Writing a Finance paper

[SquishPCfriar]

im writing a finance paper about how Fords debt restructuring plan.  Im reading this article on the wall street journal and i dont understand this whole thing about Ford Credit offering cash tender as part of the plan.  heres the link


http://online.wsj.com/article/PR-CO-20090304-906462.html?mod=crnews

Do any of you finance guys understand this real well.  I honestly dont understand what is going on in this article. 

[Eja117]

Could you be slightly more specific about what you don't understand and maybe about the paper. It's been almost a decade since I got my degree in finance.

[SquishPCfriar]

Just like the first 4 paragraphs of it, thats pretty much the only important stuff i need out of the article haha

[Evantime34]

The general gist is Ford is purchasing their debt so that they are not so highly levered in a time when debt is a scary word. They are offering the holders of their debt cash, to sell their debt back to Ford. The more senior the debt is the higher priority you have in selling it.
If that doesn't help pm me, btw where do you go to school?

[SquishPCfriar]

Thanks Evan that does kinda of help.  I go to Providence College, Why do you ask?

[Big Ticket]

I'd be willing to help you out as well if you have any other questions.  Studying for the CFA right now and worked in a bond group for half a year recently, so a lot of these terms and actions you describe make sense to me.  I checked out the article, but I didn't have access to read it all.

Nevermind... full article worked the 2nd time I clicked.

[SquishPCfriar]

Thanks a bunch Big Ticket.  I waited to the last minute to work on this paper that is due tomorrow because i have been sick for the past week.  I am writing about Ford because all of the other good company's were taken by other students and i am writing about Fords ability to survive this auto industrial crisis without receiving bail out funds like GM and Chrysler is doing.

[Big Ticket]

So I think what's actually going on....  Ford Credit and Ford are separate legal entities.  Ford Credit is tendering $1.3 billion to purchase Ford's unsecured, nonconvertible debt (unsecured means that it is not secured by any of Ford's assets... essentially it makes the debt more risky, and nonconvertible means that Ford Credit will not have the option of converting the Ford debt/bonds into common stock of the company).  They are doing this to infuse capital into Ford (give them money essentially) as the quote says:  "It is in Ford Credit's best interest to advance Ford's long-term financial stability as it will strengthen our ability to profitably support the sale of Ford products."  The $8.9 billion outstanding means that there are still owners out there of $8.9 billion in similar Ford debt.  The $500 million offer to purchase Ford's senior secured (senior means this debt is paid back first, before 'subordinate' debt, and secured means the opposite of what I mentioned above... so it is secured by assets of some kind) term loan debt.

Now... this part:

Any Notes acquired by Ford Credit will be retired in settlement of existing intercompany tax liabilities to Ford or in distributions to Ford. Any Term Loan Debt acquired by Ford Credit is expected to be distributed to its parent, Ford Holdings LLC, and forgiven. These payments and distributions by Ford Credit are consistent with its previously announced plans to return capital to Ford.

I believe it is saying that the Notes (the $1.3 billion portion) that Ford Credit acquires will be retired, meaning Ford is not liable to pay them back, in exchange for also retiring some money that Ford Credit owes Ford.  The Term Loan Debt portion sounds like it is being given back to Ford and forgiven, so they don't need to pay that back either.  Essentially, the capital arm of Ford is giving money to the parent, Ford, to help with their mandated restructuring.

Let me know if that just confused you even more!

[Big Ticket]

Thanks a bunch Big Ticket.  I waited to the last minute to work on this paper that is due tomorrow because i have been sick for the past week.  I am writing about Ford because all of the other good company's were taken by other students and i am writing about Fords ability to survive this auto industrial crisis without receiving bail out funds like GM and Chrysler is doing.

Did you end up getting it all finished up?