* Ford pays $3.8 billion in cash to UAW retirement trust
* Ford to save $470 million-plus yearly interest payments
* Analyst: a “bold move” to reduce debt, address concern
* Shares rise 5 percent
(Adds detail on Ford option trade, Moody’s comment)
By Bernie Woodall and Soyoung Kim
DETROIT, June 30 (BestGrowthStock) – Ford Motor Co (F.N: ) said it is
paying $3.8 billion in cash to settle a debt to a health care
trust in a signal of its confidence that it remains on track to
deliver “solid profits” this year.
In addition, Ford said on Wednesday it is making a $255
million payment on preferred stock dividends that had been
deferred when the automaker was trying to conserve cash.
The moves sent Ford shares up 5 percent and removed more
than $4 billion in debt from its balance sheet, addressing one
of the major remaining investor concerns about the automaker’s
“This sends a strong signal around management’s positive
view on cash generation at Ford Motor, credit quality at Ford
Motor Credit and their likely view that the stock is
undervalued,” said Barclays analyst Brian Johnson.
Ford said it opted not to use stock to pay $610 million to
a health-care trust aligned with the United Auto Workers union.
Analysts had said the prospect of a stock payment to the UAW
had weighed on Ford shares in recent weeks.
Paying the UAW-aligned trust fund in Ford shares would have
diluted equity for investors and could have been read as a sign
that management viewed the stock as near a peak.
Ford stock dipped below $10 on Tuesday for the first in
five months, partly on speculation that the company would meet
debt payments by issuing more stock.
“Our ‘One Ford’ plan to profitably grow our business is
working, and we are increasingly confident about the future,”
Ford Chief Executive Alan Mulally said in a statement.
Ford said it intends to resume making quarterly dividend
payments on preferred stock starting on July 15.
The biggest chunk of three separate payments announced on
Wednesday was $2.9 billion to pay off a note owed to the
UAW-aligned retiree medical benefits trust at 98 cents on the
The UAW agreed to that discount in exchange for the early
payment, Ford said.
Ford also made scheduled payments of $860 million on notes
owed to the UAW fund, established under a 2007 contract with
‘A BOLD MOVE’
Barclays’ Johnson called the prepayment of debt “a bold
move” that came as a surprise given recent market speculation
that the automaker would make part of its payment to the
health-care fund in stock.
Moody’s Investors Service kept its credit rating unchanged
on Ford, saying that the debt repayment would “accelerate the
improvement” in Ford’s credit quality that it had anticipated
when it upgraded the automaker in May.
In afternoon trading, Ford shares were up 5 percent at
$10.40 on the New York Stock Exchange.
The stock price gain corresponded with a surge in demand
for call options on Ford shares, a bet that the rally that
began on Wednesday could continue in coming weeks.
Ford’s overall option volume was 2.2 times greater than
average daily turnover, with about 131,000 calls and 52,000
puts traded by late afternoon, according to option analytics
firm Trade Alert.
Ford ended the first quarter with automotive debt of $34.3
billion, but paid down $3 billion of debt in April that will be
reflected in second-quarter results.
The April payment and the debt cut announced today, which
together total $7 billion, leave $27 billion of debt remaining,
Ford said. The $7 billion debt reduction will save more than
$470 million in annual interest payments, it said.
Ford was the only U.S. automaker to avoid bankruptcy last
year. It borrowed more than $23 billion in late 2006, putting
up nearly all of its remaining assets, including the familiar
blue oval logo, to maintain a cash cushion for its turnaround.
By contrast, Ford’s larger rival, General Motors Co
[GM.UL], ended the first quarter with about $14 billion in
The question of how quickly Ford can pay down its debt has
been widely seen as one of the remaining risks for the
second-largest U.S. automaker, despite strong gains in quality
and sales in recent months.
“We expect to continue to improve our balance sheet as we
deliver on our plan,” Mulally said. “Importantly, our business
results make it possible to take these actions while still
accelerating the investments we are making in our business to
serve our customers with the very best cars and trucks.”
Ford, which surprised Wall Street with its first annual
profit in four years in 2009, despite a severe downturn, has
forecast a “solid profit” for 2010.
Stock Market Investing
(Additional reporting by Doris Frankel in Chicago; editing by
Gerald E. McCormick and Maureen Bavdek)
UPDATE 4-Ford pays down $4 bln in debt, shares rise
Category: Business News