Ford to cut debt by another $3 billion shares up

Reuters (Detroit) - Ford Motor Co (F.N) will pay down another $3 billion in debt in the first quarter as it works toward regaining its investment grade rating in the final stage of its four-year turnaround.

Shares of Ford rose over 1.5 percent to $16.20 in after-hours trading after closing at $15.95 on the New York Stock Exchange.

"We remain focused on reducing our automotive debt as the core business continues to strengthen," Ford Chief Financial Officer Lewis Booth said in a statement.

Standard & Poor's said the move would not affect Ford's credit rating, now BB-minus, three ranks below investment grade.

"We view the action as consistent with Ford's ongoing focus on debt reduction, which we consider a positive factor," the credit rating agency said in a statement.

Ford borrowed more than $23 billion in late 2006 to support a restructuring led by Chief Executive Alan Mulally.

While Ford did not follow General Motors Co (GM.N) and Chrysler in 2009 in seeking bankruptcy protection, it has had higher debt than its rivals, which is a concern for investors.

Through actions that have included note offerings and cash payments, Ford has reduced debt in its automotive operations by about $14.5 billion in 2010, cutting its annual interest expenses by over $1 billion.

The action announced on Thursday will dissolve a trust Ford established in 2001 used to borrow up to $5 billion to support an earlier phase of its restructuring through the issuance of preferred securities.

Ford redeemed about $2 billion of that balance in preferred stock paying a 6.5 percent dividend in 2005. The remaining $2.98 billion will be paid out in cash or in new common stock if investors opt to take shares instead.

Ford said this would reduce its annualized interest payments by about $190 million.

Ford will take a first-quarter charge of about $60 million related to the action.

Ford ended 2010 with about $19.1 billion in debt in its automotive operations and about $20.5 billion in cash. It had interest expenses of about $1.8 billion in 2010.

Ford had been paying dividends of 6.5 percent on preferred securities issued by the Ford Motor Company Capital Trust II. Those securities will be redeemed for cash at $50.33 per share plus unpaid interest of about 54 cents per share, the automaker said.

Instead of taking cash, investors can opt to take Ford common stock at a rate of 2.8769 per preferred share, the automaker said. The redemption date is March 15.