Tuesday, April 7, 2009

Ford completes tender offers, cuts $10B in debt

By Kimberly S. Johnson, AP Auto Writer

DETROIT — Shares of Ford Motor (F) soared 16% Monday after the company said it completed tender offers that will reduce its debt by 38% and shave millions of dollars off its interest costs.

The automaker retired about $9.9 billion in securities issued by either the parent company or its finance arm in exchange for cash and shares under terms of the debt buybacks.

Combined, the moves are expected to reduce the Ford's interest expenses by more than $500 million this year, as it tries to weather the worst auto sales downturn in 27 years.

The Dearborn, Mich.-based company said it will pay a total of $2.4 billion and issue 468 million shares as a result of the offers.

Shares of Ford rose 52 cents to close at $3.77 Monday.
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About $4.3 billion in Ford's senior convertible notes were tendered under an offer that expired Friday. Up to $344 million will be used to pay cash premiums to note holders.

A separate offer to repurchase notes from its financing arm resulted in $3.4 billion in securities being tendered. Ford Motor Credit will use $1.1 billion to purchase that secured term loan debt.

Ford Motor Credit previously said a second cash tender offer that expired on March 23 was "over-subscribed," and it doubled the amount of cash it would spend to buy back the debt. That resulted in the use of $1 billion to purchase $2.2 billion in term loan debt.

Its total debt was reduced to about $15.9 billion after the buybacks.

Neil Schloss, Ford's treasurer, said that the reduction is in line with how much competitors General Motors and Chrysler were asked to cut as a requirement of $17.4 billion in federal loans. Those companies have yet to reach an agreement with their debt holders.

The government's auto task force has already asked GM and Chrysler to cut their unsecured debt levels by two-thirds in order for the companies to receive additional funds. Ford is not seeking government aid, but its overall debt reduction effort has already amounted to more than two-thirds of its unsecured debt.

"We believe this was a very successful transaction," Schloss said, adding "we're going to watch closely what our competitors are required to do."

A Standard & Poor's Equity Research analyst reiterated his "Hold" on Ford Monday, in light of the offer results, but said the company still faces a tough sales year.

"In addition to lowered interest costs, the reduction improves Ford's balance sheet," said analyst Efraim Levy. "We still project sizable losses at Ford in 2009, and note that the failure of competitors or key suppliers could further complicate Ford's situation and cause it ask for the government loans that it is trying to avoid."

S&P's Ratings Service, however, lowered its corporate credit rating on Ford to "SD," or "selective default."

"We consider the completion of the tender offers to be distressed exchanges and, as such, are tantamount to defaults under our criteria," S&P Ratings credit analyst Gregg Lemos Stein wrote in a report Monday.

He said S&P would assign a new corporate credit rating on Ford later this month, but does not expect it to be a positive one.

"Even with this debt reduction, our preliminary expectation is that the new corporate credit rating will likely not be higher than the 'CCC' category initially because we believe Ford's fundamental business risks remain unchanged for at least the rest of 2009 and perhaps longer," he said.

Schloss said no other debt exchanges are planned for Ford and Ford Motor Credit at this time, but the company would "evaluate that" if GM and Chrysler were forced to cut more debt.

"We don't have the plans to do it," Schloss said. "We're going to make sure we stay competitive and do it on our time."

Ford has been the first automaker to reduce its debt and modify its contract with the United Auto Workers union to cut costs. In addition to eliminating bonuses and cost-of-living increases for workers, Ford also agreed to make up to 50% of payments to a union-run trust for retiree health care benefits in stock instead of cash.

Schloss said the moves give Ford "a much stronger balance sheet."

Ford Motor Credit is also participating in the Treasury Department's Term Asset-Backed Securities Loan Facility, or TALF program. The division is offering new bonds that take advantage of the program, in which investors can obtain TALF funds to purchase the bonds that fund consumer and dealer loans. Ford Motor Credit offered the asset-backed securities in four tranches totaling $2.95 billion last month.

"We were the first ones in on the March deal," Schloss said. "We will continue to look at TALF as a great funding deal as it gets more investor support."

Copyright 2009 The Associated Press.

Tuesday, September 16, 2008

World stock markets were in decline

LONDON, England (CNN) -- World stock markets were in decline again Tuesday, a day after the collapse of one of the largest investment banks in the U.S. contributed to the worst day on Wall Street in seven years.
Wall Street's Lehman Brothers collapsed after a British bank and a U.S. bank both pulled out of talks.

Wall Street's Lehman Brothers collapsed after a British bank and a U.S. bank both pulled out of talks.

In the first hour of trading on Wall Street, the Dow was down 41.85, or 0.38 percent, to 10,875.66. It fell as much as 175 in the opening minutes of the session.

In Asia, Japan's Nikkei index fell 4.9 percent and Hong Kong's Hang Seng Index fell to its lowest point in nearly two years when it dropped by 5.5 percent. A leading indicator of stock values in South Korea -- the KOSPI index -- went down 6.1 percent.

At midday in Europe, Britain's FTSE 100 was down 3.17 percent as was France's CAC-40 at 2.04 percent. Key bank stocks were again hit sharply, with HBOS down 27 percent and Royal Bank of Scotland dropping by 12 percent, The Associated Press reported.

