Ford Motor Co. (F) announced that on Jan 21, 2014 it will terminate the conversion rights of its 4.25% senior convertible notes due 2036. Holders of the notes, seeking to convert them, have the option to do so till the end of that day.
The notes will be converted at the rate of 114.0466 shares of Ford for every $1,000 principal value of the notes. This amounts to a conversion price of $8.77 for every Ford share. The shares will carry a face value of 1 cent.
However, Ford will make cash payments for the conversion, instead of issuing shares. The company holds the right to settle such conversions in terms of shares, cash or a combination of the two.
The senior convertible notes were issued by Ford in Dec 2006. The company currently has an outstanding balance of $25 million worth of principal value of the notes.
Holders of the notes who do not exercise their right for conversion by the close of business on Jan 21, 2014, will have to hold the notes till maturity or till the redemption date, in case Ford decides to redeem them prematurely.
Ford’s decision to make the conversion in cash will prevent the dilution of the current equity shareholders’ stake in the company. The conversions are also expected to reduce the debt balance of the automaker, thus improving its debt-equity ratio.
Moreover, it will not affect the financial position of Ford, as the company has ample cash balance to make the payment. Ford had cash and marketable securities of $26.1 billion as of Sep 30, 2013.
Ford is one of the largest automobile producers in the world along with General Motors Company (GM), Honda Motor Co., Ltd. (HMC) and Toyota Motor Corporation (TM). Ford currently carries a Zacks Rank #3 (Hold).
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