Ford takes steps to cut debt by $4 billion, will resume distributions on 6.5% trust preferreds

By Angela McDaniels

Tacoma, Wash., June 30 - Ford Motor Co. said it is reducing its debt by an additional $4 billion, bringing its total debt reduction in the second quarter to $7 billion.

The company will pay $255 million of previously deferred quarterly distributions on Ford Motor Co. Capital Trust II's 6.5% cumulative trust preferred securities on July 15, at which time quarterly distributions will resume.

Distributions on the trust preferreds had been deferred since April 15, 2009, according to a company news release.

Ford said its liquidity and ability to generate positive cash flow are sufficient to warrant reinstatement of the distributions.

The company will also pay $3.8 billion in cash to the UAW Retiree Medical Benefits Trust by making scheduled debt payments due on notes A and B held by the trust and paying the entire remaining balance of note A ahead of schedule.

Subject to regulatory approval, the trust is giving Ford a three-year right to prepay all or a portion of the remaining $3.6 billion outstanding principal amount of note B at a discount from time to time. Previously, Ford could prepay note B once a year at par.

As previously reported, the company repaid $3 billion of its outstanding revolving credit facility due 2013 on April 6.

The $7 billion reduction in debt will save Ford more than $470 million in annual interest expense.

The Dearborn, Mich.-based automaker said it is taking these actions to further strengthen its balance sheet as it "gains momentum on its One Ford plan and remains on track to deliver solid profits and positive automotive operating-related cash flow this year."

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