"Altruistica": Seeking a return to full financial disclosure and regulatory oversight. A financial market analysis blog for "entertainment purposes" only by an experienced CFA seeking new hedge fund engagements for investment writing and analysis. The author has experience investing internationally, running a hedge fund, making angel investments, and helping launch five startup companies. Investors should do their own due diligence.

27 November 2006

NAZ,Ford Heavy Borrowers for Risky Ventures

Hmmn: NAZ borrows $5B for LSE Bid, Ford needs $18B for cash flow

Disaster:Ford Plans $18 Billion in Financing to Fund Restructuring, Make Up for Automotive Losses

DETROIT (AP) -- Ford Motor Co. said Monday it plans to get about $18 billion in financing to help fund its restructuring and make up for anticipated losses in its automotive operations over the next two years. The No. 2 U.S. automaker also said the financing -- with its domestic plants and other automotive assets used as collateral -- will help protect against a recession or other unanticipated events. Analysts said it makes the possibility of Ford selling its finance arm less likely but could support bigger restructuring efforts. The announcement prompted downgrades on Ford's debt rating.

Ford said a new five-year senior secured revolving credit facility of about $8 billion is intended to replace Ford's existing unsecured credit facilities of $6.3 billion. A senior secured term loan will total about $7 billion, and unsecured capital market transactions will total about $3 billion. The revolving credit and term loan will be secured by liens on U.S. manufacturing facilities, substantially all of the company's other domestic automotive assets, certain intellectual property, stock in certain subsidiaries -- including Ford Motor Credit Co. and Volvo Cars -- and up to $4 billion in cash.

Ford spokeswoman Becky Sanch said it was the first time the company had used assets such as plants to secure financing. Earlier this month, Ford had said it was near an announcement on such a deal. Ford shares fell 22 cents, or 2.6 percent, to $8.30 in midday trading Monday on the New York Stock Exchange. Following the transactions, Ford said it will have about $38 billion at year's end to fund automotive operations. That includes cash, cash equivalents, loaned and marketable securities and available credit facilities. "The additional liquidity should be sufficient to give Ford the ability to fund itself for several years, even with considerable negative cash flow," Rod Lache, an analyst for Deutsche Bank, said in a note to investors.

Dearborn-based Ford lost $7 billion during the first nine months of the year and has said it won't return to profitability until 2009. The company has offered buyouts and early retirement packages to all 75,000 U.S. production workers and plans to shutter 16 plants to reduce manufacturing capacity to match lower demand for its products as part of its "Way Forward" restructuring plan. Some Wall Street analysts have questioned why the sale of part of Ford Motor Credit wasn't part of its restructuring update announced in September. Ford has said that it didn't plan to sell its finance arm. At least two analysts said Monday that using assets such as Ford Motor Credit to back the secured loans makes it less likely that Ford will sell the credit arm.

Following the announcement, Moody's Investors Service downgraded Ford's senior unsecured rating to "Caa1," seven notches below investment grade, from "B3." But Ford's long-term corporate rating was affirmed at "B3." "The company still faces daunting competitive and market challenges, but this plan would give it some breathing room over the next two years," Bruce Clark, a senior vice president with Moody's, said in a statement.

Also, Fitch Ratings downgraded Ford's senior unsecured debt further into junk status to "B" from "B+." "Revenues are projected to remain under severe pressure in 2007 as a result of slowing economic conditions, production cutbacks, continued share loss and competitive and economic pressures," Fitch said in a statement.Ford expects the transactions to close before Dec. 31. The senior secured credit facilities will be arranged by Citigroup Corporate and Investment Banking, Goldman Sachs Credit Partners L.P. and J.P. Morgan Securities Inc.

Ford Motor Co.:

How Housing Slump Is Risk To Big Three Rebound
November 27, 2006; Page A3, The Wall Street Journal

DETROIT -- Detroit's beleaguered Big Three auto makers face a new risk to their turnaround plans: After a string of strong years, U.S. auto sales are slowing and an increasing number of forecasts say sales could fall next year to their lowest level in nearly a decade. Slowing growth in the overall U.S. economy and the slump in the housing industry, particularly in big markets such as California, are hitting at a bad time for General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler Group. All three are losing money in North America at current sales volumes. A downturn in vehicle demand would make it even more difficult to regain profitability -- and to clear out bulging inventories of unsold vehicles without costly production cuts or discounts. "A softer market really stresses the Big Three out," said David Cole, president of the Center for Automotive Research in Ann Arbor, Mich. "For them, lower volume is not good."

But even some strong Japanese and European players face pressure. Toyota Motor Corp. and BMW AG, for example, could be hurt by any downturn in California, where they control a large chunk of the market. Toyota has spent billions of dollars building a plant in Texas to assemble a new full-size pickup truck due to hit showrooms early next year. But the housing slowdown and high gas prices have damped pickup-truck sales in the past few months. That could make it harder for Toyota to hit its sales targets with its new truck, the Tundra. IRN, a Michigan market researcher, is now forecasting U.S. 2007 sales of 16.3 million light vehicles, or cars and trucks. That would be the lowest level since 1998 and a drop of 300,000 from this year's expected sales of 16.6 million vehicles."To be honest, there is a lot more downside risk to that than there is a chance it gets better," said Erich Merkle, IRN's director of forecasting.


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