment,” he said.

“We are pleased that Moody’s have acknowledged the strength of Fortescue’s balance sheet through the continued execution of our debt repayment strategy and upgraded the company’s credit ratings, including the senior secured rating which now has an investment grade rating of Baa3.”

Shares in FMG rose by 2.5% yesterday to $A6.25.