Good reason to smile, as liabilities decrease, stock values tend to rise.
Ford Motor Company (F) announced today that on December 31, 2009, it completed the transfer of its UAW retiree health care liabilities to the UAW Retiree Medical Benefits Trust or “VEBA Trust.”
Because of a series of complex financial transactions and a court approved settlement with the UAW, Ford has removed billions in liabilities off of its balance sheet, while apparently incurring about $7 billion in incremental debt on its balance sheet.
“This takes a significant amount of uncertainty away from those in the equity markets trying to value Ford stock, both now and in the future,” said analyst Joe Phillippi, of AutoTrends consulting. “Wall Street hates unknowns,” Phillippi concluded.
Ford stock closed today at $10.28 a share, up 28 cents or +2.8%.
The big question facing Ford’s UAW workers is whether the trust is anywhere near solvent enough at these funding levels to provide benefits as health car costs continue to rise at what the Obama Administration says are unsustainable rates.
Ford transferred at the end of the the following assets to the VEBA Trust:
- An Amortizing Guaranteed Secured Note maturing June 30, 2022, with an original principal amount of $6.7 billion with a corresponding estimated present value of $4.8 billion (“New Note A”);
- An Amortizing Guaranteed Secured Note maturing June 30, 2022, with an original principal amount of $6.5 billion with a corresponding estimated present value of $4.7 billion (“New Note B” and, together with New Note A, the “New Notes”);
- Warrants expiring on Jan. 1, 2013, to purchase 362 million shares of Ford Common Stock at a price of $9.20 per share;
- Assets in a Temporary Asset Account consisting of cash and marketable securities with an estimated value of $620 million; and
- Assets in Ford’s internal VEBA trust consisting of cash and marketable securities with an estimated value of $3.5 billion.
Also on December 31, Ford made the following payments on the so-called New Notes:
- A scheduled payment of $1.4 billion on New Note A;
- An additional pre-payment of $500 million on New Note A;
- A scheduled payment of $610 million on New Note B, which was paid in cash, in lieu of Ford’s option of making New Note B payments in Ford Common Stock. Had Ford chosen to pay in stock, the shares would have been issued at the 30-day volume weighted average price of $9.13, while Ford Common Stock closed at $10 on December 31.
As a result of these actions, the New Notes represent about $7 billion in incremental debt on Ford’s balance sheet, according to the company.
“The transfer of these health care liabilities to the VEBA Trust is the culmination of several years of work and will significantly improve our competitiveness in the U.S.,” said Lewis Booth, Ford’s chief financial officer. “We have removed a substantial health care liability from our balance sheet and have significantly reduced health care expenses.”
The for-profit private insurance industry, powerful doctors’ lobbying groups and virtually the entire Republican party continue to thwart meaningful cuts in costs or an increase in the supply of health care, according to critics of the House and Senate bills that are currently under, contentious, consideration.