juno
11-28-2006, 02:04 PM
http://detnews.com/apps/pbcs.dll/article?AID=/20061127/UPDATE/611270399
Ford to put all U.S. assets up as collateral for financing deal
Bryce G. Hoffman / The Detroit News
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<!-- end inside right column --><!-- EDITORIAL: begin body of the story -->DEARBORN - In a bet-the-company move, Ford Motor Co. announced this morning that it will put all of its U.S. assets - factories, offices and intellectual property - up as collateral for a multi-million dollar financing deal designed to keep the company solvent.
The struggling automaker hopes to obtain some $18 billion in new financing "in order 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," Ford said in a statement Monday morning.
That will include up to $15 billion in secured loans, which will be backed by most of Ford's domestic assets, as well as all or part of the stock it owns in subsidiaries like Ford Credit and Volvo.
"This is mammoth," said Bradley Rubin, an analyst with BNP Paribas in New York. "This is going to put tremendous pressure on the stock. It's going to put tremendous pressure on the bonds. It's going to make for a very interesting week."
He said the deal will likely force Ford to fix its North American business or die trying. The automaker has been hemorrhaging market share and grappling with skyrocketing costs.
In addition to the secured credit, Ford will also be seeking approximately $3 billion in new unsecured notes, which will be convertible into its common stock. The company said the size of each portion of the deal will ultimately depend on market conditions.
The unsecured portion of the financing deal is being arranged by Citigroup Corporate and Investment Banking, Goldman Sachs Credit Partners L.P., and J.P. Morgan Securities Inc.
Ford expects the deals to close by Dec. 31.
Ford spokeswoman Becky Sanch said it was the first time the company had used assets such as plants to secure financing. Earlier this month, Ford had said it was near an announcement on such a deal.
Ford shares fell 22 cents, or 2.6 percent, to $8.30 in midday trading Monday on the New York Stock Exchange.
Following the transactions, Ford said it will have about $38 billion at year's end to fund automotive operations. That includes cash, cash equivalents, loaned and marketable securities and available credit facilities.
"The additional liquidity should be sufficient to give Ford the ability to fund itself for several years, even with considerable negative cash flow," Rod Lache, an analyst for Deutsche Bank, said in a note to investors.
Dearborn-based Ford lost $7 billion during the first nine months of the year and has said it won't return to profitability until 2009.
The company has offered buyouts and early retirement packages to all 75,000 U.S. production workers and plans to shutter 16 plants to reduce manufacturing capacity to match lower demand for its products as part of its "Way Forward" restructuring plan.
"Ford's restructuring has been of the low cash cost rightsizing type and a bigger cash heavy fix-the-business restructuring could be in the works," Ronald Tadross, an analyst for Bank of America, said in a note to investors.
Some Wall Street analysts have questioned why the sale of part of Ford Motor Credit wasn't part of its restructuring update announced in September. Ford has said that it didn't plan to sell its finance arm.
At least two analysts said Monday that using assets such as Ford Motor Credit to back the secured loans makes it less likely that Ford will sell the credit arm.
Following the announcement, Moody's Investors Service downgraded Ford's senior unsecured rating to "Caa1," seven notches below investment grade, from "B3." But Ford's long-term corporate rating was affirmed at "B3."
"The company still faces daunting competitive and market challenges, but this plan would give it some breathing room over the next two years," Bruce Clark, a senior vice president with Moody's, said in a statement.
Also, Fitch Ratings downgraded Ford's senior unsecured debt further into junk status to "B" from "B+."
"Revenues are projected to remain under severe pressure in 2007 as a result of slowing economic conditions, production cutbacks, continued share loss and competitive and economic pressures," Fitch said in a statement.
Ford to put all U.S. assets up as collateral for financing deal
Bryce G. Hoffman / The Detroit News
<!-- EDITORIAL: end headline area --><!-- ALL: Begin main story well --><!-- ALL: begin inside right column for poster ad, photos, related links --><!-- ADVERTISING: begin poster area -->
<!-- EDITORIAL: end rest of pix and print, comment, email, subscribe links --><!-- EDITORIAL: end photos and related links -->
<!-- end inside right column --><!-- EDITORIAL: begin body of the story -->DEARBORN - In a bet-the-company move, Ford Motor Co. announced this morning that it will put all of its U.S. assets - factories, offices and intellectual property - up as collateral for a multi-million dollar financing deal designed to keep the company solvent.
The struggling automaker hopes to obtain some $18 billion in new financing "in order 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," Ford said in a statement Monday morning.
That will include up to $15 billion in secured loans, which will be backed by most of Ford's domestic assets, as well as all or part of the stock it owns in subsidiaries like Ford Credit and Volvo.
"This is mammoth," said Bradley Rubin, an analyst with BNP Paribas in New York. "This is going to put tremendous pressure on the stock. It's going to put tremendous pressure on the bonds. It's going to make for a very interesting week."
He said the deal will likely force Ford to fix its North American business or die trying. The automaker has been hemorrhaging market share and grappling with skyrocketing costs.
In addition to the secured credit, Ford will also be seeking approximately $3 billion in new unsecured notes, which will be convertible into its common stock. The company said the size of each portion of the deal will ultimately depend on market conditions.
The unsecured portion of the financing deal is being arranged by Citigroup Corporate and Investment Banking, Goldman Sachs Credit Partners L.P., and J.P. Morgan Securities Inc.
Ford expects the deals to close by Dec. 31.
Ford spokeswoman Becky Sanch said it was the first time the company had used assets such as plants to secure financing. Earlier this month, Ford had said it was near an announcement on such a deal.
Ford shares fell 22 cents, or 2.6 percent, to $8.30 in midday trading Monday on the New York Stock Exchange.
Following the transactions, Ford said it will have about $38 billion at year's end to fund automotive operations. That includes cash, cash equivalents, loaned and marketable securities and available credit facilities.
"The additional liquidity should be sufficient to give Ford the ability to fund itself for several years, even with considerable negative cash flow," Rod Lache, an analyst for Deutsche Bank, said in a note to investors.
Dearborn-based Ford lost $7 billion during the first nine months of the year and has said it won't return to profitability until 2009.
The company has offered buyouts and early retirement packages to all 75,000 U.S. production workers and plans to shutter 16 plants to reduce manufacturing capacity to match lower demand for its products as part of its "Way Forward" restructuring plan.
"Ford's restructuring has been of the low cash cost rightsizing type and a bigger cash heavy fix-the-business restructuring could be in the works," Ronald Tadross, an analyst for Bank of America, said in a note to investors.
Some Wall Street analysts have questioned why the sale of part of Ford Motor Credit wasn't part of its restructuring update announced in September. Ford has said that it didn't plan to sell its finance arm.
At least two analysts said Monday that using assets such as Ford Motor Credit to back the secured loans makes it less likely that Ford will sell the credit arm.
Following the announcement, Moody's Investors Service downgraded Ford's senior unsecured rating to "Caa1," seven notches below investment grade, from "B3." But Ford's long-term corporate rating was affirmed at "B3."
"The company still faces daunting competitive and market challenges, but this plan would give it some breathing room over the next two years," Bruce Clark, a senior vice president with Moody's, said in a statement.
Also, Fitch Ratings downgraded Ford's senior unsecured debt further into junk status to "B" from "B+."
"Revenues are projected to remain under severe pressure in 2007 as a result of slowing economic conditions, production cutbacks, continued share loss and competitive and economic pressures," Fitch said in a statement.