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.