This note from MoneyNews on Ford's restructuring plan - it seems that the general consensus among the experts is that Ford has no chance, but just look what they are doing to stay afloat, they are risking everything: it's all or nothing. Unlike Chrysler that went to the Federal government for a bail-out, Ford will go for broke on it's own. This company has guts and a spine.
If they lose a large market share, so what. If they can get rid of most of the union members or the union all together, all the better. They will be a in better shape than most of the other US auto makers in this country.
What is happening to Ford is a natural thing. It's the free market at work. I would hate to see Ford go down the tubes as I like Ford cars and trucks, but if the market is not there for Ford, than it's good bye.
It will be the free market at it's best.
Ford on Collision Course With Bankruptcy?
Ford Motor Company yesterday announced plans to procure $18 billion to finance its "Way Forward" turnaround plan, and details of the financing deal reveal that Ford is putting up nearly all of its domestic assets as collateral. Ford is risking its U plants, office buildings, patents, trademarks, and stakes in its credit division, Ford Credit, and Volvo.
That’s the first time in the company’s 103-year history that it was forced to mortgage parts of its business to obtain financing. Ford said in a statement that it needed the funding "to address near- and medium-term negative operating-related cash flow, to fund its restructuring, and to provide added liquidity to protect against a recession or other unanticipated events." The company arranged the financing with investment banks J.P. Morgan Chase, Citigroup, and Goldman Sachs.
Under the terms, Ford is replacing an existing $6.3 billion unsecured line of credit with a new $8 billion secured, five-year revolving line of credit, and it’s taking out an additional secured loan for $7 billion. There’s also another $3 billion unsecured loan.
Secured debt means that the issuers can seize assets if Ford defaults. That puts Ford bondholders and stockholders, which are unsecured, at a considerable disadvantage should the company file for bankruptcy. That's because in the food chain of bankruptcy, the secured loans get paid first; the unsecured bondholders rank second; and the stockholders, third.
For example, Fitch Ratings tells The Chicago Tribune that unsecured bondholders can expect to recover just 34 percent of their investment if Ford defaults, compared to 68 percent before the new financing deal was made. Standard & Poor’s and Moody’s both lowered Ford’s unsecured debt ratings on Monday. "If management fails to make the ailing company profitable, Ford may be left with little choice but to find a buyer or merger partner or file for bankruptcy protection," explains The New York Times.
The good news is that experts say Ford’s new cash flow could buy it at least two years before being forced into bankruptcy, according to reports. "Ford has bought itself some additional time and money," Shelley Lombard of the bond-analysis firm Gimme Credit tells the Tribune, "but it still has to execute." "Completing this financing would considerably strengthen Ford's ability to fund the large cash requirements it will face through 2008," noted Moody's Investors Service.
And while Ford "still faces daunting competitive and market challenges, this plan would give it some breathing room over the next two years," said Moody’s. But Ford lost about $7 billion in the first nine months of this year. At this pace, the company will have less than two years to stage its turnaround. In addition, the company says it doesn’t expect to turn a profit until 2009 at the earliest, reports the Times. Ford should use this opportunity to get its turnaround plan in gear.
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