Ford recently reported sales gains and profits for four straight quarters. Its vehicles have been getting high quality ratings.
(David Zalubowski/Associated Press)
Ford to repay $3.8b in debt to UAW
Ford recently reported sales gains and profits for four straight quarters. Its vehicles have been getting high quality ratings.
(David Zalubowski/Associated Press)
DETROIT — Ford Motor Co., the only Detroit automaker to avoid bankruptcy protection, said yesterday it will reduce its huge debt by another $4 billion as it continues to show signs of financial strength.
The Dearborn, Mich., automaker will pay $3.8 billion in cash to a United Auto Workers trust fund that pays retiree health care bills, and it will pay out $255 million in dividends on preferred securities that had been deferred as the automaker worked its way through financial troubles.
The company now will make quarterly payments on the securities, which are a combination of preferred stock and bonds.
Ford chief executive Alan Mulally said in a statement the payments are another sign of confidence that the company’s restructuring plan is working.
“We expect to continue to improve our balance sheet as we deliver on our plan,’’ Mulally said.
After the payment, Ford will still owe the UAW trust about $3.6 billion due by 2022, with an option to pay it over three years. The company said it intends to repay the note early but wouldn’t say when.
Shares of the automaker rose 20 cents, or 2.02 percent, to $10.08 on the New York Stock Exchange.
The automaker said the actions combined with a $3 billion debt payment in April will reduce its total debt to around $27 billion from $34 billion at the end of the first quarter.
The payments will save Ford roughly $470 million in annual interest costs.
Ford was forced to mortgage its factories and even its blue oval logo to borrow more than $23 billion in 2006 and 2007. But the move helped it avoid bankruptcy protection, unlike Chrysler Group LLC and General Motors Corp.
Recently Ford has reported sales gains and profits for four straight quarters. It earned $2.1 billion in the first quarter, helped by higher transaction prices for its cars and trucks, which have been getting high quality ratings from third-party groups such as Consumer Reports magazine and J.D. Power and Associates.
Ford sales are up more than 30 percent through May, almost double the 17 percent increase in total US car sales.
Analysts for Barclay’s Capital and Moody’s Investors Service said the announcement is a sign of confidence that Ford can generate cash to repay debt.
Even before the debt reduction announcement, Citigroup Global Markets analyst Itay Michaeli upgraded Ford shares to hold from sell.
He noted Ford shares have dropped 32 percent from highs after a strong 2009 performance.
As the US auto industry headed toward financial disaster in 2007, the UAW agreed to set up trust funds that would take on enormous health care payments for Ford, GM, and Chrysler retirees. Ford made initial payments to the trust and agreed to pay roughly another $7 billion.
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