Earlier Tuesday, European central banks pumped billions more in short-term credit into the financial system for a second day to shore up confidence in the aftermath of the collapse of U.S. investment bank Lehman Brothers. Video Watch more about the Lehman fallout in Europe »

The European Central Bank launched its second one-day refinancing operation in as many days, offering up a 4.25 percent bid rate. On Monday, it added $42.5 billion to money markets though banks had oversubscribed the offer by three times to $127.8 billion.

In London, the Bank of England provided another $35.6 billion in money to markets, four times the amount it pumped in on Monday.

Across Asia, regulators moved to shore up their financial systems in the wake of the collapse of Lehman.

The Bank of Japan injected 2.5 trillion yen ($24 billion) into money markets Tuesday, while China's mainland central bank cut a key interest rate Monday for the first time in more than six years. Hong Kong's monetary chief announced plans were in place to flush more cash into the banking system if necessary.

The venerable Lehman Brothers investment bank announced Monday it would file for bankruptcy despite frantic efforts to save it.

British bank Barclays had been engaged in negotiations about a possible takeover of Lehman but pulled out over the weekend.

However, Barclays revealed in a statement early Tuesday that it was interested in acquiring some Lehman assets.

Elsewhere, fellow New York-based investment bank Goldman Sachs reported a sharp decline in profits that beat Wall Street's forecasts. But revenues missed analysts' estimates and the stock fell in pre-market trading. iReport.com: How is the Wall Street crisis affecting you?
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The bank said its profits fell more than 70 percent to $845 million, or $1.81 a share, during the third quarter ending in August. Just a year ago, the company reported a profit of $2.85 billion, or $6.13 a share. Wall Street was expecting a profit of $1.71 a share.

Meanwhile, the Bank of America bought another Wall Street fixture -- Merrill Lynch -- in an all-stock deal worth $50 billion.

The financial squeeze was being felt in other sectors Tuesday, as shares in the United States' largest insurance firm -- American International Group (AIG) -- tumbled as it scrambled to raise as much as $75 billion to keep itself afloat.

As a result of the dramatic developments at Lehman Brothers, the Dow Jones industrial average lost 504 points, or 4.4 percent, on Monday. It was the biggest one-day decline for the Dow on a point basis since September 17, 2001, when the market reopened for trading after having been closed in the aftermath of the September 11, 2001 terrorist attacks. On a percentage basis, it was the biggest decline since July 19, 2002.

The Standard & Poor's 500 index lost 4.7 percent, its worst day since September 17, 2001, when it plunged 4.9 percent. The S&P 500 also closed at its lowest point since October 27, 2005.

The Nasdaq composite lost 3.6 percent, its worst single-session percentage decline since March 24, 2003. It left the tech-fueled average at its lowest point since March 17 of this year.

"It was an ugly day," said James King, president and chief investment officer at National Penn Investors Trust Company. "Lehman's failure to find a suitor and Merrill deciding to cash in their chips before a similar fate could befall them really stoked the fears of the public." Video Watch the debate over what the future impact will be »

Early trading raised concerns in Asia, said CNN's Kyung Lah, but Japanese government officials said the Japanese financial system will recover.

"It has been a very rough ride here in Japan," she said.

A major worry, she said, is that export-driven economies, such as the ones in Japan and China, will suffer in the financial crisis because people in the United States are spending less money on the consumer goods that many Asian countries produce. Video Watch the worry in Japan, the world's second-biggest economy »

Thursday, September 4, 2008

Troubled waters for regional banks

Credit rating agency Standard & Poor's downgraded two regional banks and said it could downgrade eight more in the near future after a review of their respective portfolios. In all, 37% of regional banks could see further downgrades, S&P said.

S&P lowered its credit rating on National City Corp. (NCC, Fortune 500) to A- from A and the rating of First Horizon National Corp. (FHN) to BBB from BBB+.

Lower ratings make it more expensive for banks to borrow money since loans to these institutions are considered to carry a higher risk.

National City's holdings include a large concentration of mortgage and housing-related investments that could continue to deteriorate over the next few quarters, according to S&P.

The Tennessee-based First Horizon was downgraded on problems related to a decline in the credit market, particularly at its retail banking arm. But the bank's move to scale back its operations could help it regain its footing, S&P said.

Meanwhile S&P said that Fifth Third Bancorp (FITB, Fortune 500) could face a credit rating downgrade because of its heavy investments in the sour Florida real estate market.

The decline in Florida home values also presents a large risk to the rating of Regions Financial Corp. (RF, Fortune 500) Last week it acquired $974 million in deposits from Integrity Bank, which failed and was taken over by the Federal Deposit Insurance Corporation.

S&P affirmed its current rating of A+ for Regions, but cautioned that the bank doesn't have much of a cushion against further losses.

Integrity Bank was the 10th regional bank to fail this year, and there has been growing concern for the health of the regional banking system, as well as the funding available to the FDIC to insure customers' savings.

The rating agency also warned of potential downgrades at Citizens Republic Bancorp Inc. (CRBC), Comerica Inc. (CMA), Synovus Financial Corp. (SNV), Wilmington Trust Corp. (WL), Zions Bancorp. (ZION), and Colonial BancGroup Inc. (CNB) To top of page
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