According to the Financial Times, Ford has struck a debt-for equity deal with its bondholders.
Why is this a big deal?
Well, the only non-GSE (Government Sponsored Entity) US automaker has done something that GM is failing at. One of the conditions for GM to continue to get government funding is to convince a majority of it’s bondholders to convert to equity, or stocks. After watching the killing bondholders at GMAC who refused the company’s offer for a debt-to-equity swap made, bondholders at GM are reluctant. Ford, however, was able to convert $4.3 billion of its debt and $3.4 billion of Ford Credit debt to shares in the company. This is crucial for Ford’s survival as and independent company.
Ford mortgaged the entire company several years ago, including the famed Blue Oval. At the time the move was ridiculed. However, after the auto sector collapsed and credit tightened, other car companies have had trouble obtaining credit, leading some to be propped up by Uncle Sam or their home governments. Through some luck and foresight, Ford so far has been able to avoid taking money from taxpayers. Now they have been able to cut their debt and can focus on turning their company around and not have to worry about their creditors knocking on the door or calling at 2 AM with threatening messages.
Ford continues to position itself to both weather the current economic situation and emerge a stronger company. By bringing product from Europe, it can cut development costs and offer exciting vehicles such as the Fiesta and Focus RS to US consumers who are tired of the same old thing.
Keep an eye on Ford. They aren’t done yet.