“You may have seen Phil Lebeau come on recently and talking about Ford completing its debt restructuring and Ford stock is actually on the rise off the open. They basically reduced the debt from $25.8 billion to $15.9 billion, better than expected debt restructuring by Ford there.” CNBC’s Squawk on the Street 4/6/2009.
Ford Motors (F) took another big step forward on Monday as they announced that they will be reducing their debt by nearly $10 billion, thus reducing their total debt by nearly 40%. The moves will save Ford about $500 million in interest expenses annually. This is no small feat but of course, it did not come cheaply. Ford saying that the restructuring will cost $2.4 billion in cash and a substantial number of shares. The shares were issued in exchange for a 4.25% senior convertible notes due in December 2036, so about $4.3 billion in debt was exchanged for 468 million shares.
This is yet another example of Ford being proactive in comparison to its peers, and the company’s management lead by Alan Mulally seems more capable to handle the current challenges than his counterparts at General Motors (GM) and Chrysler. As most everyone is aware, Ford refused to take government funding thus far, and said that at least for now, the company would be able to weather the current challenges on its own. Next, Ford was able to renegotiate labor contracts with the UAW, as it was able to offer better terms than GM in its on going talks with the unions. This fits right inline with Ford’s industry leadership. Restructuring debt is something that all of the major American automakers will need to do, but Ford has it completed first and without the help (hindrance?) of the government.
Ford shares are trading about 15% higher at mid day, as these moves do strengthen the balance sheets. At Ockham, we have a current valuation of Fairly Valued on Ford shares at current levels, and we will not likely become more positive on F until sales begin to perk back up. This will happen eventually, but as for right now sales are extremely weak, data released last week states that Ford sales have dropped 41% from March of last year.