Ford Motor Company is planning to reduce its debt by more than $16 billion (US$10.4 billion) in the near future. The plan will see the swapping of company stock and cash for existing debt.
The blue oval’s debt-reduction plans are in line with the US government’s contractual agreement with General Motors and Chrysler to hand out the already approved $27 billion (US$17.4 billion) in loans.
However unlike GM and Chrysler, Ford has so far not asked for loans from the US government. Ford has suggested that it can benefit from a $13.9 billion (US$9 billion) line of credit just in case US car sales continue in the same downward manner as they have in January and February.
“Ford is an enormously leveraged company today, so a debt reduction of this size would significantly improve the company’s risk profile and reduce its losses by slashing interest expense,” said John Casesa, principal of Casesa Shapiro Group LLC and a former Wall Street analyst.
At the end of last year, Ford had almost $40 billion in debt, so a $16 billion reduction is a significant step in the right direction.
Even though the company has failed to post a profit since 2005, it will make up to $3.4 billion (US$2.2 billion) cash available for the debt restructuring.
If you’re thinking Ford has done rather well given the other big two Americans are in serious financial trouble, it’s worth noting that in late 2006 Ford borrowed $36 billion dollars (US$23.4 billion) – this cash reserve is part of the reason the company currently needs no further aid.
It’s not all good news for Ford, however, the American giant posted a massive 49.5 per cent drop in US sales for February – marking the company’s 25th sales decline in the past 26 months.
Meanwhile the overall U.S. new car sales market has dropped by 41.3 per cent for the month, being down 39.4 per cent year to date.