Ford will cut its debt by 38% and trim $500 million in annual interest payments.
A successful restructuring of debt by Ford Motor Co. is triggering a rally in the automaker’s stock.
Ford announced moves, Monday morning, that will reduce its $25.8 billion in automotive debt by a hefty $9.9 billion. In turn, the company said, that should reduce its annual debt payment — at current interest rates — by $500 million.
Detroit makers have been heavily burdened by debt, a major factor in their current struggles for survival. Ford took the unusual step, several years ago, of mortgaging its properties in order to secure lines of credit that have, during the current recession, helped it survive without a federal bailout.
Meanwhile, its cross-town rivals, General Motors and Chrysler LLC, are still struggling to do a debt restructuring required by the White House as part of their original December federal loans. So far, bondholders have been reluctant to cooperate, triggering strong criticism by President Barack Obama, during a speech a week ago in which he denied further aid to the two troubled makers. Since then, several members of Congress have weighed in urging key banks to accept proposed restructuring plans for Chrysler and GM.
Ford’s successful debt reduction plan triggered an immediate, positive response on Wall Street, its struck initially surging to near $4.00 before leveling out.
TheDetroitBureau.com will have more details during the day on the Ford announcement.