DETROIT — The Ford Motor Company on Wednesday said it would pay off more than $4 billion in debt, a move aimed at strengthening its balance sheet and instilling confidence in its recovery. þþFord’s debt load has been analysts’ biggest concern about the automaker, which has been profitable for four consecutive quarters and projects positive cash flow this year. The announcement suggests that Ford will report strong results for the second quarter, which ends Wednesday. þþFord said it is paying $3.8 billion to the United Automobile Workers retiree health care trust, $2.9 billion of which is being paid ahead of schedule and at a 2 percent discount. It is paying the entire amount in cash, declining the option to use stock for some of its obligation. þþThe company is also paying $255 million to satisfy quarterly dividend payments on preferred stock that had been deferred since April 2009. þþ“Our One Ford plan to profitably grow our business is working, and we are increasingly confident about the future,” Ford’s chief executive, Alan R. Mulally, said in a statement. “We expect to continue to improve our balance sheet as we deliver on our plan. 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.” þþFord, which has forecast “solid” profitability for all of 2010, had $34 billion in debt at the end of the first quarter. Wednesday’s payments and a $3 billion payment it made on a line of credit in April will save the company more than $470 million in annual interested expenses. þþFord said it negotiated a deal with the U.A.W. trust to allow more cash prepayments in the next 3 years at a discount of up to 5 percent. The company still owes $3.6 billion to the trust, which took over health care liabilities for hourly retirees as of Jan. 1. þþ“We are very pleased with this transaction, which continues the process of diversifying the trust’s assets at very attractive values and assists the thousands of Ford retired employees, their families and survivors and others who look to the Trust to fund their retiree health benefits,” Samuel W. Halpern, the independent fiduciary and investment manager for the U.A.W. trust, was quoted as saying in the Ford statement. þþFord retains the right to use stock for its annual obligations to the fund, though it would not get a discount. Analysts have been concerned that Ford would use stock rather than cash, signaling weakness in the shares. þþFord stock has lost nearly a third of its value since hitting a high of $14.57 in late April, closing Tuesday at $9.88. Analysts have expressed concerns that auto sales might be stalling after months of slow recovery, with some recently cutting their 2010 forecasts for the United States. þþFord and other automakers are scheduled to report June sales Thursday. Analysts project that industry-wide sales increased from a year ago, when General Motors and Chrysler were in bankruptcy protection, but declined from the levels seen in recent months. þþFord had previously said it would defer dividend payments on its preferred shares for up to five years. Common shareholders have not received dividends since September 2006. þþAt Ford’s annual shareholders meeting in May, executives said the company needed to greatly reduce its debt before it could consider restoring the dividends. þ
Source: NY Times
