G’day! The Sydney Morning Herald is first up with news that Ford will have to stump-up $4b for a 2008 pension shortfall. “The collapsing stock market left the fund with a $4.1 billion deficit for its projected obligations, after 2007’s $3 billion surplus, Ford said in its fourth-quarter financial results. That may force an infusion of money starting next year, according to the viability plan filed with Congress in December.”
The prospect of a pension contribution is “further stressing cash levels,” and Ford may need to seek government assistance later this year, Barclays Capital analyst Brian Johnson in Chicago wrote in a Feb. 2 report. He rates the stock as “underweight/neutral” with a $1 target price . . . .
Ford said its available cash fell $21 billion last year to $13.4 billion. The automaker has $38 billion in bonds and loans coming due by 2011, according to Bloomberg data. Johnson expects Ford to reach its minimum cash levels in the second half of 2009. Ford won’t say how much cash it needs to operate.
“If auto sales don’t recover and in 2010 they have to put $3 billion or $4 billion into the pension fund, that means they’ll have to get cash from the government,” Johnson said in an interview.
Ford will never join the bailout buffet unless Obama agrees to raise the minimum wage to at least $600,000.
With the market performance, I’d think any company with a pension obligation is hurting right now.
If I am not mistaken, I think there is a better chance of the Ford Pension being taken over by the PBGC, rather than Ford declaring BK or asking for a bailout. I’m pretty sure that a company doesn’t have to declare BK or close in order to trigger a PBGC takeover. They only have to screw it up really bad.
I think from Ford’s perspective, loosing the pension to the PBGC would be a good thing.
Ford might not be allowed to join the bailout buffet.
Think about this scenario:
A cash/credit starving Ford mortgaged everything to a more than willing JPMorgan.
If Ford goes BK, JPMorgan is first in line, before other creditors and bond holders, to be paid in BK proceedings.
The unknown quanitity about JPMorgan is if they have any CDS (Credit Default Swaps) contracts written against Ford surviving.
Ford goes bankrupt, JPMorgan gets paid twice.
Anyone know the dollar amount of CDS contracts on Ford at this time?
SegwayCop,
You forgot that Ford would leverage its arrangement with JPM on a 3:1 basis through ABN Amro, using naked puts on GM stock in its margin account as collateral, resulting in an effective return to UAW members of 11,463%.
You’re right, they would never allow it.
Yeah right Ford…you won’t need the bailout…
Just like how Mazda and Volvo were not for sale…
don1967,
My head exploded.
You can stick a fork in the roadkill Found on Road Dead that used to be known as Ford, they are done.
The real problem is that they were using investments to fund pensions instead of the banking equivalent of cash in a mattress (really big ass mattress) and shouldn’t have happened.
Still this does fall on Ford but if we don’t help them keep their pension fund going their pension fund becomes US pension fund so we’re paying either way (assuming they need government loans to do it).
@King Bojack
That is nothing. Check out Social security to see the worlds biggest Ponzi scheme.
The figures for GM are under 100k workers and around 500k people collecting. There is no way around this huge number of retirees that resulted from the decades of early retirement buyouts and the 30 and out provision in the contract. They just can’t afford it.(and neither can the government)
This $4.1B underfunded value is derived from the estimated future costs. Ford’s pension system is still solvent, but the government requires certain funding levels.
But, like any gov’t rule, there is a loophole: if fully-funding the pension would jeopardize the operations of a company, they can ask the Treasury Dept. for an exception. This rule was put in place specifically because of times like these where a company can lose 15-20% of its fund in a matter of months.
I’m willing to bet Ford goes that route first… and I’m willing to bet the gov’t offers an exception.
Here’s a new fly in the ointment.
http://www.hoovers.com/free/co/news/detail.xhtml?ID=54602&ArticleID=200902080300KRTRIB__BUSNEWS__fd4300000096a5dd_MB&source_type%5B%5D=
Looks like Ford is going to strong hold the bond holders.