Sunday, May 20, 2018
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Ford completes tender offers, cuts $10 billion in debt

DETROIT Ford Motor Co. said Monday it completed tender offers that will reduce its debt by 38 percent and shave millions of dollars off its interest costs.

The automaker retired about $9.9 billion in securities issued by either the parent company or its finance arm in exchange for cash and shares under terms of the debt buybacks.

Combined, the moves are expected to reduce the Ford's interest expenses by more than $500 million this year, as it tries to weather the worst auto sales downturn in 27 years.

The Dearborn, Mich.-based company said it will pay a total of $2.4 billion and issue 468 million shares as a result of the offers.

Shares of Ford soared 52 cents, or 16 percent, to $3.77 in afternoon trading Monday.

About $4.3 billion in Ford's senior convertible notes were tendered under an offer that expired Friday. Up to $344 million will be used to pay cash premiums to note holders.

A separate offer to repurchase notes from its financing arm resulted in $3.4 billion in securities being tendered. Ford Motor Credit will use $1.1 billion to purchase that secured term loan debt.

Ford Motor Credit previously said a second cash tender offer which expired on March 23, was "over-subscribed," and doubled the amount of cash it would spend to buy back the debt. That resulted in the use of $1 billion to purchase $2.2 billion in term loan debt.

Its total debt was reduced to about $15.9 billion after the buybacks.

Neil Schloss, Ford's treasurer, said that the reduction is in line with how much competitors General Motors Corp. and Chrysler LLC were asked to cut as a requirement of $17.4 billion in federal loans. Those companies have yet to reach an agreement with their debt holders.

The government's auto task force has already asked GM and Chrysler to cut their unsecured debt levels by two-thirds in order for the companies to receive additional funds. Ford is not seeking government aid, but its overall debt reduction effort has already amounted to more than two-thirds of its unsecured debt.

"We believe this was a very successful transaction," Schloss said, adding "we're going to watch closely what our competitors are required to do."

A Standard & Poor's Equity Research analyst reiterated his "Hold" on Ford Monday, in light of the offer results, but said the company still faces a tough sales year.

"In addition to lowered interest costs, the reduction improves Ford's balance sheet," said analyst Efraim Levy. "We still project sizable losses at Ford in 2009, and note that the failure of competitors or key suppliers could further complicate Ford's situation and cause it ask for the government loans that it is trying to avoid."

Schloss said no other debt exchanges are planned for Ford and Ford Motor Credit at this time, but the company would "evaluate that" if GM and Chrysler were forced to cut more debt.

"We don't have the plans to do it," Schloss said. "We're going to make sure we stay competitive and do it on our time."

Ford has been the first automaker to reduce its debt and modify its contract with the United Auto Workers union to cut costs. In addition to eliminating bonuses and cost-of-living increases for workers, Ford also agree to make up to 50 percent of payments to a union-run trust for retiree health care benefits in stock instead of cash.

Schloss said the moves give Ford "a much stronger balance sheet."

Ford Motor Credit is also participating in the Treasury Department's Term Asset-Backed Securities Loan Facility, or TALF program. The division is offering new bonds that take advantage of the program, in which investors can obtain TALF funds to purchase the bonds that fund consumer and dealer loans. Ford Motor Credit offered the asset-backed securities in four tranches totaling $2.95 billion last month.

"We were the first ones in on the March deal," Schloss said. "We will continue to look at TALF as a great funding deal as it gets more investor support."

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