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Ford Motor Co. (F-N) is cutting its debt by $1.9 billion US in a bid to strengthen its balance sheet and get it rated investment grade again.
In Ford's tender offer to reduce its automotive operations debt, holders of some $2.55 billion of senior convertible notes due in 2016 and 2036 accepted cash and company stock for debt.
That reduces Ford's annual interest expense by about $180 million, the automaker said today.
Ford borrowed heavily in late 2006, allowing it to avoid the bankruptcies that felled rivals General Motors and Chrysler last year, but leaving it with a heavy debt load.
The automaker expects a solid profit in 2010 and has cut its automotive operations debt by about $12.8 billion this year, reducing annual interest expense by nearly $1 billion.
Ford also expects to be net cash positive in its automotive operations - meaning it would have more cash than debt – by the end of 2010. It would be the first time that this would have happened since the second quarter of 2008.
Ford will pay $534 million in cash premiums and on Nov. 30 issue 274 million shares of common stock to convert the notes. Ford has included the stock in its diluted earnings per share since the start of the year.
The automaker expects to take a $960-million charge in the fourth quarter because of the offer.
There were nearly $3.5 billion of senior convertible notes eligible for the conversion offer. Nearly all of the 2036 notes were tendered as were roughly two-thirds of the 2016 notes.