Ford Offers Premium to Holders of Convertible Debt

By: Anthony Fontanelle

The Ford Motor Co. said last Monday that it is offering a premium to holders of its five-year-old debt securities to convert them to common stock. This move could thump the automaker's third-quarter results.

The Dearborn-based automaker will incur a one-time debt conversion expense for the third quarter of this year in connection with the offer, the company said in a Securities and Exchange Commission filing. "Assuming 100 percent of the outstanding Trust Preferred Securities are validly tendered and accepted for conversion, the debt conversion pretax expense is estimated to be $1.47 billion," Ford said.

The automaker said that the estimate is based on the June 29, 2007 market price of Ford common stock of $9.42. Ford said that each convertible security, having a liquidation value of $50, can be exchanged for 2.8249 shares of Ford common stock plus a premium in Ford shares valued at $14.25. The recuperating automaker, which lost $12.6 billion in 2006, is making the offer in order to raise its stockholders' equity, cut debt level and limit interest expense, the company said in the filing. By doing so, the automaker could focus on production needs, quality of , and target sales.

The number of premium shares received will be determined by the average market price of Ford common stock on July 25, 26 and 27, 2007. The conversion offer is being made pursuant to an offering circular and other related documents, each dated July 2, 2007. The completion of the offer is subject to conditions described in the conversion offer documents. Subject to applicable law, Ford may waive the conditions applicable to the offer or extend, terminate or otherwise modify the offer.

The conversion offer is being made only on the terms and subject to the conditions described in the offering circular and other related documents, which will be disseminated to holders of trust preferred securities, who are advised to read such documents because they contain crucial information. Copies of the offering circular and related documents have been filed with the SEC.

Holders of trust preferred securities may throw questions about the conversion offer or make requests for copies of the offering circular and related documents for free to Georgeson, Inc., Ford's information agent for the conversion offer. Interested parties can call toll-free at 888-605-7541. Capital Trust II, a statutory business trust, was founded in 2001 under the laws of the state of Delaware and is a wholly-owned subsidiary of Ford.

"As we continue to make progress on restructuring our automotive operations to return to profitability, we also are focused on improving our balance sheet, which this conversion offer will do," said Don Leclair, Ford's executive vice president and chief financial officer.

The convertible preferred securities are issued by the automaker's wholly owned subsidiary trust Ford Motor Company Capital Trust II. The trust's sole assets are $5.2 billion principal amount of 6.5 percent junior subordinated convertible debentures due in 2032, which will be cancelled to the extent trust preferred securities are converted into Ford common stock. The company has effectively guaranteed the trust preferred securities through the debentures and other instruments.

Convertibles are preferred stock or bonds that can be exchanged for a specified number of common shares. They effectively let investors benefit from stock price increases, but with the yield and security of a fixed-income instrument. Ford's offer will expire at 5:00 p.m. EDT on July 31, 2007.

Ford is an American multinational corporation and the world's third largest automaker after the Toyota Motor Corp. and the General Motors Corp., based on worldwide sales. Last year, Ford garnered more quality awards from J.D Power than any other automaker.

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