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Can automakers follow Ford’s lead?

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Kai Ryssdal: While the world has been watching General Motors and Chrysler drive straight into what might be bankruptcy, Ford has taken the path less chosen. The company, which hasn’t taken any money from taxpayers, made a big announcement today. It has retired almost 40 percent of its debt. That’s almost $10 billion worth. And it’s going to cut about $500 million out of its interest expenses this year. Marketplace’s Jeremy Hobson reports now on how they did it. And whether the competition might be able to follow Ford’s lead.

JEREMY HOBSON: Much of Ford’s debt restructuring came down to one thing: cold, hard cash. Ford gave creditors some money, they forgave all of Ford’s debt, even though the company didn’t pay the whole amount. Shelly Lombard is a senior high yield analyst with Gimme Credit.

SHELLY LOMBARD: Ford had more liquidity, and it was able to do a cash offer. And as we like to say in the bankruptcy world, it’s easy to value cash.

In other words, it’s better to get up to 55 cents on the dollar now than to wait even longer for the chance of being paid back in full. There’s just something bankable about certainty.

LOMBARD: Nobody had to guess at how much the offer would be worth. You knew exactly what you were getting.

Ford got the money from its financing arm, Ford Motor Credit. GM and Chrysler would have a harder time copying that move because they no longer own their financing arms. Ford retired the rest of its debt by converting bonds into stock. GM is trying to do the same thing, but its terms with creditors are different. Lombard says many of GM’s bonds weren’t supposed to be converted to stock.

LOMBARD: So obviously holders of regular bonds who never had any intention of converting into GM equity are gonna have a hard time to say, you know, convert your bonds into equity.

They just want their money back. But in the end, when you’re swapping debt for stock, it comes down to the long-term value of the company. Amy Wilson covers Ford for “Automotive News.”

AMY WILSON: To be sure, Ford’s stock value has declined drastically, and Ford’s cash pile is dwindling. But right now, Ford looks much farther away from bankruptcy than GM or Chrysler.

And now, perhaps closer to an investment-grade rating, as the Auto industry claws itself out of the valley of debt.

In New York, I’m Jeremy Hobson for Marketplace.

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