Ford raises the restructuring bar
The automaker's debt restructuring plan makes its Detroit rivals look like they're dragging their heels.
(breakingviews.com) -- Ford has put its two Detroit rivals on the spot. Chrysler and General Motors are already on the hook to the U.S. government for some $18 billion between them, and pleaded for more last month.
In return, they're supposed to be striking deals to reduce their liabilities with stakeholders - unions, dealers and lenders. But Ford (F, Fortune 500), which hasn't tapped Washington for aid, is beating them to it.
Motown's number two carmaker after GM (GM, Fortune 500) has already come to a tentative agreement with the United Auto Workers union, which allows it to fund half of its gargantuan unfunded workers' healthcare liabilities in stock.
On Wednesday it unveiled an exchange offer which, if successful, will reduce its debt load by $10.4 billion - around 40% - in part by swapping a $4.9 billion convertible bond for 530 million new common shares and a $390 million cash sweetener.
The $5.5 billion exchange offer for unsecured, non-convertible debt in particular reveals just how horrendous the situation has become for the least worst of the Motor City three: Owners of unsecured debt will get an average of just 31 cents on the dollar and secured bank debt holders no more than 47 cents.
But the deal hands Ford a cash lifeline: Including the suspended dividend payments on its trust preferred securities, the exchange will save the company up to $1.1 billion a year.
And the deal is structured in a way that allows the parent company effectively to get an advance on the $2 billion earnings distribution expected from the Ford Motor credit subsidiary this year.
Granted, that's not enough to get Ford out of the woods. The car company may burn through another $7 billion this year, taking its current $13 billion stash below the level needed to keep the factories running, according to Credit Suisse.
With U.S. industry car sales this year running at least 10% below Ford's estimates, more cash could find its way into the incinerator - and Ford could end up going cap in hand to the government.
But at least Ford is inching closer to a self-financed solution. If the debt exchange succeeds, executives can concentrate on getting concessions from dealers and suppliers. Meanwhile, it's two more desperate rivals look like they're dragging their heels. 
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