The FordLemon's oracle predictions are all coming true.
All Bill Ford Jr's "Ifs, Buts, maybes, whens" have not materialized.
The time has come to pay the piper and WHAT A PAYOUT!
Ford to pay its highest-ever bond yields
Exchange strategy targets conserving cash
MARK PITTMAN
Bloomberg News
If you want to know what American investors think of Ford Motor Co., take a look at the Ford Motor Credit Co. 9.75-per-cent notes due in 2010: The world's third-largest auto maker is so enfeebled that it will wind up paying the highest interest rate -- and accept the lowest price -- on any Ford bond sold in the United States in the last century.
Ford, which invented assembly-line manufacturing in 1913, is offering investors $2.5-billion (U.S.) of bonds coming due in 2010 and 2011 that pay annual interest of as much as 10.6 per cent, plus $1.3-billion in cash, in exchange for bonds that start maturing in October and have coupons as low as 4.95 per cent. Companies that Standard & Poor's says are near default get lower rates, Merrill Lynch & Co. index figures show.
"You wouldn't have imagined that Ford would ever have to pay more than 10 per cent," said Thomas Flaherty, who will swap some Ford Motor Credit Co. bonds in the $25-billion of fixed-income assets he handles at Aberdeen Asset Management in Philadelphia.
Ford is at the mercy of bondholders, who are due $57-billion over the next five years, after a drop in its share of the U.S. car market and the costs of firing workers and closing plants led to the biggest quarterly loss since 2001. By exchanging bonds, Dearborn, Mich.-based Ford can hold on to some of its $21.2-billion in cash while designing new cars to win sales from Japanese rivals Toyota Motor Corp. and Nissan Motor Co. Ltd.
"This is a very expensive way to do it," Mr. Flaherty said earlier this month in an interview.
The highest interest rate Ford paid on a U.S. bond was 10.35 per cent when it sold $30-million of 10-year notes in 1987.
The bond exchange will increase Ford's interest costs by about $90-million a year. It's worth it to avoid the danger that investors would demand even higher rates in a public bond sale, said Glenn Reynolds, the head of New York-based research firm CreditSights Inc. who has analyzed Ford debt since 1984.
Selling bonds is "a little painful for us," Kenneth Kent, Ford Credit's chief financial officer, said at an American Financial Services Association conference in Baltimore last week. "You can't last forever in this business at these ratings and these spreads."
Ford lost its investment-grade credit rating a year ago and now has $121-billion of junk-rated debt. Eight years of sliding market share, combined with mounting health-care costs and retirement payments, caused S&P to cut the ratings on Ford and Ford Credit to double-B minus, while Moody's Investors Service reduced its ranking on Ford to Ba3 and on Ford Credit to Ba2.
The ratings reflect "concerns about Ford's ability to turn around the performance of its North American automotive operations -- a process that will require, at best, a number of years," S&P analyst Robert Schulz said in a May 1 report.
The maker of Aston Martins, Jaguars and Mustangs reported a loss of $1.19-billion in the first quarter, the worst in more than four years. Ford's share of U.S. car sales fell to a record low 15.9 per cent in November from 25.7 per cent a decade earlier, according to Autodata Corp. of Woodcliff Hills, N.J.
Chief executive officer William Clay Ford Jr. said earlier this month that his plan to cut 30,000 jobs and close plants will end the losses. Ford shares have dropped 11 per cent this year, closing at $6.85 yesterday on the New York Stock Exchange.
Ford Credit last sold fixed-rate bonds in October, issuing $500-million of 8.625-per-cent senior notes due 2010. The company paid a yield of 4.375 percentage points above U.S. Treasuries, almost two percentage points more than similarly rated debt.
Ford Credit makes loans to buyers of the company's cars and trucks, and depends on low-cost financing to stay competitive. Ford Credit's earnings last year fell 14 per cent to $2.5-billion. Without that profit, parent company Ford would have lost about $500-million.
Ford tough (times)
Ford is at the mercy of bondholders, who are due $57-billion (U.S.) over the next five years, after a drop in its share of the U.S. car market and the costs of firing workers and closing plants led to the biggest quarterly loss since 2001.
Financials
52-week intraday high $11.48 U.S.
52-week intraday low $6.75
P/E ratio, trailing 7.70
Dividend yield 5.85%
Market cap $12.85-billion
Price/book ratio 1.11
1-year total returns -29.37%
Revenue, fiscal 2005 $177.09-billion
Profit, fiscal 2005 $2.02-billion
Yesterday's close $6.85 U.S., down 5¢
SOURCES: THOMSON DATASTREAM; BLOOMBERG FINANCIAL SERVICES