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.
mmmmm that might be so but fords stock price is currently up over 50% from one week ago. If you bought in when the really lucky guys did (me :D) then you’re doing pretty well up to this point, 5 days later
Bad in the short term, sure, but they have a long-term plan. Some might confuse this line of thinking with that of Toyota’s, and that sure as hell ain’t a bad thing.
500 million in interest, also, you know, how much in principal for cash and some stock?
Sounds very smart to me. I mean 2 bill is an extra month or two at most of losses (optimistically), if they end up needing that to get by its game over anyway.
What?! The rating agencies are going to downgrade them? They’re never wrong! I mean, these are the same rating agencies who called the top tranches of CDOs and MBSs AAA quality (and a lot of other stuff that I’ll leave out of this auto forum). So they’re, like, right all the time. Except when they’re not.
Also, they get paid for those ratings. Sometimes by the very same institutions that are trying to make money from their ratings. I’m just sayin…
Let’s see: Get rid of $10B in debt, which more-or-less guarantees you the same amount in low-interest government loans (if they’re needed) … all for cents on the dollar. The way I look at it, they spent $2B to enable them to get far more in Govt aid in the future if they so choose. In a best case (most likely?) scenario, they just saved $8B in long-term debt payments *plus* $500M/year.
Ford gets it.
these guys are miles beyond GM/Chry. I don’t care if the Fusion’s ugly.
I like how the Street always second guesses Ford no matter what they do. As if they no what’s going on. I certainly trust Ford far more than the idoits on the Street.
So, let’s see. They reduced their debt for 38% of it’s face value in cash and stock. I’d be interested to know how much of that was cash. It sounds liek they did without bankruptcy court or the government’s help what some (most?) say GM needs to do. Depending on how much of the deal was cash, they could come out ahead quickly, considering that the interest payments on the debt were $500M alone. Looks like a good or even great move.
Finally another Automotive Company playing the Porsche game, way to go Ford.
How did they manage to do this? Mullaly must be the greatest salesman ever. ‘Hey want some of our second tier, basically worthless stock for your debt?’ Hopefully not much was actual cash because last I heard they were pretty close to drawing down that govt line of credit.
@DanM
Ford is not miles ahead, but about 36 months. That’s how long long ago they hocked everything including the “Blue Oval”. To the tune of $36 Billion if I remember correctly. They are only using the roadmap laid out by the task force. The brilliant guys at Ford are just cash heavier at the moment. Until the consumer starts raising the SAAR you can bet Ford will be at the trough.
You same folks who all of a sudden think Ford has hung the moon will be the same that gives them their next “loan”.
EPIC FAIL for GM.
Sad, sad… damn so sad!!!!
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.