1997 Thunderbird 4.6, 1998 Mark VIII LSC
Ford reduces its debt by $1.9B
Automaker hopes to regain investment grade status
Alisa Priddle / The Detroit News
Ford Motor Co. announced Wednesday that it expects to end the year with more cash than debt after converting $1.9 billion in debt to new common stock that will be issued at month's end.
The last time this situation occurred was the second quarter of 2008.
Debt reduction is crucial for the company that avoided following General Motor Co. and Chrysler Group LLC into bankruptcy, where those carmakers shed most of their debt. Ford mortgaged everything the company had, including its Blue Oval trademark, to restructure itself and has made cleaning up its balance sheet a priority.
The automaker seeks to get its debt back to investment grade status and start paying dividends again. To raise cash and reduce debt, Ford said in October it would make conversion offers, with cash inducements, on two convertible debt securities.
Investors had until midnight Tuesday to decide whether to participate in the special offer conversion. Ford said 74 percent chose to do so, signaling confidence in the automaker.
Ford will make a $534 million cash payment and issue 274 million shares to the noteholders. The cash premiums reflect the value of pending interest payments.
It is a good deal for both sides, said Stephen Brown, senior director of Fitch Ratings in Chicago. "For $500 million cash, Ford takes $2 billion in debt off its balance sheet," Brown said, adding that gross debt is a key factor in rating companies.
Ford lost its investment grade status in 2005. Most ratings agencies still have Ford a notch or two below the watershed mark.
Ford has reduced automotive debt $12.8 billion this year, down to about $21billion from the $34 billion it held at theend of 2009. Ford also has lowered its total annual interest costs nearly $1 billion. Debt conversions cut interest costs about $180 million.
"These successful conversion offers represent another significant step toward our goal of reducing our automotive debt and improving our balance sheet," said Chief Financial Officer Lewis Booth.
From The Detroit News: http://detnews.com/article/20101125/AUTO01/11250345/Ford-reduces-its-debt-by-$1.9B#ixzz16JDqRIXo