US:Investors ditch Ford shares to buy new bonds
Investors ditch Ford shares to buy new bonds
$4.5-billion issue favored by experts
BY JUSTIN HYDE
DETROIT FREE PRESS WASHINGTON STAFF
Shares of Ford Motor Co. plunged again on Thursday as investors fled the company's regular shares in favor of a $4.5-billion convertible bond issue that analysts said offered better returns for less risk -- a view colorfully articulated by a popular TV host.
Ford's shares fell 20 cents, or 2.7%, to $7.16 Thursday on the New York Stock Exchange. Since hitting $9.03 last month, the shares have lost 21% of their value, shaving about $3.5 billion off Ford's market price.
As Ford and General Motors Corp. have suffered persistent losses over the past few years, they have been forced to use more than just promises of future profits to lure money from investors around the world.
The $4.5-billion convertible bond offer Ford launched on Wednesday is part of $23 billion in loans that Ford has gathered in recent weeks to supply much-needed cash for a turnaround plan. That plan is expected to burn $17 billion in cash through 2009.
The 30-year convertible bonds -- which Ford raised from $3 billion after strong demand from Wall Street -- offer several advantages over Ford's common stock. While Ford's stock dividend has been eliminated, the bonds pay a 4.25% interest rate. The bonds can be converted into shares if Ford's stock prices rise to between $9.05 and $9.20 a share; at those prices, some 500 million more shares could be added to the 1.9 billion Ford shares already on the market, diluting the value of the shares outstanding today.
Ford also is giving the deal's three underwriters the option of buying an additional $450 million of convertible notes.
And were Ford to declare bankruptcy, the bondholders would be a step ahead of regular shareholders for a share of the company's assets. The convertible bond even includes a form of insurance for the bondholders in case Ford brings back its dividend.
Jim Cramer, the widely watched TV stock picker, said in his online column Wednesday that Ford "just totally hosed the common shareholders" with the convertible bond issue. On CNBC, Cramer questioned whether Ford would need to declare bankruptcy, and said the convertible bond would push Ford's share price down to $6.50.
Citigroup analysts said in a note to clients Thursday that the convertible bond offered a better return for investors than Ford shares even if the shares fell to $6.40 or rose to $8.46. The issue "offers investors an attractive risk-adjusted method for investing in Ford," the analysts said.
My first car was a 67 Mustang Coupe, 2nd one was a 67 Cougar XR-7, 3rd one was a 66 Mustang Coupe. Why did I get rid of these cars for ? I know why, because I'm stupid, stupid, stupid.
My next Ford.....