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Ford finishes VEBA transfer

January 5, 2010

Ford finishes VEBA transfer

Hourly workers put in union health trust; carmaker pays $500M

The Detroit News

Dearborn — Ford Motor Co. announced Monday it had completed the transfer of all its U.S. hourly retiree health care liabilities to a union-run Voluntary Employees’ Beneficiary Association, or VEBA, and made an extra payment of $500 million toward its future obligations to the trust.

Though Ford had the option of covering up to half of the health care fund payment with company stock, it paid the full amount in cash.

The company has now contributed approximately $6 billion in cash to the VEBA and issued some $7 billion in bonds to cover the remainder.

"The transfer of these health care liabilities to the VEBA trust is the culmination of several years of work and will significantly improve our competitiveness in the U.S.," said Lewis Booth, Ford’s chief financial officer.

"We have removed a substantial health care liability from our balance sheet and have significantly reduced health care expenses. We also have shown confidence in our liquidity and ‘One Ford’ plan by prepaying $500 million of debt owed to the VEBA."

In addition to tapping its available cash, Ford funded the VEBA with previously announced debt offerings that added approximately $7 billion to its debt load, which totaled $27 billion at the end of the third quarter.

But as these payments were anticipated, analysts had already been adding that amount to the company’s long-term debt calculations.

Analyst Shelly Lombard of Gimme Credit said the fact that Ford did not exercise its stock option and was able to make an extra payment is a "sign of the strength of their balance sheet."

"They know how important cash is," she said.

"It was the only thing that got them through this down cycle. So it says a lot about their financial health and their outlook for auto sales in the coming year."

Wall Street reacted favorably to the VEBA news Monday, sending Ford’s stock up 2.8 percent to close at $10.28 a share.

The United Auto Workers agreed to assume responsibility for Ford’s hourly retiree health care obligations as part of its 2007 labor agreement with the company.

The rising cost of providing health care to retired factory workers has long been a drag on the company’s bottom line and the source of anxiety for investors.

The union negotiated similar deals with General Motors Co. and Chrysler Group LLC.

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