Ford Motor Co Plans To Borrow $18 Billion

[937]

Nov. 27 (Bloomberg) -- Ford Motor Co., struggling to overcome record losses this year, plans to borrow $18 billion and back its loans with collateral for the first time.

New Chief Executive Officer Alan Mulally must raise cash to pay for cutting more than 40,000 jobs and closing factories in North America, where falling sales have caused losses in eight of the past nine quarters at the automotive unit. General Motors Corp. also used collateral on loans for the first time this year.

``It significantly raises the total debt burden, and it massively increases the amount of secured debt,'' said Glenn Reynolds, chief of New York-based research firm CreditSights Inc. ``There's still very low default risk, but bondholders' asset protection has been significantly eaten into.''

About $15 billion of the new debt will be secured by collateral, Ford said in a statement. An $8 billion secured credit line will replace an unsecured $6.3 billion loan. The Dearborn, Michigan-based company also plans a new $7 billion secured term loan and $3 billion in unsecured funding, which may include notes that can be converted into equity shares.

Ford, like GM, is seeing U.S. sales and profit fall as buyers abandon light trucks for more fuel-efficient passenger cars by rivals such as Toyota Motor Corp. The U.S. auto industry's decline has pushed five major auto-parts makers into bankruptcy since February 2005.

Assets

For collateral, the company is using U.S. plants, other U.S. automotive assets and ``all or a portion'' of profitable units such as Ford Motor Credit Co. and Volvo. JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc. are arranging the financing, which will be completed by Dec. 31, Ford said.

Moody's Investors Service lowered Ford's unsecured debt rating today to Caa1, seven steps below investment grade, citing less protection for investors in case of a default. Fitch Ratings cut the unsecured rating to B, five steps below investment grade.

Ford's 7.45 percent note due in 2031 fell 0.25 cent from Nov. 22 to 79.25 cents on the dollar today, yielding 9.7 percent, according to Trace, the NASD's bond-price reporting service.

The company, which had $154 billion in debt outstanding as of Sept. 30, lost $6.99 billion in the first nine months of 2006, and its share of the U.S. market will decline for the 11th consecutive year. Ford says the North American unit will become profitable in 2009. That's a delay of one year from a target set in January.

``They realize they're in worse shape than they thought and it's going to take a long time to fix this,'' said Shelly Lombard, a Montclair, New Jersey-based debt analyst at Gimme Credit Publications.

Shares Fall

The company's shares fell 22 cents, or 2.6 percent, to $8.30 at 11:51 a.m. in New York Stock Exchange composite trading. They have gained 7.5 percent this year.

Standard & Poor's said on Oct. 23 that it may lower Ford's ratings because secured loans would leave bondholders with fewer assets in case of a default.

``This subordinates the bonds, but the alternative -- running out of cash and filing bankruptcy -- is worse,'' Lombard said.

U.S. companies rated four or five levels below investment grade pay interest at an average of 2.78 percentage points over the benchmark rate for bank debt, according to S&P.

Ford recruited Mulally, a former Boeing Co. executive, in September. He succeeded Chairman William Clay Ford Jr., who had been unable to turn around the U.S., Canadian and Mexican operations.

Profitable Units

By putting Ford Credit, which makes loans to buyers of Ford- manufactured vehicles, and Volvo as collateral, the company is including two of its best-performing units. Ford also is putting up some patents as collateral, spokeswoman Becky Sanch said.

Ford Credit previously issued bonds using assets such as car loans as collateral. The new financing broadens the assets Ford is tapping to secure its debt.

``They're being forced to pledge lots of assets,'' Morningstar Inc. analyst John Novak said in an e-mail. ``It's still not clear whether this will be enough to finance their turnaround, but it should buy them additional time.''

Ford is closing nine North American plants by 2008 and cutting more than 40,000 jobs. The company is offering buyouts of as much as $140,000 to all 75,000 U.S. workers represented by the United Auto Workers union. The deadline for those workers to accept buyouts is today.

GM, the world's largest automaker, also turned to secured loans to finance its automotive operations this year after losing $10.6 billion in 2005. Detroit-based GM, which had never previously put up collateral for bank loans, now has about $7.5 billion, according to Fitch.

Equipment-Backed Loan

GM said Nov. 13 that it plans a $1.5 billion loan backed by U.S. manufacturing equipment. The company has also backed its loans with North American receivables and inventory; stock in a Mexican unit; and property, plants and equipment in Canada.

Credit-default swaps based on $10 million of Ford bonds were little changed today, according to data compiled by GFI Group Inc. The contracts were quoted today at about $569,000. They traded at $570,000 on Nov. 23, GFI data show.

A decrease in price indicates improvement in the perception of credit quality. An increase suggests deterioration.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They were conceived to protect bondholders against default, and pay the buyer face value in exchange for the underlying securities should the company fail to adhere to its debt agreements.

Edited 27/11/06 10:28 PM by 937

[SCRIBR]

wow they r in trouble!!

154 billion

[Dagabond]

Mostly from Health cover cost's that go back to the dawn of the company...

[Mr Turbo]

Fark n hell not good at all!

Rob...

[Iconic Bionic]

Imagine the interest?

[937]

wow they r in trouble!!

154 billion 

←

Yes, that is about 210 Billion Australian Dollars !

210 000 000 000 $$'s

Edited 28/11/06 05:21 AM by 937

[Iconic Bionic]

wow they r in trouble!!

154 billion 

←

Yes, that is about 210 Billion Australian Dollars !

210 000 000 000 $$'s

←

It will be by time they pay it off.

Edited 28/11/06 05:25 AM by Iconic Bionic

[TUFXRT6]

Ford Could never pay off the debt, its like the US govenment. Both will never not have debt, they just keep issuing debt to pay for debt.

Normally what happens is the company is NORMALLY in a better condition to issue debt at a lower margin than the orignial issue.

The main problem for Ford is at the moment that the credit rating is only three notches above default, so the issue rate will be huge.

Another problem with Ford issuing more debt is that most CDO's & fund managers were holding Ford debt before the credit down grades so the bonds will sit in their books as bad performers & therefore will be harder to hold greater amount''s let alone the fact the debt is sub investment grade.

[937]

Hand here is some more from drive.com.au

http://www.drive.com.au/Editorial/ArticleD...ArticleId=21853