Ford cuts debt, saves $500M annually

Auto company cuts $10B off its debt load through tender offers

Bryce G. Hoffman / The Detroit News

Ford Motor Co. said Monday it sliced nearly $10 billion off its debt load, a move that will save $500 million a year in interest, through debt restructuring initiatives the automaker rolled out last month.

Wall Street reacted warmly to the results, with Ford shares closing Monday at $3.77 a share, up 16 percent. But several analysts warned that Ford still faces significant liquidity challenges, at least until the full benefits are realized from its recent cost-cutting agreement with the United Auto Workers.

The union agreed to concessions that included suspending bonuses, changing factory work rules and taking stock instead of cash for half of what Ford owes a retiree health care fund to be managed by the UAW.

"The tender offers will reduce debt and lower interest costs," said Standard & Poor's credit analyst Robert Schulz. "(But) we believe Ford's fundamental business risks remain unchanged for at least the rest of 2009 and perhaps longer."

The Dearborn automaker and its credit subsidiary are using $2.4 billion in cash and 468 million shares of stock to retire $9.9 billion in debt.

Ford Treasurer Neil Schloss told The Detroit News that "exceeded a lot of expectations" and makes the company even more confident that it can get through the current economic crisis without asking Washington for financial aid.

"This transaction really helps facilitate that," he said.

General Motors Corp. and Chrysler LLC have received $17.4 billion in federal aid and are required to renegotiate a substantial portion of their debt as part of that process. So far, they have been unable to reach a deal with bondholders or the UAW.

"Although Ford's future still depends on a recovery in auto sales, the debt restructuring and union contract changes have decreased the chances of a Ford bankruptcy," said analyst Shelly Lombard of Gimme Credit.