Ford Gets More Financial Flexibility
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Ford Gets More Financial Flexibility
"Addition to Debt Package Could Aid U.S. Revamping; Nervous Investors Hit Stock"
By JOHN D. STOLL and STEPHEN WISNEFSKI - December 7, 2006
By JOHN D. STOLL and STEPHEN WISNEFSKI - December 7, 2006
Originally Posted by Wall Street Journal
With as much as $5 billion more added to its $18 billion financing package, making it the largest debt deal of its kind, Ford Motor Co. gains even more flexibility to restructure its loss-plagued North American operations.
But the move to increase the package will add significantly more debt to the Dearborn, Mich., company's balance sheet and worried some investors, who sent its shares down 4.2% yesterday.
Ford -- which carries a high-yield, or "junk," credit rating -- said in a filing with the Securities and Exchange Commission that it will increase an $8 billion revolving credit facility to between $10.5 billion and $11.5 billion, underscoring Wall Street's appetite for riskier debt. Ford cited "overwhelming support by lenders" for the increase (see related articles on pages C4 and D6).
The facility is backed by North American assets. To expand it, the company must pay down borrowings under a $7 billion term loan it agreed to last month or pledge its 33% stake in Mazda Motor Corp. of Japan. Oscar Suris, a Ford spokesman, said the company isn't likely to pledge its Mazda stake.
That increased facility, combined with the $7 billion term loan, would mark Wall Street's largest-ever leveraged loan, $17.5 billion to $18.5 billion, according to Reuters Loan Pricing Corp. Leveraged loans are loans to non-investment-grade or unrated borrowers, and priced at more than 1.50 percentage points above the London Interbank Offered Rate.
Meanwhile, the auto maker also increased the size of its convertible-bond offering to $4.5 billion from $3 billion, amid a surge in demand from investors. The deal could swell to nearly $5 billion, as Ford granted the underwriters an overallotment option to purchase as much as $450 million of additional notes.
Ford needs additional liquidity to sustain operations while it carries out a restructuring of its North American operations. The auto maker, which racked up losses of $7 billion in the first nine months of 2006, expects to continue posting losses and register huge cash outflows in the next two years, before returning its core North American automotive operations to profitability in 2009.
Although the $18 billion lending package announced last month was greeted by Wall Street as a big plus toward turning around its operations, Ford said last week that it expects to generate negative cash flow of $17 billion between 2007 and 2009, with most of the cash burn related to restructuring North America.
Mr. Suris said the company isn't currently making any decisions on how much of the revolving credit facility it will tap. Revolvers are essentially lines of credit that a company can tap if need be.
Ford shares fell 32 cents to $7.36 in 4 p.m. New York Stock Exchange composite trading, partly on concerns about shareholder dilution, based on the larger amount of convertible notes and the greater debt level. Ford's bonds were little changed.
John Novak, an auto analyst at Morningstar in Chicago, said investors have also grown increasingly concerned about the time Ford's turnaround is expected to take, especially in light of weak November sales numbers released last week and a poor outlook for 2007.
"All this stuff adds up to a very negative picture," he said, noting that investors are likely disappointed that Ford isn't showing the kind of progress that larger rival General Motors Corp. is in its restructuring.
Fitch Ratings downgraded Ford's unsecured ratings to B-minus from B, saying the credit facilities reduced expected recovery for existing unsecured debtholders, should the company go through bankruptcy protection.
The company, which is losing market share to foreign rivals such as Toyota Motor Co. and is struggling with high labor costs, announced last week that 38,000 hourly workers, or nearly half of its blue-collar work force, had accepted buyouts or early-retirement deals. The company will also shutter seven assembly plants by 2010.
But the move to increase the package will add significantly more debt to the Dearborn, Mich., company's balance sheet and worried some investors, who sent its shares down 4.2% yesterday.
Ford -- which carries a high-yield, or "junk," credit rating -- said in a filing with the Securities and Exchange Commission that it will increase an $8 billion revolving credit facility to between $10.5 billion and $11.5 billion, underscoring Wall Street's appetite for riskier debt. Ford cited "overwhelming support by lenders" for the increase (see related articles on pages C4 and D6).
