Ford said it will eliminate about $9.9 billion of its automotive debt following the results of three separate offers to debt holders that gave investors an opportunity to accept payments at less than the face value of bonds and loans.
Both the stock and bond markets reacted positively to the announcement. By 1:45 p.m shares of Ford’s stock had increased by 47 cents to $3.72 per share compared with its Friday close of $3.25 on Friday. Ford’s stock was trading under $2 per share as recently as March 10.
“We think this was a very successful transaction and it met all of our expectations,” Ford Treasurer and Vice President Neil Schloss said in an interview with the Free Press.
Because of the success of the effort, Ford will be able to slash its annual interest payments by more than $500 million. That means no federal loans are needed by the U.S. government.
Ford and Ford Motor Credit are using about $2.4 billion in cash and 468 million shares of Ford stock to repurchase the outstanding bond and debt obligations.
The acceptance period for two of the three offers closed on Friday and a loan repurchase offer expired last month. Ford plans to complete the debt exchanges by Wednesday.
Standard & Poor’s equity analyst Efraim Levy said “We view positively Ford’s reduction of nearly $10 billion of its debt in exchange for stock and cash,” in a research note today. “In addition to lowered interest costs, the reduction improves Ford’s balance sheet.”
However Levy warned that the value of Ford’s stock will be diluted as Ford issues the shares of stock and also said Ford will continue to face challenges due to industry-wide declining vehicle sales both in the United States and around the world.
Thanks to BRENT SNAVELY at bsnavely@freepress.com for the info.
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