Ford to Clear More than $4B in Debt - Analyst Blog

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) has revealed that it would pay more than $4 billion in debt to the United Automobile Workers (UAW) retiree health care trust in order to improve its financial position. The company would pay almost the entire amount in cash instead of using stock, as had been decided previously.

The automaker also cleared about $3 billion on its 2013 revolving credit facility in April ahead of schedule at a discount of 2%. Thus, in all, the company will cut about $7 billion in debt that would save more than $470 million in annual interest costs.

As of March 31, 2010, Ford’s automotive debt amounted to $34.3 billion. Hence, the company will still retain $27 billion in debt after the clearance of $4 billion.

Last month, the automaker also negotiated a deal with the UAW trust to allow it a discount of up to 5% on cash prepayments over the next three years, beginning July. Out of the total payment of more than $4 billion, Ford and its subsidiary, Ford Motor Credit, are paying a combined $2.9 billion at a discount of 2% under the agreement.

The company would owe the remaining $3.6 billion in debt to the trust after the $4 billion payment. It retains the right to use stock for its annual obligations to the fund, though it would not receive any discount.

Ford has also announced that it would pay $255 million to meet quarterly dividend payments on its 6.5% Cumulative Trust Preferred Securities that had been deferred since April 2009. The payment is due on July 15, 2010.

In the first quarter of the year, Ford has posted a profit of $1.76 billion or 46 cents per share (before special items including the sale of Volvo cars), outperforming the Zacks Consensus Estimate of 31 cents per share. The profit showed a $3.55 billion improvement from a loss of $1.79 billion or 75 cents per share (before special items including sales of Volvo cars) in the first quarter of 2009.

Sales in the quarter escalated 15% to $28.1 billion. Excluding the sale of Volvo cars in 2009, sales increased more than 30%. The improvement in results was attributable to strong sales of new products, betterment in global Automotive operations and higher profits at Ford Motor Credit.

Ford continues to expect full-year industry sales in the U.S. to be in the range of 11.5 million units to 12.5 million units, including medium and heavy trucks. Ford expects full-year industry sales in the range of 13.5 million units to 14.5 million units in its 19 European markets, including medium and heavy trucks. Capital spending is expected in the range of $4.5 billion to $5 billion as the company continues to focus on its product plan.