The facility is backed by North American assets. To expand it, the company must pay down borrowings under a $7 billion term loan it agreed to last month or pledge its 33% stake in Mazda Motor Corp. of Japan. Oscar Suris, a Ford spokesman, said the company isn't likely to pledge its Mazda stake.
That increased facility, combined with the $7 billion term loan, would mark Wall Street's largest-ever leveraged loan, $17.5 billion to $18.5 billion, according to Reuters Loan Pricing Corp. Leveraged loans are loans to non-investment-grade or unrated borrowers, and priced at more than 1.50 percentage points above the London Interbank Offered Rate.
Meanwhile, the auto maker also increased the size of its convertible-bond offering to $4.5 billion from $3 billion, amid a surge in demand from investors. The deal could swell to nearly $5 billion, as Ford granted the underwriters an overallotment option to purchase as much as $450 million of additional notes.
Ford needs additional liquidity to sustain operations while it carries out a restructuring of its North American operations. The auto maker, which racked up losses of $7 billion in the first nine months of 2006, expects to continue posting losses and register huge cash outflows in the next two years, before returning its core North American automotive operations to profitability in 2009.
Although the $18 billion lending package announced last month was greeted by Wall Street as a big plus toward turning around its operations, Ford said last week that it expects to generate negative cash flow of $17 billion between 2007 and 2009, with most of the cash burn related to restructuring North America.
Mr. Suris said the company isn't currently making any decisions on how much of the revolving credit facility it will tap. Revolvers are essentially lines of credit that a company can tap if need be.
Ford shares fell 32 cents to $7.36 in 4 p.m. New York Stock Exchange composite trading, partly on concerns about shareholder dilution, based on the larger amount of convertible notes and the greater debt level. Ford's bonds were little changed.
John Novak, an auto analyst at Morningstar in Chicago, said investors have also grown increasingly concerned about the time Ford's turnaround is expected to take, especially in light of weak November sales numbers released last week and a poor outlook for 2007.
"All this stuff adds up to a very negative picture," he said, noting that investors are likely disappointed that Ford isn't showing the kind of progress that larger rival General Motors Corp. is in its restructuring.
Fitch Ratings downgraded Ford's unsecured ratings to B-minus from B, saying the credit facilities reduced expected recovery for existing unsecured debtholders, should the company go through bankruptcy protection.
The company, which is losing market share to foreign rivals such as Toyota Motor Co. and is struggling with high labor costs, announced last week that 38,000 hourly workers, or nearly half of its blue-collar work force, had accepted buyouts or early-retirement deals. The company will also shutter seven assembly plants by 2010.
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Joined: Mar 2001
Posts: 13,713
From: The Golden State
Set aside 1 of that $18 billion package and do the following:
1. Send the new Mondeo through the Federal certyification process. The Car's from Germany. It's left drive. Europe has higher safety and emission standards in many regards as we do. If GM can spend 60-100 million modifying a Commodore, I'm sure simply sending a Mondeo to NHTSA wouldn't cost any more. Besides, that factory would now run at full capacity. Mercury probally needs it more than that slow selling Fusion-clone, Milan.
2. You've just stopped Taurus production & are about to close down the Atlanta plant. The reason often given for not exporting the Falcon from Australia (besides conversion costs) is the limited capacity of the Australian plant. Right now, the all new Aussie Falcon is about a year away from production. It has left hand drive capacity engineered in. Australia has much the same crash standards we do, and nearly identical if not stricter exhaust standards. How about taking say $400K or so, and setting up Atlanta and a supply network to produce the Falcon here? All the heavy work is done, and the car's engineered to make a profit just in Australia's market. If Mercury can't earn back a mere $400K investment on a car like the Falcon in less than a few years, you really need to fire the entire Mercury staff.
3. Bring over the 3 door Focus from Europe. ALL of them. The sedan is being sold in large numbers to value hunters who want basic transportation, but this is clouding your judgement to the entire line. Bringing over the RS or even the rallye would give Focus instant "street cred" & would in turn make Ford popular with youth again for models outside of just the Mustang... just like what made Ford popular in the 80s! Again, we're talking about a car from Germany. Again, nothing more than sending a few to the feds for testing. Again, very little cost to you outside of some brusied Ford North America exec egos if the car's a success. Even if the car doesn't catch on (very unlikely) you're going to at least make a few bucks in the process.
