Ford Reduces Debt by $9.9b; GM Slipping to World No. 3
TTAC’s Ken Elias was well pleased when Ford announced that it had trimmed $9.9 billion from its debt mountain by “convincing” investors to exchange debt for cash and stock. More specifically, Ford Motor Credit will use $2.4 billion in cash and stock to buy back the debt once the offer closes Wednesday. Ford agreed to pay investors about $380 in cash and stock for every $1,000 in bonds, or 38 cents on the dollar, according to company officials. As the BBC reports, removing call-it-ten-billion from Ford’s $25.8 billion debt lowers The Blue Oval Boyz’ interest payments by $500M per annum. FoMoCo’s stock rose sixteen percent on the news. Yes, well, Fitch Ratings isn’t planning a fiesta just yet. The Wall Street Journal reports that the agency isn’t impressed with Ford’s cash burn. Or rather they are, just not in a good way. And who can blame them? Last year, Mulally’s minions torched . . . ready? $20.7 billion. Remember: all the really bad news arrived at the end of ’07. Fitch analyst Mark Oline was sanguine. “Using liquidity reduces any buffer which they could need if the sales markets don’t improve in 2010.” If? Standard & Poor’s is also non-plussed . . .
Standard & Poor’s lowered its corporate credit and other ratings on Ford to “selective default” and downgraded certain Ford issue ratings to “D.” S&P said it considered the debt-repurchase moves “tantamount to defaults under our criteria.” But the ratings firm added it would reassess Ford by mid-April.
And while we’re doing the Husker Dü thing, it was GM’s cash burn that signaled the beginning of the end for the artist once known as the world’s largest automaker—which is about to be passed by VW for world number two (after Toyota). The tempus they are a fugiting.
More by Robert Farago
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It is true that Ford is the best of the worst. Just ten years ago, this financial performance would have made them worst of the worst. It is the perspective of the American Auto industry that has changed, not the viability of Ford. When you can literally default on 2/3 of your bond face value and the holders take it for a good deal, what does holding on to the bond say to them?
@dpeppers I'm not saying that Ford hung the moon... just that by eliminating the debt now based on the terms of the task-force/DOE loans, they're setting themselves up to receive far more cash than they've parted with. Regardless of what you think of Ford, this was a smart financial move; especially given the probability that Fed loans can be had at will.