Ford to cut $10B in debt with cash, equity offer

Ford Motor Co. took another step Wednesday to stay cost-competitive with government-financed automakers General Motors and Chrysler, when it offered to exchange up to 40 per cent of its debt for cash and stock.

The company and its financial arm are putting up $2.2 billion US in cash to entice holders of $10.4 billion US in convertible notes, other unsecured debt and secured term debt to take the offer.

The company said reducing the debt will cut the amount it pays in interest and put it in better position to compete with General Motors Corp. and Chrysler LLC.

"This is all part of a restructuring plan to make the company healthier in the end," said Ford spokesman Mark Truby.

GM and Chrysler also are trying to swap debt for equity as a requirement of the $17.4 billion US in government loans they have received.

Ford, which also is trying to restructure amid a severe automotive sales downturn, said Wednesday it still does not intend to seek federal aid.

The company said it will offer a cash premium to get debtholders to exchange up to $4.9 billion US in convertible notes issued in 2006. Every $1,000 in notes is already convertible into about 108.7 shares of common stock, but Ford will offer an additional $80 in cash to sweeten the deal.

Buying back debt

In addition, the company will use up to $1.3 billion US in cash from Ford Motor Credit Co. to buy back as much as $4.2 billion in unsecured, nonconvertible debt. The company said it would purchase those bonds for 30 cents on the dollar, when they are now trading at around 20 cents because of deep worry among investors about the automaker's health.

The offers expire at 9 a.m. ET on April 3. Butthe offer of 30 cents on the dollar for the nonconvertible debt will drop to 27 cents after March 19.

Ford also said it will pay $500 million US in cash for up to $1.3 billion in senior secured term loans through an auction process. That offer expires March 26.

Ford also said it will defer dividend payments on its 6.5 per cent preferred securities starting in April, which will help the company conserve cash at a time when U.S. auto sales are at their lowest level in more than 27 years.

Kip Penniman, credit analyst for KDP Investment Advisors, estimated Ford could save up to $600 million in interest expense if it persuadesdebtholders to take the terms outlined. But he said only an increase in consumer demand for automobiles would save thecompany.

Dearborn, Mich.-based Ford had $25.8 billion US in debt at the end of 2008.

Before Ford announced its offers, its shares closed up six cents to $1.87. The shares fell 17 cents, or 9.1 per cent, to $1.70 in after-hours trading.

Ford reached a deal last month with the United Auto Workers to eliminate some benefits and make some payments to a retiree health care trust fund in the form of stock instead of cash.

As part of the agreement, Ford promised torestructure its debt and get concessions from other stakeholders such as dealers, suppliers and executives.

Ford's net loss of $14.6 billion US last year was the worst annual loss in the company's 105-year history, and the company's U.S. sales fell 48 per cent last month as people fearful of losing their jobs and watching the value of their investments plunge steered clear of showrooms.