Ford May Use Cash to Repay $1.5 Billion Due Tomorrow (Update1)
By Bill Koenig and Jeff Green
Sept. 30 (Bloomberg) -- Ford Motor Co., the second-largest U.S. automaker, probably will repay $1.5 billion in debt coming due tomorrow without tapping a revolving credit line, analysts said.
``We expect them to use cash out of hand to pay those down,'' said Mark Oline, a credit analyst at Fitch Ratings Co. in Chicago. ``In the current environment we simply expect these sorts of debts to be paid off, not refinanced.''
The maturing debt includes $1 billion in five-year, unsecured bonds at the Ford Motor Credit Co. consumer-finance unit and $500 million in 12-year notes at the Dearborn, Michigan- based parent company, according to data compiled by Bloomberg. The automaker wouldn't discuss its plans.
Analysts and investors are monitoring corporate debt repayments after companies such as General Motors Corp. and Goodyear Tire & Rubber Co. have drawn on credit lines to access cash while it's available. Banks have tightened lending in the worst housing market since the Great Depression and this month's bankruptcy of Lehman Brothers Holdings Inc. A $700 billion government bailout yesterday failed to pass the U.S. House.
Ford borrowed $23.4 billion in late 2006 to have enough cash to develop new models while closing plants and cutting jobs in North America, its home market and the main source of $23.9 billion in losses since 2005. Ford obtained an $11.5 billion revolving line of credit as part of the 2006 restructuring, which it hasn't yet used.
Company Response
``Ford and Ford Credit are expected to meet their future financial obligations just as they have in the past,'' spokesman Bill Collins said today in an interview, declining to comment on the company's plans for the debt. ``We do not discuss publicly our funding actions.''
Chief Executive Officer Alan Mulally is using cash to help pay for a plan to develop more small cars and reduce Ford's reliance on large pickup trucks and sport-utility vehicles.
Ford Credit may refinance some of the $1 billion coming due, as part of its normal financing activities, Robert Schulz, credit analyst at Standard & Poor's, said in an interview today. The $500 million coming due at Ford Motor likely will be paid in cash, he said.
``Given their cash levels, we certainly wouldn't expect them to need to tap their revolver,'' he said. With a revolving credit line, money that has been repaid can be borrowed again.
Ford in an August regulatory filing reported that as of June 30, it had $30.1 billion in cash and equivalents, as well as $12.5 billion in marketable securities.
Interest Rates
The $1 billion coming due at Ford Credit has a coupon interest rate of 5.625 percent. It was part of a September 2003 sale of $3 billion in 5- and 10-year notes. The $500 million in debt coming due at Ford Motor was sold in 1996 and has an interest rate of 7.25 percent.
Ford Motor Credit's 7 percent debt due in 2013 fell 2.5 cents to 62 cents on the dollar today, yielding 19 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The automaker's shares rose 41 cents, or 9.8 percent, to $4.58 at 3:16 p.m. in New York Stock Exchange composite trading.
Ford said Sept. 16 that it was assessing the effect of Lehman Brothers' bankruptcy on $1.13 billion in lending agreements with the automaker. Two Lehman subsidiaries made credit commitments starting in late 2006, Ford said in the U.S. regulatory earlier this month. Those units weren't included when Lehman sought court protection Sept. 15, the automaker said.
Lehman Commercial Paper Inc. committed $890 million of the $11.5 billion revolving credit line and Lehman Brothers Bank provides $238 million of $16.3 billion in ``liquidity facilities'' for Ford Motor Credit, the automaker said.
Share-Sale Plans
Ford also said last month that it had registered to sell as much as $500 million in new shares to repurchase Ford Motor Credit debt securities. The automaker will primarily buy back bonds maturing before Jan. 1, 2012, according to the Aug. 14 regulatory filing.
GM drew down $3.4 billion of its $4.5 billion credit line on Sept. 24 for six months, according to a Sept. 25 regulatory filing. GM, which cited cash needs and disruption in the credit markers, had tapped $1 billion under the agreement earlier this year.
Goodyear said Sept. 25 that it is drawing down $600 million from its credit line because of a delay in access to $360 million in a money market fund.
``In the past, drawing down a revolver was a material `red flag' and often a precursor to bankruptcy, but that has changed now and it's becoming much more common as companies need to preserve cash,'' Oline said.
If conditions keep deteriorating, Ford may eventually have to tap its revolving credit, sooner than expected, he said.
``It's in nobody's best interest right now to come to market,'' Oline said. ``Even the highest-rated credit companies are holding back to see what happens.''
