Ford slashes debt by US$9.9 billion
April 7, 2009 by Matt Brogan
Ford has reduced its long-term debt by US$9.9 billion in a three-pronged effort swapping company stock and cash.
The US$9.9 billion result is slightly less than the US$10.4 billion maximum originally put on Ford’s debt restructuring effort. Ford and its Ford Motor Credit subsidiary used a combined US$2.44 billion in cash to reduce the debt, slightly more than the US$2.2 billion of cash originally dedicated to the effort. Ford described the debt reduction as very successful.
“By substantially reducing our debt, Ford is taking another step toward creating an exciting, viable enterprise,” Ford CEO Alan Mulally said in a statement. “As with our recent agreements with the UAW, Ford continues to lead the industry in taking the decisive actions necessary to weather the current downturn and deliver long-term profitable growth.”
And it seems Wall Street agreed, sending Ford shares up 16 per cent to close at US$3.78 on a day when markets were generally down.
Ford said the restructuring initiatives, completed April 3, cut the company’s automotive debt by US$9.9 billion from US$25.8 billion at the end of December. The efforts also lower Ford’s annual cash interest expense by US$520 million, based on current interest rates.
The results of the debt restructuring satisfies Ford’s targets under its agreement with the UAW. It also satisfies the US government’s term sheets for debt restructuring for General Motors and Chrysler, the source said.
Analysts said Ford’s moves were positive but tempered by the continuing crisis besetting the industry.
“We still project sizable losses at Ford in ‘09, and note that the failure of competitors or key suppliers could further complicate Ford’s situation and cause it to ask for the government loans that it is trying to avoid,” Efraim Levy, an analyst for Standard & Poor’s ratings service, wrote in a report today.
Ford should have enough cash on hand to survive 2009 with a slight uptick in sales and some asset sales, analysts said.
“Cost reductions and improvement in industry sales levels in 2010 will be necessary to avoid having liquidity reaching minimum required operating levels,” Fitch Ratings Service said in a report.
Source: Auto News
Print it: 
bloody hell, Ford are really showing GM & Crysler just how its done. No wonder Obama isn’t impressed with GM’s Restructure Plan v1.0.
I love the way they publish a 9.9b reduction, when it is actually 2.44bn cash transacted.
But it’s not a reduction in net debt at all, not one penny. When you owe 25b out of your left pocket, and you have cash of 2.44b in your right pocket, you actually have a net debt of left-right. Moving it from one pocket to the other is smoke and mirrors.
Reckless, the deal was $US2.44 billion in cash, and the rest was in shares. The people who were owed money now own Ford shares to the value of that debt. This normally dilutes share value (as more shares are issued against a set company value) however as in this case, the net gain in financial position means people are willing to pay more for Ford shares (so they go up). Net debt (?, I assume you mean net value) doesn’t matter to Ford as much as actual debt. Ford pays interest on the debt it actually owes, which is why it saves $US520 million a year in interest payments alone.
I have a car loan, by your logic I shouldn’t pay it off because having $100 in my pocket and then putting that on my loan is useless The fact is I am actually ahead because my cash was sitting in my wallet doing nothing whilst interest charges were increasing. Now my future interest charges are less than before, so I’m ahead in the long term.
Finance and economics education should be compulsory in schools, with your level of understanding no wonder the world economy is as financially screwed as it is.
Actually what I said wasn’t quite accurate. The people who were owed money have been paid via the cash Ford got in selling shares to investors.
Important note there Reckless,
a) they have cash reserves to do this, GM/Crysley don’t. They are surviving on loans, which means their total debt is going up.
b) The cash would reduce interest as pointed out by Tom, but they have also made other operating cutbacks (not outlined above) which will also improve company performance. Then add to this the news that Volvo does indeed have several buyer options now.
Reckless, I’d suggest having a bit more of a delve into the press release with the statements (ford motor news might be a good place to start) this reduction has been the conglomeration of many things. Bearing in mind that this was actually started in 2006, hence their ability to do this even in (despite) the current financial climate. Remember that the 9 bil Mullaly was asking for was purely as a line of credit to appease suppliers, not to get us out of trouble. Hence the reason he was not too disapointed when the southerners did what was expected and blocked it to protect their own.
What they did not say was that most of the 2.2b came from selling down their large (almost controlling) shares in Mazda. However by selling there shares (I think down to 3%?) they also loose the profits from one of the most successful auto companies world wide. I also understand that they only have access to Mazda vehicles and 4cyl technology for a limited time.
It could be a decission that bites them in years to come.
Eh179driver (nice tag had a lot of fun in a van in my early years ;-))
Mazda isn’t really the darling brand it appears once you get out of the Australian market. Whilst it has been on the improvement (market share) it is still way behind Subaru, Nissan and Hinda both domestically and globally. By reducing the shareholding Ford reduced it’s income agreed, but it also reduced it’s liability as well. Becuase of the model sharing Ford was putting up most of the R&D Dollars for mazda whilst the other shareholders just got the (little) profit. Under its new situation Ford still product shares and developes, but is able to push the expense to th other owners. Acces to the 4cyl technology is not a drama as Ford Europe is equal to the challenge (Focus / 3 2.0l is a Euro motor despite popular belief) and Ford Europe Diesels are highly regarded. That is even before ecoboost 2.0 is in porduction.
Point is Ford have shown strength, stability and all round good management in an unstable market. The average Joe will have more confidence investing in a Ford than GM or Chrysler at the moment.
Tom – game, set & match.
This is good news that will make local operations feel slightly safer in the short term. Now if only GM could do something similar. Note the word “could”. I smell a fire sale coming on soon. Holden anyone?
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As i’ve maintained before, Alan M is a far more capable Business executive than Rick W, former CEO of GM or Bob N CEO of Crysler.
Ford is in the best position for when the global auto market starts to level out.
eh179driver……..Ford still have 13% of Mazda. They will still share\design Mazda platforms\vehicles etc…. which is a good thing for both companies. It is one of the best partnerships in the auto world and has done alot for both companies over a long period of time. I hope Ford continue to give us some good auto news !! If GM go it will impact the whole auto scene lets hope Ford are ok…….
Yeh baby, fords back on its way up, keep up the good work fellas
Ford offered this deal to institutional investors and it was quickly snapped up. GM offered a similar deal and was rejected.
Clearly, there is ALOT more confidence in Ford. Rightly so too.
Ford had in fact turned a profit in Q1 2008 which was just before the real onset of the GFC.
The deals with the UAW and now this really stand Ford in a competitive position business wise for the future.
Dan Da Man,
this isnt good luck,
this is a display of great management.
It also displays that Ford isnt going to just sit there refusing to help them selves like GM and Chrysler are.
Tom,
perfect response.
Dan,
Gee thats a weird way to look at stuff….
Its like saying I wish I had better luck at paying attention at school to become smarter…..(hypotheticlly of course)
Management isnt based on luck, its based on decisions and making good ones at that.
It would be bad luck if GM invested money into new programs and systems and then a bomb hit the place and wiped all their records,
Thats bad luck, refusing to help yourself isnt