Nov. 27 (Bloomberg) -- Ford Motor Co., struggling to overcome record losses this year, plans to borrow as much as $18 billion to pay for U.S. job cuts and factory shutdowns and will back its loans with collateral for the first time.

New Chief Executive Officer Alan Mulally must raise cash to revamp the North American auto unit as he works to boost sales and recover from a $6.99 billion loss in the first nine months of the year. Ford's switch to asset-backed loans is a sign investors are demanding protection from a default.

``It significantly raises the total debt burden, and it massively increases the amount of secured debt,'' said Glenn Reynolds, chief of New York-based research firm CreditSights Inc. ``There's still very low default risk, but bondholders' asset protection has been significantly eaten into.''

About $15 billion of the new debt will be secured by collateral, Ford said in a statement. An $8 billion secured credit line will replace an unsecured $6.3 billion loan. The Dearborn, Michigan-based company also plans a new $7 billion secured term loan and $3 billion in unsecured funding, which may include notes that can be converted into equity shares.

U.S. automakers' domestic sales are falling as buyers abandon light trucks for more fuel-efficient passenger cars by rivals such as Toyota Motor Corp. The industry's decline has pushed five major auto-parts makers into bankruptcy since February 2005.

Assets

For collateral, Ford is using U.S. plants, other U.S. automotive assets and ``all or a portion'' of profitable units such as Ford Motor Credit Co. and Volvo. JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc. are arranging the financing, which will be completed by Dec. 31, Ford said.

Moody's Investors Service, Standard & Poor's and Fitch Ratings all cut Ford's unsecured debt rating today, citing less protection for investors in case of a default. Fitch rates the debt B, five steps below investment grade; the Moody's rating of Caa1 and S&P's CCC+ rating are seven steps below.

Ford's 7.45 percent note due in 2031 fell 0.75 cent from Nov. 22 to 78.75 cents on the dollar, yielding 9.7 percent, according to Trace, the NASD's bond-price reporting service.

The company had $154 billion in debt outstanding as of Sept. 30, at least $130 billion of which was issued by the finance unit.

Above Benchmark

For the $7 billion secured bank loan, Ford is seeking to pay interest at 3 percentage points above benchmark rates, said three investors who were asked to participate in the transaction.

The financing would be the second-largest leveraged loan of 2006, behind the $8.8 billion lent to hospital operator HCA Inc. earlier this month, according to Standard & Poor's.

The three-month London interbank offered rate, a benchmark for loans, is 5.37 percent. Ford spokeswoman Becky Sanch declined to comment.

Ford's North American auto unit has lost money in eight of the past nine quarters, and the automaker's share of the U.S. new-vehicle market will decline for the 11th consecutive year in 2006. Ford now says the North American unit will become profitable in 2009, one year later than a target set in January.

`Worse Shape'

``They realize they're in worse shape than they thought and it's going to take a long time to fix this,'' said Shelly Lombard, a Montclair, New Jersey-based debt analyst at Gimme Credit Publications.

``This subordinates the bonds, but the alternative --running out of cash and filing bankruptcy -- is worse,'' she said.

Ford's shares fell 36 cents, or 4.2 percent, to $8.16 at 4:02 p.m. in New York Stock Exchange composite trading. They have gained 5.7 percent this year.

Ford recruited Mulally, a former Boeing Co. executive, in September. He succeeded Chairman William Clay Ford Jr., who had been unable to turn around the U.S., Canadian and Mexican operations.

General Motors Corp., the world's largest automaker, also turned to secured loans this year after losing $10.6 billion in 2005, partly because of a change in pension-accounting rules. Detroit-based GM, which had never previously put up collateral for bank loans, now has about $7.5 billion, according to Fitch.

Profitable Units

By using Ford Credit, which makes loans to buyers of Ford- manufactured vehicles, and Volvo as collateral, the company is leveraging two of its best-performing units. Ford also is backing some debt with patents, Ford's Sanch said.

Ford Credit previously issued bonds using car loans as collateral. The new financing broadens the assets Ford is tapping to secure its debt.

``They're being forced to pledge lots of assets,'' Morningstar Inc. analyst John Novak said in an e-mail. ``It's still not clear whether this will be enough to finance their turnaround, but it should buy them additional time.''

Ford is closing nine North American plants by 2008 and cutting more than 40,000 jobs. The company is offering buyouts of as much as $140,000 to all 75,000 U.S. workers represented by the United Auto Workers union. The deadline for those workers to accept buyouts is today.

General Motors said Nov. 13 that it plans a $1.5 billion loan backed by U.S. manufacturing equipment. The company has also backed its loans with North American receivables and inventory; stock in a Mexican unit; and property, plants and equipment in Canada.

Because they're being used as collateral, ``neither Ford Motor Credit or Volvo or other assets could be sold without a new financing agreement,'' Merrill Lynch analyst John Murphy wrote in a report today.

Analysts had speculated earlier this year that Ford might sell the financing unit to raise cash.

Credit-Default Swaps

Credit-default swaps based on $10 million of Ford bonds fell today, according to data compiled by GFI Group Inc. The contracts were quoted today at about $558,000. They traded at $570,000 on Nov. 23, GFI data show.

A decrease in price indicates improvement in the perception of credit quality. An increase suggests deterioration.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They were conceived to protect bondholders against default, and pay the buyer face value in exchange for the underlying securities should the company fail to adhere to its debt agreements.

To contact the reporter on this story: Bill Koenig in Southfield, Michigan, at wkoenig@bloomberg.net

Last Updated: November 27, 2006 17:20 EST