Ford to reduce debt by $3 billion

Article by Christian Andrei, on February 11, 2011

As part of efforts to achieve an investment grade credit rating, Ford Motor Co. is planning to reduce its corporate debt levels by $3 billion more with the planned redemption or conversion of preferred securities. From this redemption of the convertible debentures, Ford will be able to cut its debt from $19.1 billion at the end of 2010 to almost $16 billion.

Ford said that this latest move will also reduce Ford’s annual interest costs by $190 million and result in a $60 million charge during the first quarter.

In a statement, Lewis Booth, Ford’s chief financial officer, said that the company remains focused on reducing automotive debt as the core automotive business continues to gain strength. The $3 billion reduction follows $14.5 billion in debt reductions that Ford achieved in 2010.

Rather than redeeming trust preferred securities for cash, holders can convert their trust preferred securities anytime they want to until 5 p.m. EDT on March 14, 2011, into Ford common stock shares at 2.8769 shares per trust preferred security (with $50 liquidation amount per trust preferred security) and converted (with a $17.38 conversion price per Ford common stock share). Converting or redeeming these securities will lead to a reduction of roughly $3 billion in Automotive debt as well as of annualized interest costs of approximately $190 million.

Redeeming these securities will cause a charge on the first quarter of 2011 of up to about $60 million. Ford executive vice president and chief financial officer Lewis Booth says that they continue to focus on reducing their Automotive debt while the core automotive business goes on strengthening.

They are also happy with their progress and are committed to continuously improving their balance sheet to set a solid foundation to have a strong and profitable business in the upcoming years. These actions that have just been announced are included in the $14.5 billion overall net reduction of Automotive debt that has been accomplished by Ford in 2010.

As the terms specify, the cash redemption amount for trust preferred securities is $50.33 per $50 liquidation cost including unpaid and accrued distributions to the redemption date of $0.5416667 per security. Following the Amended and Restated Declaration of Trust of Ford Motor Company Capital Trust II terms, the record date will not be established with regards to the March 15, 2011 redemption.

The accrued distributions and redemption cost will be payable to the trust preferred securities holder upon presenting and surrendering the securities on or later than the redemption date at the redemption and paying agent’s offices.

After the redemption date on March 15, 2011, distributions will no longer accrue. The New York Stock Exchange has specified that the last trading day in the trust preferred securities on the exchange will be on March 8, 2011 so that all trades are settled before the holders’ conversion rights are terminated.

The New York Stock Exchange has indicated that the last day of trading in the trust preferred securities on the exchange will be March 8, 2011, in order that all trades are settled prior to the termination of holders' conversion rights.

Press Release

Ford to Reduce Debt by an Additional $3 Billion Through Trust Preferred Securities Redemption

Ford Motor Company (NYSE: F) announced that on March 15, 2011 all of the outstanding 6.50% Cumulative Convertible Trust Preferred Securities (liquidation amount $50 per trust preferred security) (NYSE: F PR S) of its subsidiary trust, Ford Motor Company Capital Trust II, will be redeemed for cash at a redemption price of $50.33 per trust preferred security, plus accrued and unpaid distributions of $0.5416667 per trust preferred security.

The redemption of the trust preferred securities will result from Ford redeeming for cash all of the $2.98 billion aggregate principal amount outstanding of its 6.50% Junior Subordinated Convertible Debentures held by Ford Motor Company Capital Trust II, as Ford continues to aggressively strengthen its balance sheet.

Instead of having trust preferred securities redeemed for cash, holders may convert their trust preferred securities at any time until 5 p.m. EDT, March 14, 2011, into shares of Ford common stock at a rate of 2.8769 shares per trust preferred security (liquidation amount $50 per trust preferred security) converted (equivalent to a conversion price of $17.38 per share of Ford common stock).

Redemption or conversion of these securities will result in a reduction of about $3 billion in Automotive debt and lower annualized interest costs of about $190 million. Redemption of these securities will also result in a 2011 first quarter charge of up to about $60 million.

"We remain focused on reducing our Automotive debt as the core automotive business continues to strengthen," said Lewis Booth, Ford executive vice president and chief financial officer. "We are pleased with the progress we have made, and we are committed to continuing to improve our balance sheet to lay a solid foundation for a strong and profitably growing business in years to come."

The actions announced today are in addition to the $14.5 billion total reduction of net Automotive debt Ford achieved in 2010.

Key 2010 debt-reduction actions included:

Full prepayment of VEBA debt obligations of $7 billion
Repayment of $6.7 billion of the 2013 revolving credit facility
Conversion offers for senior convertible notes leading to $1.9 billion of debt reduction
Term Loan B payments of $1.2 billion

Details of Trust Preferred Redemption

As specified by their terms, the cash redemption price for the trust preferred securities is $50.33 per $50 liquidation amount, plus accrued and unpaid distributions to the redemption date of $0.5416667 per security.

Consistent with the terms of the Amended and Restated Declaration of Trust of Ford Motor Company Capital Trust II, no record date will be established with respect to the March 15, 2011 redemption. The redemption price and accrued distributions will be payable to the holder of the trust preferred securities upon presentation and surrender of the securities on or after the redemption date at the offices of the redemption and paying agent. Distributions will no longer accrue after the March 15, 2011 redemption date.

The New York Stock Exchange has indicated the last day of trading in the trust preferred securities on the exchange will be March 8, 2011, in order that all trades settle prior to the termination of holders' conversion rights.

To exercise the conversion right, a holder of the trust preferred securities must surrender the securities together with an irrevocable conversion notice to Computershare Trust Company, N.A., in its capacity as the conversion agent, before 5 p.m. EDT on March 14, 2011 at one of the addresses below:

By Mail:
Computershare Trust Company N.A.
Corporate Actions
P.O. Box 43014
Providence, RI 02940-3014

By Overnight Mail:
Computershare Trust Company N.A.
Corporate Actions
250 Royall Street
Canton, MA 02021

Computershare Trust Company, N.A. is the transfer agent for the trust preferred securities and will act as the redemption and paying agent for this transaction. Computershare's address is 250 Royall Street, Canton, MA, 02021.

Holders of trust preferred securities with questions regarding the details of the redemption may call Computershare at 1-800-546-5141.

Topics: ford, united states

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