This is one of those stories I'll report that probably won't get as much attention as it should. After all cleaning up the balance sheet is not exactly a sexy topic. But make no mistake, the latest move by Ford is not only important but should put a big smile on the face of Ford investors and fans.
Today, the company announced the results of a convertible debt offering it extended in October. Seventy-five percent of the Ford note holders (totaling $2.56 Billion) accepted the offer to convert their Ford debt into Ford common shares.
So why does this matter to those who were not part of this offering?
The conversion will net Ford $1.9 billion - money it will pay toward its sizable auto debt. Over the last year, Ford has paid off roughly $12.8 on a mountain of debt that worried many on Wall Street and cost the company hundreds of millions of dollars in interest payments. This latest convertible offer will help Ford cut its interest payments by $180 million. More importantly, it's one more step Ford takes toward having less debt than cash. In fact, Ford expects to be net cash positive by the end of the year.
Still wondering why this matters?
In simple terms, Ford is one step closer to getting an investment-grade credit rating. A move that will further help the company get better interest rates when it issues debt in the future. And as it builds up its cash position, Ford could once again pay a dividend to common share holders. Ford hasn't paid a dividend on its common stock since 2006.
Ahh, now I've got your attention.
Last month when we aired our documentary on Ford, I heard from many people who said, "Ford's rebound is impressive, but will it ever pay off all the money it borrowed ($23 Billion) to pay for the turnaround." Well, that mountain of debt is steadily getting smaller. You may not think it's sexy, but you can bet it looks pretty good to Alan Mulally and his investors.
Click on Ticker to Track Corporate News:
- Ford Motor
- Toyota Motor
- Honda Motor