Although the Ford Motor Company has managed to post some impressive fiscal results over the past several quarters, the automaker is aware it continues to carry a significant amount of debt. The company has moved to strengthen its balance sheets by paying off outstanding loans, and the latest installment, posted late last week, saw Ford pay off another $1.9 billion, bringing its total outstanding debt to $20.9 billion.
The latest debt reduction surrounded the company’s senior convertible notes, allowing Ford’s creditors to trade outstanding debt for common shares in the company. In total, creditors traded in $1.99 billion of debt due in 2016, along with and an additional $554 million due in 2036, for common stock. Ford estimates that paying off this estimated $2.6 billion debt ahead of schedule will allow it to save an additional $180 million per year in interest payments.
In total, Ford has paid off around $12.8 billion worth of automotive debt this year including early payments on VEBA notes and other credit notes. According to Ford, this will save the company over $1 billion in interest payments annually while simultaneously reducing the firm’s outstanding debt. This is noteworthy, as the company has a total operating cash flow of $19.8 billion and expects that its cash reserves will outweigh its debt by the end of the year.
“These successful conversion offers represent another significant step toward our goal of reducing our automotive debt and improving our balance sheet,” said Lewis Booth, Ford CFO and executive vice president. “We had previously said that even without the conversion offers, we expected our automotive cash to be about equal to automotive debt by the end of this year, well ahead of our earliest expectations. With the conversion offers, we will clearly be net cash positive by year-end 2010.”