UPDATE:Ford CEO: Restructuring Participation Up To Bondholders
06 March 2009 - 6:52AM
Dow Jones News
Ford Motor Co. (F) Chief Executive Alan Mulally said he expects
bondholders to participate in a plan to help the company retire as
much as $10.4 billion in debt.
"I think that's a decision they're going to make but we're
offering them a premium and also we're doing it in cash so this is
a real value to them," Mulally said during an interview with Fox
Business Network Thursday. "This is a restructuring of the industry
and all of the shareholders, all stake holders are
participating."
Mulally's comments come one day after Ford announced it will
seek to retire up to $10.4 billion in debt, or 40% of the car
maker's total, as it moves to further cut costs. The auto maker
plans to use a combination of stock and cash largely from its
financing arm to pay investors who turn in their debt. Total Ford
debt stood at $25.8 billion at the end of 2008.
"We are advising bondholders to hold out," said KDP Investments
Advisors Inc.'s Kip Penniman. "Ford is shrewd to make this
announcement before General Motors Corp. (GM) bondholders are
offered a deal that may prove considerably more attractive than
Ford's present offer."
GM bondholders are meeting with the U.S. Department of Treasury
Thursday. GM is looking for more federal aid to keep its operations
running while Ford has sidestepped the need for aid.
"While the automaker's offer represents a premium to where the
bonds had been trading, we believe Ford's offer is weak given its
relative strength compared to GM," Penniman said. "We continue to
believe that Ford is the least likely of the Detroit Three auto
makers to face a bankruptcy filing given the company's liquidity
profile."
Ford is making three different offers to retire debt.
Under the auto maker's conversion offer, debt holders would
receive 108 shares of Ford stock and $80 in cash for each $1,000
they have in bonds. The value of the offer would be about 28 cents
on the dollar based on Thursday's share price.
Those participating in Ford Motor Credit's term-loan offer would
receive up to 47 cents on the dollar while the majority of
unsecured note holders would get 30 cents. All the figures could
change depending on the movement of the company's stock price.
"I don't see why one would want Ford stock unless you believe
they will avoid bankruptcy," Morningstar Inc. auto analyst David
Whiston said. "In bankruptcy you're better off being a bondholder.
To take this deal, the bondholder has to believe that they will
never get better than 28 cents on the dollar for Ford debt."
Ford shares fell 6 cents or 3.2% to $180 in earlier trading
Thursday.
Moody's Investors Service Wednesday cut Ford's probability of
default rating one notch to Ca, or highly speculative, but left the
company's corporate family rating at Caa3. The rating outlook is
negative.
Standard & Poor's Ratings Services downgraded its corporate
credit rating four notches to CC, or highly speculative, with a
negative outlook. Fitch Ratings left its issuer default rating at
CCC, or highly speculative, saying it would view the exchange of
cash and equity for debt as a mild positive.
Separately, Mulally said Thursday he expects the company's cash
burn to be lower this year than in 2008 when the company spent more
than $20 billion and finished the year at $13.4 billion.
Mulally said most of that spend was attributed to reducing its
output and work force as auto sales continued to slow amid the
slumping U.S. economy.
"We have the production down to where we need to for demand,"
Mulally said.
-By Jeff Bennett and Paul Hotz, Dow Jones Newswires; (248)
204-5542; jeff.bennett@dowjones.com