Happier days for all back in 2007.
Ford Motor Company (NYSE:F) today is reducing its debt by more than $4 billion by retiring debt owed to the UAW Retiree Medical Benefits Trust ahead of schedule. The company said it is taking the action to strengthen its balance sheet.
Analysts have noted that although Ford escaped bankruptcy during the Global Great Recession, it still has a relatively large amount of debt.
Moreover, Ford is increasingly returning to fleet sales in the U.S. this year to keep momentum going, and it is losing ground in Europe to stronger French competitors, notably Renault, due to pricing and quality issues. The stock has been under selling pressure recently and is currently trading on the $10 range. (See European Auto Market Tanks in May)
Nonetheless, Ford says it will post a profit and positive automotive operating-related cash flow this year, which means the stock price could be caught in forces beyond Ford’s control.
Ford is making scheduled payments in cash totaling about $860 million on Notes A and B held by the UAW Retiree Medical Benefits Trust – including about $250 million due under Note A, and $610 million due under Note B. Ford had the option to pay Note B with cash or Ford stock but agreed to pay with cash.
In addition, Ford and its subsidiary, Ford Motor Credit Company, are paying a combined $2.9 billion to retire the remaining obligation on Note A at an agreed upon discount of 2%.
Separately, Ford is making a $255 million cash payment to bring current previously deferred quarterly distributions on the 6.50% Cumulative Trust Preferred Securities of Ford Motor Company Capital Trust II.
With today’s actions and an April payment of $3 billion on its 2013 revolving credit facility, Ford will have reduced its debt by more than $7 billion in the second quarter. The second quarter debt reduction will save Ford more than $470 million in annual interest expense.
“We expect to continue to improve our balance sheet as we deliver on our plan,” said Ford President and CEO Alan Mulally.
“Importantly, 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,” Mulally claimed.