Ford reduces its debt by 28 per cent

Ford Motor Co. says it completed a tender offer announced last month, reducing its debt by $9.9 billion. Consequently, the No.2 US automaker saw its shares rise as much as 22 per cent and consolidated its position as the strongest of the Big 3 of American Auto, especially with General Motors and Chrysler struggling to survive after the Obama administration rejected their calls for further aid. (See: GM CEO steps down as Obama denies additional funds)

About $4.3 billion in Ford's senior convertible notes were tendered. The automaker says it will pay $344 million in cash premiums for the offer and issue 468 million shares as a result of the conversion. An offer to purchase notes from its financing arm produced $3.4 billion in securities tendered. Ford Motor Credit will use $1.1 billion to purchase that debt. The moves will also cut Ford's annual interest expense by $500 million.

The first part of Ford's cash-and-equity offer, launched last month, received a better reception from creditors than many expected. But the overall buyback plan ultimately came in slightly below the $10.4 billion in debt Ford said it could have retired. Goldman Sachs and the Blackstone Group led the offer, which expired Friday.

The Dearborn, Michigan-based company is looking to pare down $25.8 billion in debt to weather the worst auto sales downturn in 27 years. It said that the debt restructuring along with previously announced deals with the United Auto Workers union will "substantially strengthen" its balance sheet.

"Ford is taking another step toward creating an exciting, viable enterprise," Ford CEO Alan Mulally said in a statement.

The debt buyback is another example of how Ford has capitalized on government requirements imposed on GM and Chrysler to reach deals with stakeholders. In addition to allowing Ford to fund half its retiree health-care plan with stock, the UAW made concessions in wages, benefits and work rules.

Ford stock closed up 52 cents at $3.77 and has now risen 65 per cent since the beginning of the year. In the past 52 weeks, however, the shares are still down 42 per cent.