2nd UPDATE: Ford Cuts Debt By $9.9 Billion But Faces Cash Challenge
06 April 2009 - 9:54PM
Dow Jones News
Ford Motor Co. (F) cut more than a third of its automotive debt
with a refinancing that stokes pressure on rival General Motors
Corp. (GM) to secure a deal with its creditors.
The multiple offers launched by Ford and its finance arm last
month received a better-than-expected reception from investors,
though credit analysts remain concerned about the its cash burn
amid the weak auto sales environment. Ford expects to reduce its
debt by $9.9 billion when the deal is finalized on April 8.
The take-up strengthens Ford's balance sheet while GM and
Chrysler LLC (C.XX) seek deals with creditors and unions to stave
off a U.S. government-directed bankruptcy process by mid-year.
Ford has already used the pressure on its Detroit rivals to
secure a new union deal and without resort to federal aid, though
analysts said it still needs a broader market recovery.
It shares were up 18% at $3.84 in recent trade.
Himanshu Patel at J.P. Morgan said Ford could bypass federal aid
if U.S. industry auto sales recover to 12 million to 13 million in
2010. Annualized sales in March stood at 9.86 million.
Ford has secured cost-cutting concessions from the United Auto
Workers union, frozen executive compensation, changed how it funds
its retiree health-care costs and is seeking to buy out more of its
higher-paid hourly workers.
The company burned through $20.7 billion in cash last year, and
ratings agency DBRS said more evidence of improved sales and the
company's ability to control its use of cash could have positive
implications for its view on Ford.
Fitch also left its rating and outlook on Ford unchanged, citing
liquidity concerns likely to persist through the year.
"The positive is an immediate reduction of debt, which is good
in any case for Ford," said Fitch analyst Mark Oline. "However,
they are using a modest amount of their liquidity. Companies want
to hoard cash In this type of environment, companies want to hoard
liquidity as much as possible. Using liquidity reduces any buffer
which they could need if the sales markets don't improve in
2010."
Ford had a debt of $25.8 billion at the end of 2008, excluding
$10 billion the company borrowed in January through its revolving
credit. The company also has payments due to the health-care plan,
with $13 billion in liabilities due over 10 years. Half of that
amount can be paid back in company equity reducing the cash
obligation to $6.6 billion.
GM is still seeking agreement from creditors ahead of a June 1
deadline to avoid bankruptcy.
"Ford is upstaging GM with what its doing," said Pete Hastings,
senior analyst at Morgan Keegan. "It's handling things more
smoothly than GM and accomplishing what it needs to do without the
government getting involved.
"Ford has offered better terms than are currently being
discussed by GM and that would substantiate GM's bondholder claims
that they should be offered a better deal. It may cause the
government to re-evaluate its position and put more pressure on the
UAW union," he said.
-By Jeff Bennett, Dow Jones Newswires; 248-204-5542;
jeff.bennett@dowjones.com
(Tess Stynes and Kate Haywood contributed to this report.)