Ford’s plan to defer loan payments a ‘concerning sign’ for investors

DETROIT — Ford Motor Co. confirmed Friday that it sought and won permission from the U.S. Department of Energy to defer debt payments owed for a 2009 government loan.

The action is viewed as “worrisome” to an expert who closely follows bankruptcy trends.

Regulatory documents filed by Ford showed the company owed payments of $591 million in 2020, $591 million in 2021 and $289 million in 2022.

“The fact that Ford Motor Co., a multibillion dollar organization, finds it necessary to defer loan payments of that size would be a concerning sign to their investors,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.

“They’re obviously conserving cash but, the question is, for that relatively small amount for a company so big? You have to ask why,” he said.

Elson is based at a policy center named for a former Ford corporate counsel.

Ford confirmed the company modified the government loan in June to drop quarterly payments on the principal owed from $148 million to $37 million. Ford also confirmed $1.26 billion remains on the principal and deferral will include additional costs involving interest and a higher interest rate.

Meanwhile, spokesman T.R. Reid at Ford dismissed concern.

“It’s a very small, cost-effective part of Ford’s liquidity,” he said. “It’s good balance sheet management to reduce interim payments where possible.”

The loan matures in June 2022, Reid said. “We plan to pay off the loan in full and on time.”

On Thursday afternoon, the automaker reported a $1.9 billion earnings loss for the second quarter while forecasting its financials would continue to present challenges in coming months separate and apart from the coronavirus.

Upcoming launches of the Ford F-150, Bronco Sport and Mustang Mach-E SUV are costly endeavors that will affect the bottom line during the second half of 2020, warned Ford Chief Financial Officer Tim Stone in a call with Wall Street analysts after the earnings report was released.

Ford entered into an agreement with the energy department and borrowed $5.9 billion as part of a loan program created to finance projects designed to help vehicles built in the U.S. meet higher mileage requirements and lessen U.S. dependence on foreign oil.

Ford, Nissan and Tesla are listed as loan recipients of the Advanced Technology Vehicles Manufacturing loan program.

Nissan was awarded $1.6 billion for its Tennessee operations and Tesla garnered $465 million for California projects. They each took the loans a year after Ford and repaid the debt in full, when the auto industry was thriving. Tesla paid off the loan nine years early, in May 2013. Nissan fully repaid in September 2017.

Ford has suggested the government debt payments are “relatively small” and no cause for alarm. The company has renegotiated a number of loans in response to managing the COVID-19 fallout, a decade after the Great Recession.

However, market analyst Jon Gabrielsen said the Ford action is “alarming.”

“When a large company needs to defer debts that are this small, it signifies just how dire their financial circumstances must be,” Gabrielsen said. “This is like me asking you if you can pay for my ham sandwich, diet coke with chips for the rest of the year when we have lunch at work each day.”

The company told Reuters that “deferring a portion of the principal until the maturity date will also result in incremental interest cost to Ford, in addition to the cost to modify the loan. All costs associated with the modification were covered by Ford through a higher interest rate.”

But, Ford told Reuters, “the financing remains very cost-effective.”

Ford CEO Jim Hackett reassured analysts on the call Thursday that the company was on track and confident about the future. He praised the financial situation.

Over the first full half of 2020, regulatory documents show that Ford has newly borrowed $44.3 billion and paid off past debt of $23.3 billion. That reflects an increasing debt over the past six months of $21 billion, according to a filing.