Ford, Captive Launch Debt Restructuring Plan
DEARBORN, Mich. — Ford Motor Credit Co. recently announced that its board of directors and the board of directors of Ford Motor Co. have approved a plan to restructure the companies' debt through a combination of a conversion offer by Ford and tender offers by Ford Credit.
As part of this debt restructuring plan, Ford Credit has commenced a $1.3 billion cash tender offer to purchase Ford's unsecured, nonconvertible debt securities, of which approximately $8.9 billion aggregate principal amount is outstanding.
Ford Credit also has commenced a separate $500 million cash tender offer to purchase Ford's senior secured term loan debt, of which $6.9 billion aggregate principal amount is outstanding, under Ford's secured Credit Agreement dated Dec. 15, 2006. No debt securities of Ford Credit are included in these tender offers, officials noted.
"The tender offers we are announcing today (last week) will play a key role in supporting Ford's plan to create a healthy, profitable enterprise," explained Mike Bannister, Ford Credit chairman and chief executive officer.
"It is in Ford Credit's best interest to advance Ford's long-term financial stability as it will strengthen our ability to profitably support the sale of Ford products," he added.
Any Notes acquired by Ford Credit will be retired in settlement of existing intercompany tax liabilities to Ford or in distributions to Ford. Any Term Loan Debt acquired by Ford Credit is expected to be distributed to its parent, Ford Holdings LLC and forgiven. These payments and distributions by Ford Credit are consistent with its previously announced plans to return capital to Ford.
On the automaker side of the debt restructuring, Alan Mulally, Ford president and CEO, explained, "The debt restructuring plan we are announcing today (last week) is a critical step in Ford's overall transformation.
"We are continuing to work with all of our stakeholders — including employees, dealers and suppliers — to secure Ford's future in this difficult economic environment," he continued.
By using a combination of Ford and Ford Credit cash on hand and Ford equity to retire certain long-term debt early, Ford indicated that it would significantly reduce its debt obligations and annual interest expense. The amount of the debt and interest expense reductions will be dependent upon the level of participation by debt holders.
Ford has launched a conversion offer relating to its 4.25 percent Senior Convertible Notes due Dec. 15, 2036, in which it will pay a premium in cash to induce the holders to convert debt for shares of Ford's common stock
Ford also announced its intent to exercise its right to defer future dividend payments on the 6.5- percent Cumulative Trust Preferred Securities of Ford Motor Co. Capital Trust II beginning with the dividend payment payable in April 2009.
Basically, officials indicated that comprehensive debt restructuring is expected to strengthen Ford's balance sheet by reducing long-term debt obligations.