Ford: credit company stake sale not in the cards; debt repurchases not planned but are 'an option'

By Rebecca Melvin

Princeton, N.J., Oct. 20 - Ford Motor Co. officials said the company isn't likely to follow in the footsteps of General Motors Corp. and sell a stake in Ford Motor Credit Co., which it says is too strategic to its business.

A focus on core synergies of the credit business means that management "wouldn't want to part with it unless there was a compelling reason," company officials said.

"We have made substantial progress in our financial services. We have made many dispositions to now have financial services focused on the core, most synergistic part of that business. We believe we continue to have flexibility in funding that business from a strong liquidity position," Ann Marie Petrach, Ford's vice president and treasurer, said in response to an analyst's question during its third-quarter fixed income conference call Thursday.

Other company speakers included David Cosper, Ford Credit vice chairman and chief financial officer, and Jim Gouin, Ford's vice president and controller.

If the automaker were to be downgraded fully to high yield, the company still believes it could operate from a position of funding flexibility, with much financing related to asset-backed financing.

An analyst, who was on the call, commented later that Ford's financing arm isn't as diversified as GM's GMAC unit has become, in terms of having mortgages and other financing products, and probably isn't as attractive as a saleable asset.

Ford not repurchasing debt

Ford Motor officials also said during the conference call that the company is not in the market right now to repurchase debt to strengthen its balance sheet and it doesn't have any plans to do so but that it remains an option.

"We're not in the market repurchasing debt, and have no plans to do so. But next year or later we will be addressing that at that time," Petrach said.

"We have a lot of things to consider as we go into 2006, and additional plans in 2006 may include plans of uses of cash. We have other obligations besides debt, including pension funds," said Petrach, who acknowledged that reducing debt is an option but that the company has to determine the "best way to improve the automotive business."

Use of the proceeds from its Hertz rental business sale will be applied to strengthening the automotive business and its balance sheet. The deal, which was switched to a tender from an exchange, is expected to close by year-end.

The No. 2 U.S. automaker also said it expects to report a full-year loss as it faces a challenging, competitive environment, in which production volume is lower, pricing is lower and costs are higher.

For the third quarter, the company reported a net loss of $284 million, or 15 cents per share, compared to net income of $266 million, or 15 cents per share, in the third quarter of 2004.

Its third-quarter loss from continuing operations, excluding special items, was $191 million, or 10 cents per share, compared to earnings of $515 million, or 27 cents per share, in the same period last year.

Ford's total sales and revenue in the third quarter was $40.9 billion, compared to $39.1 billion in the year-ago period.

Its blueprint for the future includes focusing on the production of hybrid vehicles, of which it plans to produce 250,000 annually by 2010. Currently Ford produces about 24,000 hybrid vehicles a year.

"From this point forward, innovation will be the compass by which the company sets its direction," Ford employees were told Thursday.

The company said that a $300 million change in its year-over-year financing margin in the third quarter was due mostly to the yield curve effect and not related to its ratings changes, company officials said.

Borrowing costs rise

Borrowing costs are up to 4.7%, compared to 4% a year ago, company officials said, adding that the company hasn't done a lot of new unsecured debt in recent months.

Among Ford's current debt ratings, Standard & Poor's rates Ford and Ford Credit long-term debt at BB+ with a negative outlook; Moody's Investors Service rates Ford's long-term debt at Ba1 and Ford Credit at Baa3, both with negative outlooks; Fitch Ratings rates both entities' long-term debt BBB-; and finally, Dominion Bond Rating Service rates Ford Motor's long-term debt BB (high) and Ford Credit BBB (low), both with negative outlooks.

In the third quarter, Ford Credit pre-tax profit was $900 million, down $200 million from $1.1 billion in the same period last year. Of that, volume was down $100 million and financing margin was down $300 million, but credit loss was up $200 million.

For Ford Motor's third quarter, pre-tax profit was down $233 million to $901 million, with on-balance-sheet receivables at $114 million, compared to $129 million in the same period of 2004.

Funding of managed receivables forecast for 2005 was seen at $145 billion to $150 billion, of which the largest portion was term debt and other debt of $92 billion to $95 billion, and with securitized funding at 38% of the total, compared to year-end 2004 when funding of managed receivables was $168 billion, with term debt and other at $110 billion and securitized funding at 26% of the total.

As of Sept. 30, automotive liquidity remained strong with the cash balance of nearly $20 billion. Ford Credit had strong liquidity with a cash balance of $19 billion and funding flexibility with managed leverage of 12.5 to 1.

Leverage for Ford Motor was 11.5 to 1 for the quarter, compared to 11.8 to 1 in the period a year earlier.

Company officials said management tends to hold leverage in a close range.

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