These are things that can be done now & I suspect can be on the streets in a year or so from start to finish. Best of all, you'd be able to at least have a shot in earning profits before 2009 as you are predicting and the cost of all of this is probally far less than what was spent on creating the last Thunderbird, and will no doubt sell alot more and make more money overall.
Now, about the Thunderbird......
1. Send the new Mondeo through the Federal certyification process. The Car's from Germany. It's left drive. Europe has higher safety and emission standards in many regards as we do. If GM can spend 60-100 million modifying a Commodore, I'm sure simply sending a Mondeo to NHTSA wouldn't cost any more. Besides, that factory would now run at full capacity. Mercury probally needs it more than that slow selling Fusion-clone, Milan.
2. You've just stopped Taurus production & are about to close down the Atlanta plant. The reason often given for not exporting the Falcon from Australia (besides conversion costs) is the limited capacity of the Australian plant. Right now, the all new Aussie Falcon is about a year away from production. It has left hand drive capacity engineered in. Australia has much the same crash standards we do, and nearly identical if not stricter exhaust standards. How about taking say $400K or so, and setting up Atlanta and a supply network to produce the Falcon here? All the heavy work is done, and the car's engineered to make a profit just in Australia's market. If Mercury can't earn back a mere $400K investment on a car like the Falcon in less than a few years, you really need to fire the entire Mercury staff.
3. Bring over the 3 door Focus from Europe. ALL of them. The sedan is being sold in large numbers to value hunters who want basic transportation, but this is clouding your judgement to the entire line. Bringing over the RS or even the rallye would give Focus instant "street cred" & would in turn make Ford popular with youth again for models outside of just the Mustang... just like what made Ford popular in the 80s! Again, we're talking about a car from Germany. Again, nothing more than sending a few to the feds for testing. Again, very little cost to you outside of some brusied Ford North America exec egos if the car's a success. Even if the car doesn't catch on (very unlikely) you're going to at least make a few bucks in the process.
These are things that can be done now & I suspect can be on the streets in a year or so from start to finish. Best of all, you'd be able to at least have a shot in earning profits before 2009 as you are predicting and the cost of all of this is probally far less than what was spent on creating the last Thunderbird, and will no doubt sell alot more and make more money overall.
Now, about the Thunderbird......
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It's too bad your aren't Ford's CEO. 
I don't know if you could be their savior or not but your ideas seem more sound that what Ford's current (or most recent) leadership have proposed of late.
They are clearly in a dangerous condiiton and the need to turn things around quickly.
I don't know if you could be their savior or not but your ideas seem more sound that what Ford's current (or most recent) leadership have proposed of late.
They are clearly in a dangerous condiiton and the need to turn things around quickly.
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Joined: Apr 2000
Posts: 3,748
From: New England
Is the problem with Ford they are being controlled by the beancounters and people that have no idea what it takes to make a good car? Like said the Fords outside of the U.S. are what Ford should be here? The signs all point to getting them sent here and built here.
Jeshh take a page from GM and do what they are doing with Holden.
I really think if Ford rides the stang and the F-150 into the ground as far as whats keeping it afloat with this great product out there not here??..they I think will be gone by 2012.
Jeshh take a page from GM and do what they are doing with Holden.
I really think if Ford rides the stang and the F-150 into the ground as far as whats keeping it afloat with this great product out there not here??..they I think will be gone by 2012.
Registered User
Joined: Jun 2001
Posts: 4,600
From: Pewee Valley, KY
Is the problem with Ford they are being controlled by the beancounters and people that have no idea what it takes to make a good car? Like said the Fords outside of the U.S. are what Ford should be here? The signs all point to getting them sent here and built here.
Jeshh take a page from GM and do what they are doing with Holden.
I really think if Ford rides the stang and the F-150 into the ground as far as whats keeping it afloat with this great product out there not here??..they I think will be gone by 2012.
Jeshh take a page from GM and do what they are doing with Holden.
I really think if Ford rides the stang and the F-150 into the ground as far as whats keeping it afloat with this great product out there not here??..they I think will be gone by 2012.
Registered User
Joined: Mar 2002
Posts: 3,180
From: Yadkinville, NC USA
Nasser was a kick-*** guy with a lot of good things going for him, but he was in the wrong place at the wrong time when the Explorer/Firestone fiasco hit, and he became the sacrificial lamb. He was no angel, but a helluva businessman.
