Ford Doesn't Reach For Its Revolver
Sadly this is not a story about how Ford has been doing reasonably well and actually wants to buy off debt with some cash it’s socked away. No, if Ford wants to live to fight for another bailout, it has little choice but to use cash to pay off $1.5b in debt that comes due tomorrow. “We expect them to use cash out of hand to pay those down,” said Mark Oline, a credit analyst at Fitch Ratings Co. in Chicago. “In the current environment we simply expect these sorts of debts to be paid off, not refinanced.” Not that paying off debt with more debt isn’t awesome, and Ford does still have access to an $11.5 billion revolving line of credit which it has yet to tap. But like the guy says, “in the current environment” is the operating term here. A billion bucks’ worth of debt that comes due tomorrow is owed by Ford Credit, which has a relatively high degree of flexibility for refinancing. So while Ford Motor has no choice but to cough up $500m in cash, Ford Credit could potentially refinance without reaching for its revolving credit line. Ford is also planning the sale of about $500m in new stock. According to Bloomberg, that money will be used to buy back bonds maturing before Jan. 1, 2012. Given that GM just had to tap into its own $3.4b revolving credit account, Ford’s decision to mortgage itself to the hilt prior to the credit meltdown now seems like an inspired business move.
More by Edward Niedermeyer
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One rule of corporate survival is to take the money when you like the terms and not when you have no other choices. Ford's decision to go all-in for loans a few years ago looks like a stroke of genius in retrospect. I'm still not about to go out and load up on Ford stock though ....