Ford Motor, the world's third-biggest carmaker, plans to shore up dwindling cash reserves by offering almost all its plants and other automotive assets in the US as security for a loan package valued at $18 billion (€13.7 billion).
The secured borrowings, the first in Ford's recent history, are another sign of the tough challenge that the Detroit-based carmaker faces in turning around its troubled North American operations.
Credit rating agencies cut their ratings yesterday on Ford's unsecured debt, already deep in junk territory. Moody's lowered the senior unsecured rating to C1 from B3.
Ford ran up a $5.2 billion loss in the third quarter, and bled $3.1 billion in cash.
It maintained its cash reserves at $23.6 billion, unchanged from three months earlier, by transferring $3 billion from an employee benefits fund.
Besides a sliding market share, Ford has been hit by consumers' shift from sports utility vehicles and pick-up trucks to smaller vehicles.
Its F-Series truck, North America's top-selling vehicle and one of Ford's most profitable models, faces intensifying competition from new versions of General Motors' Chevrolet Silverado and the Toyota Tundra.
Bruce Clark, an analyst at Moody's, said Ford also faced potentially large cash requirements over the next two years as a result of the restructuring, a new labour contract and the possibility of a slowdown in US vehicle sales.
Ford's 75,000 US blue-collar workers have until midnight this coming Monday to decide on early retirement and severance offers.
About a third are expected to accept, helping the company reach its target of eliminating 30,000 hourly and 14,000 salaried jobs in North America.
Himanshu Patel, analyst at JPMorgan, estimates next year's cash outflow at $5 billion.
Mr Patel said that the loan package suggested Ford was bracing itself "for sizeable cash burn in 2007".
But lingering bankruptcy concerns "were likely to be notably reduced", he added. Ford shares lost about 2.5 per cent in early trading yesterday.
Mr Patel interpreted the magnitude of the financing package as a sign that Ford was unlikely to put more assets up for sale, notably Jaguar, the UK-based luxury carmaker, and Ford Credit, its financing arm.
Ford aims to return to profit by 2009. The loan package comprises an $8 billion five-year senior secured revolving facility that replaces an unsecured facility, a senior secured term loan of about $7 billion; and unsecured borrowings of about $3 billion.
The latter may include notes convertible into Ford shares.
Ford declined to disclose the terms of the borrowings. Citigroup, Goldman Sachs and JPMorgan are arranging the secured portions of the package.