Bill stepped in, young and confident. At the same time, 9/11 hit and everything got shaken. The economy was stiffled in all areas, and car sales tanked across the board. The sudden loss of sales immediately hit the bottom line at Ford, and they whacked a few projects here and there - nothing huge.
Next, we go for Saddam and screw with the only bad guy selling oil for food (and money, and gold, and anything else someone could trade him, but that's another thread). Now, the oil giants of the world can finally regulate the prices again because Saddam and his "back-door" method is out of the picture. Crude goes nuts, and gas prices with it. Ford, like GM, sees the sales of trucks and SUVs plummet due to gas prices and fuel mileage costs, and their biggest profit makers are no longer coming through for them. Time for more cuts in projects and development.
I think Bill put the hold on projects that he knows he should not have, but felt pressure to do it from financial staff. The result is Ford going from tops to pits in a few years. Marauder - bottched (a.k.a half-assed). Forty-nine concept - killed (should have beat the **** out of the Chrysler 300 in my book). Bronco concept - killed (should have beat Toyota to market by a year with the "box" 4x4). Lincoln LS - killed (should have been a DC2 chassis upgrade stolen from Mustang development, improved engine program, reskinned and new interior from Australian Falcon - it'd rock with the CTS, clobber a 300C, and be the domestic nightmare of BMW and MB). Where's the "flagship" cars to replace the GT... the Shelby GTR, the "Daisy" 427 V10 Cobra, etc. I can go on and on, but the point is, all the good stuff cooking in the kitchen got thrown out because Ford was trying to "save" their way into short-term profitability. In fact, they should have finished execution of those programs underway, and been bringing new things to market. Remember the "65 vehicles in the next 3 years" campaign? WTF happened to ALL THOSE PROJECTS?!?!?
Now that the clock has ticked-off 3 or 4 years, those concepts are both out of date, and already offered by competitors, and Ford is having to go back to the drawing boards and come from scratch.
The goofy thing is, since most of the market sag for Ford has been in North America, their offshore divisions are doing great. Oz has some incredible new product. Europe as well. These are areas where trucks and SUVs are not as popular or profitable, so they have been concentrating on stylish, economical cars from the beginning. Well, duh.
So it's time for Ford NA to step back, look to their true car-making divisions, and say, "we need some help over here". Swallow some pride, and GET THE FUNK BUSY!!!
That's the over-simplified story. Bill is a great guy, but I think he caved to some of the big-dogs due to his lack of age/experience - and I don't really blame him for that (much). He's just not a confrontational kind of guy, but you have to have the guts to do it when necessary in that kind of position.
So, it's time to get with it... it's do or die. I hope Alan has the guts to say "no" to the $analy$t$ from time to time, and let Ford execute some passionate projects - sure can't hurt if you think about what doing nothing has got them.
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Joined: Jun 2001
Posts: 4,600
From: Pewee Valley, KY
Bill stepped in, young and confident. At the same time, 9/11 hit and everything got shaken. The economy was stiffled in all areas, and car sales tanked across the board. The sudden loss of sales immediately hit the bottom line at Ford, and they whacked a few projects here and there - nothing huge.
I think Bill put the hold on projects that he knows he should not have, but felt pressure to do it from financial staff. The result is Ford going from tops to pits in a few years. Marauder - bottched (a.k.a half-assed). Forty-nine concept - killed (should have beat the **** out of the Chrysler 300 in my book). Bronco concept - killed (should have beat Toyota to market by a year with the "box" 4x4). Lincoln LS - killed (should have been a DC2 chassis upgrade stolen from Mustang development, improved engine program, reskinned and new interior from Australian Falcon - it'd rock with the CTS, clobber a 300C, and be the domestic nightmare of BMW and MB). Where's the "flagship" cars to replace the GT... the Shelby GTR, the "Daisy" 427 V10 Cobra, etc. I can go on and on, but the point is, all the good stuff cooking in the kitchen got thrown out because Ford was trying to "save" their way into short-term profitability.
BTW does anyone know what is going on with Nasser's British group trying to get control of Jag?
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Joined: Jun 2004
Posts: 2,977
From: SeVa
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