DBRS Comments on Ford’s Debt Restructuring

DBRS notes that Ford Motor Company (Ford or the Company) and Ford Motor Credit Company LLC (Ford Credit) have today released the results of its series of offers pertaining to the restructuring of its automotive debt obligations (the Debt Restructuring), which was originally announced on March 4, 2009 (for further details, please refer to the DBRS press release published on the same date). DBRS notes that the Debt Restructuring has proven very successful, resulting in a reduction of debt of $9.9 billion, with annual interest expense also being lowered by more than $500 million. To achieve these reductions, Ford and Ford Credit will use $2.4 billion in cash and will also issue 468 million shares of Ford common stock. DRBS views the successful Debt Restructuring positively and observes that the Company’s financial flexibility has been materially bolstered. However, the severe sales environment and Ford’s use of cash continue to be significant concerns that have precluded DBRS from taking any rating actions at this time.

Looking specifically at the Company’s various classes of debt, the detailed results are outlined immediately below:

– Ford Credit used $1 billion to purchase $2.2 billion principal amount of Ford’s secured term loan debt (this was initially announced by Ford Credit on March 23, 2009).

– Ford Credit will also pay $1.1 billion in cash to purchase $3.4 billion principal amount of Ford’s unsecured notes.

– With respect to the Company’s 4.25% unsecured convertible notes, approximately $4.3 billion of these notes were tendered pursuant to Ford’s tender offer. Ford will therefore pay $344 million in cash and also issue approximately 468 million shares of Ford’s common stock.

DBRS notes that the successful Debt Restructuring has strengthened Ford’s balance sheet. The Company’s automotive debt as of December 31, 2008, totaled $25.8 billion; accordingly, leverage has been materially reduced through these initiatives. This, combined with the Company’s new United Auto Workers (UAW) agreement, will considerably increase the Company’s financial flexibility going forward.

However, DBRS further notes that Ford’s primary concern continues to be its high use of cash. In 2008, total use of cash amounted to $20.7 billion; (this amount includes $4.6 billion in payments related to voluntary employee beneficiary association (VEBA)).Through the first three months of 2009, industry sales have fallen further from very weak levels in the fourth quarter of 2008 (although the last week of March 2009 appeared to provide some very slight relief). While the Company has yet to release financial results for the first quarter of 2009, DBRS expects Ford’s use of cash to moderate somewhat but still remain significant.

Remaining uncertainties, such as future macroeconomic developments, access to credit and potential vehicle-scrappage programs, considerably cloud the near-term sales outlook. Should an improvement in industry sales levels become apparent and Ford’s upcoming results suggest that the Company is able to control its use of cash going forward, this would have positive implications and result in DBRS’s review of the ratings.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Automotive, which can be found on our website under Methodologies.

This is a Corporate rating.