Ford to Reduce Debt by $4 Billion

Today, Ford Motor Company said that it will lower its existing debt load by almost $4 billion.

The carmaker will pay the $3.8 billion it owes to the UAW Retiree Medical Benefits Trust ahead of the deadline, Ford reported in a statement. The company will also pay $255 million in dividends on preferred securities beginning July 15. Ford has delayed those quarterly dividend payments as it has fought to become profitable again.

Ford shares rose 5.2 percent to $10.40 on the New York Stock Exchange today.

At the conclusion of the first quarter, Ford carries roughly $34 billion in auto debt because of the $23 billion of loans the automaker borrowed in 2006 to bankroll its turnaround. The payment Ford will make today will lower the company’s total debt to around $27 billion.

Ford far exceeded the expectations of industry analysts who predicted the carmaker would repay part of its debt obligation in stock because the shares of the second-largest automaker in the United States have been trading down since hitting a one-year high of $14.46 on April 26.

“We expect to continue to improve our balance sheet as we deliver on our plan,” explained Ford CEO Alan Mulally in a statement. “Importantly, our business results make it possible to take these actions while still accelerating the investments we are making in our business to serve our customers with the very best cars and trucks.”

Ford announced that it lowered its debt by over $7 billion in the second quarter.

“The total debt reduction will save Ford more than $470 million in annual interest expense,” the statement reported.

Reacting to Bear Market

With many equity and equity-associated offerings, Ford has managed to come up with over $5.7 billion since the second quarter of 2009.

Ford’s announcement today came after a difficult day for the company and many investors on Wall Street yesterday. Ford shares lost all 2010 gains due to concerns over slow car sales and questions about how the automaker would fulfill its debt obligation to the UAW medical care fund.

Yesterday, Ford stock dropped 55 cents, or 5.3 percent, to $9.88 on the NYSE. Previously, the stock dropped to $9.75, which is the lowest intraday price since December of 2009, and are down 1.2 percent overall in 2010.

Ford’s drop was bigger than the 2.7-percent decrease in the Dow Jones industrial average and the 3.1-percent decrease in Standard and Poor’s 500 index.

Mark Fields, president of Ford Americas, commented last week that the United States car market has “flat-lined” as of the third quarter of 2009.