Ford puts up its assets for loans

Independence at risk as it seeks profitability

November 28, 2006|By New York Times News Service

DEARBORN, Mich. -- For the first time in its 103-year history, Ford Motor Co. is mortgaging its assets, including factories, equipment, office buildings, patents and trademarks, and stakes in subsidiaries such as Volvo, to raise $18 billion to overhaul itself.

The amount Ford is borrowing exceeds the total market value of all its outstanding stock by more than $2 billion.

Although other auto companies have put up manufacturing equipment and other types of collateral over the years to secure loans, Ford has never done so before. For many decades, its credit was so good that it could easily borrow without pledging assets.

By doing so now, analysts said, Ford is putting its independence at risk. If management fails in its latest attempt to make the ailing company profitable again, Ford may be left with little choice but to find a buyer or merger partner or file for bankruptcy protection.

"This refinancing tells us that they see very tough times ahead," said John A. Casesa, a veteran automotive analyst with Casesa Strategic Advisers in New York. "Either they're incredibly conservative, or they're preparing for an extremely dark outlook."

Ford, in a statement, said it needs the financing "to address near- and medium-term negative operating-related cash flow, to fund its restructuring, and to provide added liquidity to protect against a recession or other unanticipated events."

The company said it expects to complete the financing by the end of the year, giving it $38 billion in liquidity to work with.

Ford's shares fell 36 cents, or 4.2 percent, to close at $8.16 yesterday on the New York Stock Exchange.

The company said last month that it might arrange secured financing for the overhaul because its credit rating, now well below investment grade, makes other methods for borrowing money too expensive and too limiting.

Ford Chief Financial Officer Don R. Leclair told reporters and analysts two weeks ago that management's willingness to leverage the company's assets is "a measure of the confidence we have" in the turnaround plan.

Of the $18 billion Ford is borrowing, $15 billion will be secured and $3 billion unsecured.

Moody's Investors Service lowered its rating of Ford's senior unsecured debt to Caa1, seven levels below investment grade, from B3, saying the asset pledges would make it more difficult for unsecured lenders to get their money back if the company defaults. Still, Moody's analysts saw logic in the plan from the company's perspective.

"It was important for Ford to structure this type of financing plan in order to ensure that it had adequate liquidity as it enters a highly challenging period," said Bruce Clark, Moody's automotive analyst. "The company still faces daunting competitive and market challenges, but this plan would give it some breathing room over the next two years."

Shelly Lombard, senior high-yield analyst with Gimme Credit, a corporate-bond research service in New York, said the financing "makes sense," given that Ford is expected to burn through $5 billion in cash reserves this year.

"At that kind of run rate," Lombard wrote in a research note yesterday, "the company would have had only a few more years of liquidity, especially since it insists that it won't sell Ford Motor Credit." The company's stake in the credit arm is one of the assets pledged in the financing deal.

Yesterday also was the deadline for hourly workers in Ford's American operations to decide whether to accept retirement and buyout packages worth as much as $140,000 apiece. Ford offered the deals to all 75,000 of its unionized workers as it prepares to close more than a dozen factories and eliminate 30,000 hourly jobs.

About 14,000 salaried positions also are being cut, but those workers have more time to decide on buyout packages.

Nearly 35,000 workers at General Motors Corp. accepted similar deals earlier this year, costing that company about $3.8 billion.

Ford's program is expected to cost somewhat less because its work force is smaller and, on average, younger.

Ford announced its turnaround plan in January and revised it in September to accelerate the job cuts and plant closings.

The company, which lost about $7 billion in the first nine months of this year, says it does not expect to earn a profit in North America until 2009 at the soonest.

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