Hot Ford Pays Off Big Chunk of its Debt

By: Timothy McFarlin | Published: July 8th, 2010 | Category: Bankruptcy

Ford Motor Company said recently it plans to pay off $4 billion of its debt. The lone Michigan-based automaker to successfully dodge bankruptcy protection, Ford plans to give a reported $3.8 billion to the United Auto Workers’ trust fund and another $255 million in dividends on preferred securities—once deferred when Ford was knee-deep in financial woes.

At one point, Ford had to mortgage its own factories and logo, to borrow over $23 billion. This helped greatly and soon, Ford found itself a non-recipient of a bailout. And while Ford was the only one not seeking bankruptcy protection—its rivals all fell hard.

As of late, Ford is seeing a jump in sales gains and is in the midst of its fourth consecutive quarterly profit streak. The carmaker generated nearly $2.1 billion in the first quarter thanks in large part to their cars and trucks—receiving high quality ratings from publications including Consumer Reports and J.D. Power & Associates. Simply, through May, Ford’s generated sales jumped 30+%.

Despite paying the hefty $4 billion towards its debt, Ford remains owing the UAW’s trust nearly $3.6 billion—due in its entirety by 2022. There is an option for Ford to pay it all off over the course of three years. With this payment, Ford will drop its debt from an estimated $34 billion to $27 billion at the first quarter’s finish. Interestingly, these payments help Ford save approximately over $450+ million in annual interest fees.

Executives at Ford acknowledged the company’s large debt is a disadvantage in the GM and Chrysler rivalries. Chrysler was $17.5 billion in debt prior to its bankruptcy and General Motors was in a $104 billion debt hole pre-bankruptcy and now maintains a, roughly, $15.4 billion debt.

The United Auto Workers, three years ago, set up trust funds for individuals as the country’s automobile industry slipped into a 21st century depression. Ford contributed to this trust upon its inception and agreed to pay another $7 billion. The trust pays for over 200,000+ retirees and their loved ones’ bills for healthcare.

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