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Ford to Shave $3 Billion in Debt

February 11, 2011
3 min to read


Ford Motor Co. on Thursday said it would take a charge to its first-quarter earnings and use cash or shares to shave $3 billion in debts as the auto maker takes another step toward its goal of regaining an investment-grade credit rating.


The conversion, scheduled for March 15, could lower the company's outstanding automotive debt to $16.1 billion while reducing its annual interest rate expense by $190 million, the company said. It spent $1.8 billion on interest expense last year, reported The Wall Street Journal.

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"We remain focused on reducing our automotive debt as the core automotive business continues to strengthen," Ford Chief Financial Officer Lewis Booth said in a statement on Thursday.


The Dearborn, Mich., company borrowed more than $23 billion in 2006, well before the financial crisis hit. The loans helped Ford through a restructuring and the sharp sales downturn at the end of the last decade. But the debt has become a heavy burden, especially after competitors General Motor Co. and Chrysler Group LLC sharply cut their interest expenses after filing for bankruptcy-court protection in 2009.


Ford's total automotive debt at the end of 2009, excluding Ford Motor Credit Co., was $34.3 billion. The auto maker has since taken steps including redemptions and restructuring to pare its debt, leaving it with an automotive debt of $19.1 billion at the end of 2010.


By comparison, General Motors had $8.6 billion in outstanding debt as of Sept. 30. The company hasn't yet reported its earnings for the fourth quarter.


Credit rating agency Standard & Poor's said its current ratings and outlook on the auto maker was unaffected by the announcement of the debt reduction plan.

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"We view the action as consistent with Ford's ongoing focus on debt reduction, which we consider a positive credit factor," S&P analyst Robert Schulz said in a statement Thursday.


S&P currently rates Ford debt at BB-, which is three levels below investment grade. Credit agencies, however, can change their assessments once the plan is completed.


More investment funds would be allowed to put money in Ford and the company could lower its borrowing costs if the auto maker is successful at lifting its credit rating out of junk bond territory.


Moody's Investors Services last month changed its Ford rating outlook to positive from stable. Moody's currently rates Ford corporate debt at Ba2, two levels below investment grade.


Ford's planned move will end a trust the company set up in 2001 to borrow $5 billion to help the company's overall restructuring.

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Under the deal, all of the outstanding 6.50% cumulative convertible trust preferred securities of Ford Motor Company Capital Trust II will be redeemed for cash at a redemption price of $50.33 a preferred security, plus accrued and unpaid distributions of 54 cents a preferred security.

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