From Detroit Free Press

DETROIT -- Alan Mulally made his first big move as Ford's new chief executive officer Monday, a hefty gamble that essentially bets all of the company's assets that he can save the 103-year-old ailing automaker.

In a secured financing deal totaling $18 billion, Mulally is using the company's manufacturing plants and substantially all of the remaining automotive assets as collateral. That includes the stock of subsidiaries Ford Credit and Volvo, and even intellectual property, such as the design and name of the F-150 pickup, America's top-selling vehicle.

The size of this self-serve bailout package is 12 times the $1. 5 billion loan guarantee the federal government gave Chrysler in 1979, and it surpasses the $14 billion that General Motors Corp. hopes to raise when it closes on the sale of its lending arm, GMAC Financial Services, later this month.

That's why this $18 billion deal is both historic and pivotal.

David Cole, president of the Center for Automotive Research in Ann Arbor, MI, predicted that industry insiders and observers would look back on this financing package a few years from now and view it as the bridge between "what the company was and what the company has become."

Victor Thomas, 54, an hourly worker at Dearborn Truck who decided against taking a buyout offer, agreed the deal could signal a new mindset at Ford.

"The loan could be one of those things that indicates they are going to make a lot of effort to fix the company," he said.

Ford's new money -- a combination of loans, credit and other financing -- will be used to pay for the revamped Way Forward restructuring plan. That effort aims to cut 44,000 jobs and close 16 plants by 2012; freshen 70 percent of the company's Ford, Mercury and Lincoln lineup by 2008; and get the North American automotive unit back in the black by 2009.

It also will supplement the company's cash reserves over the next few years, when the company is projecting more cash losses, and provide a cushion for Ford in the case of a recession or unanticipated event, such as a larger-than-expected drop-off in sales.

Ford executives were not available to comment on details about the deal. But automotive analysts who study Ford said the size of the deal is far larger than expected and suggests that Ford will lose a substantial amount of cash in 2007.

Although Ford had $23.6 billion in cash on hand at the end of September, concerns about Ford's cash losses for the remainder of this year and through 2007 have been mounting.

Before this deal, Ford estimated it would have $20 billion in cash by year's end, plus $6 billion in credit and $3 billion in a trust to cover future retiree benefits. The company said Monday that it expects to end the year with $38 billion in cash or otherwise at its disposal.

But Ford hasn't said how much cash it expects to use next year. Analysts predict Ford will burn through $5 billion to $14 billion.

Ford is trying to sell several assets to raise cash to meet that demand, including its Aston Martin luxury brand; Automobile Protection Corp., a subsidiary based in Atlanta; and 14 plants and six facilities formerly owned by Visteon Corp.

But the outlook for 2007 suggested Ford needed even more money. Earlier this year, David Healy, an automotive analyst with Burnham Investment Research, predicted Ford would go through $14 billion in 2007. He was relieved Ford was able to secure $18 billion.

"They needed that much - they're going to burn through almost that much this year and next," he told the Free Press Monday. "The alternative was bankruptcy. ... I thought we were headed toward a government bailout."

Goldman Sachs analyst Robert Barry agreed that Ford's back was against a wall.

"Ford had few alternatives," he wrote in a note to investors. The financing transaction will consist of several parts:

-A new five-year credit line of approximately $8 billion that is intended to replace Ford's existing lines of $6.3 billion.

-A loan of about $7 billion.

-Other transactions worth about $3 billion, which may include unsecured notes or bonds convertible into Ford common stock.

The size of the individual components of the financing may vary depending on market conditions, so Ford could not say precisely how much debt it would end up carrying after the transactions are completed.

While many Wall Street analysts reported being pleased that the financing will take away any bankruptcy risk in the near-term, many maintained a cautious tone about Ford's future.

Barry concluded the deal was a "modest net negative" for Ford shares.

"The scale of the new financing highlights the large expected cash burn rate in coming years, which we see remaining significantly negative for years, a clear fundamental headwind," Barry wrote. "And adding leverage in some respects makes the equity riskier."

Shelly Lombard, a senior analyst with Gimme Credit, an independent research service on corporate bonds, told the Free Press she was neutral on the deal. "Our view on Ford hasn't changed," she said. "Ford has given itself some additional time and money, but it still has to execute."

Even though the move reduces the chances Ford would file for bankruptcy, it caused leading credit-rating agencies Moody's Investors Service and Standard & Poor's to downgrade some of Ford's debt, largely because the order of who would get dibs on Ford's assets in the case of liquidation changes. Unsecured debt holders would lose their priority to collect to secured creditors.

Moody's said the outlook for Ford is still negative.

"Completing this financing would considerably strengthen Ford's ability to fund the large cash requirements it will face through 2008," Bruce Clark, a senior vice president with Moody's, wrote in a note Monday. "However, the relatively robust security package being afforded to the term loan and the revolving credit facility hurts the position of unsecured creditors."

Morgan Stanley also said the financing deal raises "the possibility of more aggressive restructuring actions."

(c) 2006, Detroit Free Press. Distributed by Mclatchy-Tribune News Service.