Ford announces debt reduction plan
Ford said today it plans to reduce its debt by more than $4 billion by paying off $3.8 billion in obligations to a UAW trust fund in cash and by paying off $255 million of other debts.
Ford’s payments go far beyond the $860 million it was required to pay the UAW Retiree Medical Benefits Trust today. Ford had an option to pay up to $610 million in stock but said Wednesday that it would use cash for the entire payment.
The trust fund was established as the result of labor contract talks with the UAW in 2007 and began managing the health care benefits for hourly retirees in January.
Ford’s announcement comes one day after the company’s stock price sank to $9.88 per share – its lowest mark since Dec. 21.
Ford’s stock fell amid concerns about an economy that is recovering slower than expected, sluggish industry sales and the possibility that it would decide to pay a large amount of its UAW obligations in stock, which would have diluted the value of its shares.
Ford's stock has dropped by $4.69 per share, or 32%, since April 26 -- the day before it reported a $2.1-billion first-quarter profit and signaled that quarterly profits for the rest of the year could be smaller. Ford plans to disclose financial results for the second quarter by the end of July.
On Tuesday, Joseph Amaturo, a Wall Street analyst with Buckingham Research, said in a report that he continues to recommend Ford’s stock as a buy up to a price of $18 per share.
“We continue to believe the company is on track to deliver strong automotive cash flow,” Amaturo said in his report.
Ford and its financing and auto loan lending arm, Ford Motor Credit, is contributing $1.3 billion to the trust fund payments.
The $4 billion in payments announced today, combined with Ford’s decision to make a $3 billion payment on its line of credit in April, reduces the automaker’s total debt from about $34 billion as of March 31 to about $27 billion.
“Our One Ford plan to profitably grow our business is working, and we are increasingly confident about the future,” Ford President and CEO Alan Mulally said in a statement. “Our business results make it possible to take these actions while still accelerating the investments we are making in our business to serve our customers with the very best cars and trucks.”
Ford also reached an agreement with the retiree trust fund that allows it to make payments more frequently if it chooses to do so to pay off the remainder of the $3.6 billion it owes.
“We are very pleased with this transaction, which continues the process of diversifying the trust’s assets at very attractive values,” Samuel W. Halpern, president of Independent Fiduciary Services, Inc., the independent fiduciary and investment manager for the UAW Retiree Medical Benefits Trust, said in a statement.