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Detroit News
Ford Motor Co. is going all in on a bet-the-company financing strategy that will put virtually all of its U.S. assets -- including factories, office buildings and technology -- up as collateral in a multibillion-dollar credit deal designed to buy time to execute a North American restructuring.
The struggling automaker hopes to obtain $18 billion in financing to fund its turnaround and shore up its liquidity as protection against unanticipated events, such as a recession, the company said in a statement Monday.
The financing 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 such as Ford Motor Credit Co. and Volvo.
This is the first time Ford has put its assets up as collateral. Doing so gives it access to much-needed funding, but also translates into a big increase in debt-servicing costs. More critically, the company's future is on the line if it fails to execute a turnaround.
"This is Ford's one last shot to get it right," said Wall Street analyst John Casesa of the Casesa Shapiro Group LLC. "If the restructuring plan is not executed flawlessly, the company will lose its independence. Management is staking the entire future of the company on successfully executing this plan."
That plan, dubbed the Way Forward, calls for shuttering more than a dozen factories and cutting some 30,000 factory jobs and 14,000 salaried positions to resize the automaker to match reduced demand for its cars and trucks.
Faced with increasingly stiff foreign competition, Ford has been hemorrhaging U.S. market share for years. Meanwhile, the company's financial woes have mounted as it grapples with rising costs for everything from health insurance to raw materials.
Casesa said Ford has not faced a challenge of this magnitude since the end of World War II, when it emerged a distant -- and struggling -- second to General Motors Corp. The problems of the 1970s and 1980s pale in comparison.
Ford is not the first Detroit automaker to pledge assets to borrow money. GM, which is restructuring after a $10.6 billion loss last year, in July used North American assets, including inventory, plants and property, to secure a $4.6 billion revolving loan. GM also pledged assets last month to secure a $1.5 billion loan.
But the scope of Ford's plan surprised analysts. The $18 billion amounts to about $11.7 billion in new funding because the new secured credit line replaces a $6.3 billion unsecured credit line
Ford will also be seeking about $3 billion in new unsecured notes, which may include bonds convertible into common stock. The size of each piece of the deal will ultimately depend on market conditions.
The unsecured financing is being arranged by Citigroup Corporate and Investment Banking, Goldman Sachs Credit Partners LP and J.P. Morgan Securities Inc.
Ford expects the deals to close by Dec. 31 and hopes to end the year with $38 billion in liquidity.
"This is mammoth," said analyst Bradley Rubin of BNP Paribas in New York. "It was a lot bigger than Wall Street was expecting."
Ford's stock fell 4.23 percent Monday to close at $8.16 a share.
Two debt-rating agencies -- Standard & Poor's and Moody's -- cut their ratings on Ford's senior unsecured bonds deeper into junk status on Monday's news.
Standard & Poor's credit analyst Robert Schulz said the action was taken because it could be hard for unsecured creditors to recoup their investment if Ford defaults on its debt.
Bankruptcy is what Ford hopes to avoid. The consequences of a Chapter 11 filing would be particularly dramatic at Ford because the Ford family would lose the super-voting shares that give them control of the company.
"We see this new financing as an acknowledgement that its problems are more serious and may take longer to fix than it initially anticipated," said Shelly Lombard, an analyst at Gimme Credit. "We expected Ford to run through at least $5 billion of cash next year. At that kind of run rate, the company would have had only a few more years of liquidity, especially since it insists that it won't sell Ford Motor Credit."
Ford may also have timed the move to the health of the debt market, Goldman Sachs analyst Robert Barry said in a note.
"We think Ford is taking advantage of a favorable debt market to grab as much financing as it can, lowering the risk of insolvency as it works to restructure," Barry said.
The automaker also had few alternatives, and seeking financing may be less complicated than selling off assets such as Ford Motor Credit, he said.
Ford could still sell Jaguar or Land Rover, as neither of those brands appears to be pledged in this deal. The company is already looking for a buyer for its Aston Martin brand.
"Short of finding a well-capitalized partner," Casesa said, "this is all the company can do."
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