With Ford’s stock trading at $1.87 per share at today’s close, Ford’s executive brain trust thinks a little more dilution probably won’t hurt. They are now offering bond holders both cash and stock in exchange for notes due in December 15, 2036. Up to $2.2 billion in cash and 500 million shares could be used in the swap.
“The debt restructuring plan we are announcing today is a critical step in Ford’s overall transformation,” says Ford President and CEO Alan Mulally. “We are continuing to work with all of our stakeholders — including employees, dealers and suppliers — to secure Ford’s future in this difficult economic environment,” Mulally says.
The comprehensive debt restructuring is expected to strengthen Ford Motor Company’s balance sheet by reducing long-term debt obligations, according to Ford. By using a combination of Ford Motor and Ford Credit cash on hand and Ford equity to retire certain long-term debt early, about $10.4 billiion, Ford would significantly reduce its debt obligations and its annual interest expense.
The exact amount of the debt and interest expense reductions will be dependent upon the level of participation by debt holders.
Basically, Ford is hoping to accomplish, with greenbacks, rouhgly the same amount of debt restructuring that GM and Chrysler are seeking to complete with persuasion, pressure from the Obama administration, and the naked threat of bankruptcy. It also should reduce the chances of a default by Ford if car sales remain stuck at deep recessionary levels of 9.1 million units annually that have prevailed so far this year.
As part of the debt restructuring, Ford Motor Credit Company also has launched a separate $1.3 billion cash tender offer for Ford Motor Company unsecured, non-convertible debt securities, and has commenced a separate $500 million cash tender offer for Ford’s senior secured term loan debt.
In addition, the automaker also announced it plans to defer future dividend payments on the 6.50% Cumulative Trust Preferred Securities of Ford Motor Company Capital Trust II. The first deferred dividend is due next month, Ford says.
The debt restructuring follows on the heels of tentative agreements with the United Auto Workers union that, if ratified, will allow Ford to lower its hourly labor costs and provide the option to use common stock to pay up to 50% of future payments to the Voluntary Employee Beneficiary Association health care trust, potentially saving the company this year $1.6 billion in cash.
The Convertible Notes were issued in 2006 as the company was launching its “Transformation” plan, one of many restructurings during this decade. The outstanding principal amount of such Convertible Notes is approximately $4.88 billion. The Convertible Notes are currently convertible into shares of Ford common stock at a conversion rate of 108.6957 shares per $1,000 principal amount.
Holders who elect to convert their Convertible Notes into shares of Ford common stock pursuant will receive 108.6957 shares of Ford common stock plus $80 in cash for each $1,000 principal amount the notes converted.