Ford slashes automotive debt 38 percent

By Soyoung Kim

DETROIT (Reuters) - Ford Motor Co said on Monday it has slashed automotive debt by 38 percent, or $9.9 billion, bolstering its finances amid a deep auto industry downturn, and its shares were up about 19 percent.

Ford said the debt restructuring would trim its cash interest expenses by more than $500 million per year, providing the latest evidence that Ford is ahead of domestic rivals General Motors Corp and Chrysler in restructuring to survive the lowest U.S. auto sales in three decades.

"Although Ford's future still depends on a recovery in auto sales, the debt restructuring and union contract changes have decreased the chances of a Ford bankruptcy," said Shelly Lombard, a bond analyst at Gimme Credit.

Ford, the only U.S. automaker not operating with emergency U.S. government loans, also was the first to reach agreement with the United Auto Workers to slash cash payments for a union retiree healthcare trust.

It has now achieved a fair amount of what was asked of GM and Chrysler by the Obama administration, while those two automakers, operating on $17.4 billion of government loans since the start of the year, remain in talks with creditors and the UAW to restructure debt and cut costs.

"As with our recent agreements with the UAW, Ford continues to lead the industry in taking the decisive actions necessary to weather the current downturn and deliver long-term profitable growth," Ford Chief Executive Alan Mulally said in a statement.

Ford is using $2.4 billion in cash and 468 million shares of common stock to cut its automotive debt from the $25.8 billion it had at the end of 2008.

"Clearly it is a strong positive for the company, the ability to reduce liabilities and the interest burden," Fitch Ratings managing director Mark Oline said.

"At this point the interest of the bondholders and equity holders are pretty much aligned," Oline said. "Both want Ford to survive the current environment."

U.S. auto sales tumbled nearly 40 percent in the first three months of 2009 to the lowest level in 27 years, driving GM and Chrysler to the brink of bankruptcy and other major automakers into mounting losses.

GM, which has been operating with $13.4 billion of government loans since the start of the year, is under pressure to reach sweeping concessions with bondholders and the UAW by June 1. The Obama administration has said the alternative would be a government-controlled bankruptcy.

Chrysler's lenders are in talks with the U.S. government to reduce the automaker's debt by swapping some of it for equity, new debt or a lesser amount in cash, sources familiar with the situation said.

CAN FORD SURVIVE WITHOUT U.S. AID?

JPMorgan analyst Himanshu Patel said in a note on Monday that Ford, whose turnaround efforts have led domestic rivals, was unlikely to need government aid should U.S. auto sales recover to at least 12-13 million units by 2010.

Ford, in its agreement with the UAW on labor cost cuts and a reworking of the funding of the healthcare trust, the Voluntary Employee Beneficiary Association, had agreed to make efforts to cut its debt over time and make executive pay cuts.