Ford Motor Co. (F), which borrowed $23 billion in 2006 to survive, extended the maturity of a revolving line of credit by two years and increased its size.
The $9 billion revolving credit line, which originated with the 2006 borrowings, will now mature on Nov. 30, 2015, instead of Nov. 30, 2013, the Dearborn, Michigan-based automaker said today. The credit line grew by $400 million to $9.3 billion. About $300 million in commitments on the credit facility still mature on Nov. 30, 2013, Ford said.
The renegotiated revolver “was significantly oversubscribed,” Neil Schloss, Ford’s treasurer, said in the statement. “This support from our global banking partners represents an important source of committed liquidity and financial flexibility.”
Standard & Poor’s said today it assigned the revolving facility a BBB issue-level rating, which is two steps into investment grade. S&P also assigned the credit line a recovery rating of 1, indicating lenders would recover 90 percent to 100 percent in a default. Ford’s corporate credit rating remains BB+, one level below investment grade.
Ford has been working to return to investment grade and clean up its balance sheet, which carries more debt than U.S.- based rivals because of its 2006 borrowings. Ford reduced its automotive debt by $6 billion last year to $13.1 billion as of Dec. 31. Ford’s debt level is unchanged by the renegotiated revolver, Schloss said.
‘Cut It Back’
While lenders agreed to extend more than $10 billion to Ford, the automaker “chose to cut it back to the $9 billion level,” Schloss said in a conference call with reporters.
Ford said it hasn’t drawn on the credit line since paying it off in 2011, with the exception of $130 million used for letters of credit. Ford drew down this revolver in 2009 during the credit crisis, when it feared banks might run out of lending capacity, Schloss said.
Ford rose 0.2 percent to $12.90 at the close in New York.
In a revolving credit line, money can be borrowed again once it’s repaid. Ford has no plans to draw it down now, Schloss said.
“This is an insurance policy that you hope you never have to use,” Schloss said of the credit line.
The second-largest U.S. automaker also modified the terms of the credit line to ease the return of collateral Ford put up to obtain the loans in 2006, according to the statement. Ford pledged all major assets, including the Ford-brand blue oval logo, to secure the loans that enabled it to avoid the 2009 bankruptcies that befell the predecessors of Detroit-based General Motors Co. (GM) and Auburn Hills, Michigan-based Chrysler Group LLC.
The lenders on the revolving credit line agreed to eliminate limitations on debt prepayments and issuing dividends upon release of the collateral, Ford said. Ford began paying a dividend this month following a five-year suspension. The automaker yesterday declared a second-quarter dividend of 5 cents a share payable June 1 to shareholders of record on May 2.
Ford still must receive an investment-grade credit rating from two major rating companies in order to recover its collateral, the automaker said.
“Getting the collateral back, getting the blue oval back has been a huge rallying cry and one that we all feel emotionally connected to,” Schloss said. “Investment-grade companies feel better about themselves.”
Ford reported its 11th consecutive profitable quarter Jan. 27, with net income of $13.6 billion, or $3.40 a share, compared with $190 million, or 5 cents, a year earlier. Ford earned $29.5 billion in the last three years after $30.1 billion in losses from 2006 through 2008.
Chief Executive Officer Alan Mulally, 66, turned around the automaker by globalizing operations, cutting costs, improving quality and expanding the lineup with fuel-efficient models like the Fiesta subcompact.
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