To contact the reporters on this story: Bill Koenig in Detroit at [email protected]; Jeff Green at [email protected]
Last Updated: September 30, 2008 15:17 EDT
By Bill Koenig and Jeff Green
Sept. 30 (Bloomberg) -- Ford Motor Co., the second-largest U.S. automaker, probably will repay $1.5 billion in debt coming due tomorrow without tapping a revolving credit line, analysts said.
``We expect them to use cash out of hand to pay those down,'' said Mark Oline, a credit analyst at Fitch Ratings Co. in Chicago. ``In the current environment we simply expect these sorts of debts to be paid off, not refinanced.''
The maturing debt includes $1 billion in five-year, unsecured bonds at the Ford Motor Credit Co. consumer-finance unit and $500 million in 12-year notes at the Dearborn, Michigan- based parent company, according to data compiled by Bloomberg. The automaker wouldn't discuss its plans.
Analysts and investors are monitoring corporate debt repayments after companies such as General Motors Corp. and Goodyear Tire & Rubber Co. have drawn on credit lines to access cash while it's available. Banks have tightened lending in the worst housing market since the Great Depression and this month's bankruptcy of Lehman Brothers Holdings Inc. A $700 billion government bailout yesterday failed to pass the U.S. House.
Ford borrowed $23.4 billion in late 2006 to have enough cash to develop new models while closing plants and cutting jobs in North America, its home market and the main source of $23.9 billion in losses since 2005. Ford obtained an $11.5 billion revolving line of credit as part of the 2006 restructuring, which it hasn't yet used.
Company Response
``Ford and Ford Credit are expected to meet their future financial obligations just as they have in the past,'' spokesman Bill Collins said today in an interview, declining to comment on the company's plans for the debt. ``We do not discuss publicly our funding actions.''
Chief Executive Officer Alan Mulally is using cash to help pay for a plan to develop more small cars and reduce Ford's reliance on large pickup trucks and sport-utility vehicles.
Ford Credit may refinance some of the $1 billion coming due, as part of its normal financing activities, Robert Schulz, credit analyst at Standard & Poor's, said in an interview today. The $500 million coming due at Ford Motor likely will be paid in cash, he said.
``Given their cash levels, we certainly wouldn't expect them to need to tap their revolver,'' he said. With a revolving credit line, money that has been repaid can be borrowed again.
Ford in an August regulatory filing reported that as of June 30, it had $30.1 billion in cash and equivalents, as well as $12.5 billion in marketable securities.
Interest Rates
The $1 billion coming due at Ford Credit has a coupon interest rate of 5.625 percent. It was part of a September 2003 sale of $3 billion in 5- and 10-year notes. The $500 million in debt coming due at Ford Motor was sold in 1996 and has an interest rate of 7.25 percent.
Ford Motor Credit's 7 percent debt due in 2013 fell 2.5 cents to 62 cents on the dollar today, yielding 19 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The automaker's shares rose 41 cents, or 9.8 percent, to $4.58 at 3:16 p.m. in New York Stock Exchange composite trading.
Ford said Sept. 16 that it was assessing the effect of Lehman Brothers' bankruptcy on $1.13 billion in lending agreements with the automaker. Two Lehman subsidiaries made credit commitments starting in late 2006, Ford said in the U.S. regulatory earlier this month. Those units weren't included when Lehman sought court protection Sept. 15, the automaker said.
Lehman Commercial Paper Inc. committed $890 million of the $11.5 billion revolving credit line and Lehman Brothers Bank provides $238 million of $16.3 billion in ``liquidity facilities'' for Ford Motor Credit, the automaker said.
Share-Sale Plans
Ford also said last month that it had registered to sell as much as $500 million in new shares to repurchase Ford Motor Credit debt securities. The automaker will primarily buy back bonds maturing before Jan. 1, 2012, according to the Aug. 14 regulatory filing.
GM drew down $3.4 billion of its $4.5 billion credit line on Sept. 24 for six months, according to a Sept. 25 regulatory filing. GM, which cited cash needs and disruption in the credit markers, had tapped $1 billion under the agreement earlier this year.
Goodyear said Sept. 25 that it is drawing down $600 million from its credit line because of a delay in access to $360 million in a money market fund.
``In the past, drawing down a revolver was a material `red flag' and often a precursor to bankruptcy, but that has changed now and it's becoming much more common as companies need to preserve cash,'' Oline said.
If conditions keep deteriorating, Ford may eventually have to tap its revolving credit, sooner than expected, he said.
``It's in nobody's best interest right now to come to market,'' Oline said. ``Even the highest-rated credit companies are holding back to see what happens.''
To contact the reporters on this story: Bill Koenig in Detroit at [email protected]; Jeff Green at [email protected]
Last Updated: September 30, 2008 15:17 EDT
