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Ford Is Betting It All

Ford Motor has pledged virtually all its assets in order to receive a $18 billion loan it needs to finance its turnaround effort. This is the first time since Ford was established in 1903 that the company has been forced to pledge a major part of its business as collateral for a loan. This loan has been extremely expensive as last year credit rating agencies lowered its status to "junk status".

Don LeClair, Ford`s Chief Financial Officer, told reporters that the financing deal has been the only sensible thing to do in light of Ford Motors current troubles. Ford is expected to spend $8 billion in cash this year. At this rate the company would have no money what-so-ever within 3 years. That is why, Alan Mulally, Ford`s Chief Executive since October, says that tiding up Fords balance sheet is his number one priority. Ford had $23.6 billion in cash at September`s end, out of which, $3 billion were taken from a fund that was supposed to go towards employee healthcare. With the company`s new financing the company is expected to end the year with $38 billion in cash that will be used for plant closings and employee buyouts, as well as, funding for product development in an attempt to win back lost customers or in case of recession the money will be used as a cash cushion.

The company`s refinancing will be made up of a 5-year senior secured revolving credit facility of about $8 billion arranged by Citigroup Corporate and Investment Banking, Goldman Sachs Credit Partners and J.P. Morgan Securities. And will replace Ford`s $6.3 billion unsecured credit facilities, a senior secured term loan of approximately $7 billion and unsecured capital market transactions of about $3 billion.