Normally, companies increase leverage when they go private and any bonds or other liabilities senior to equity experience a decline in credit quality. These securities are convertible preferred shares issued as part of a special trust* in 2002 when Ford Motor** cut its dividend and allowed shareholder to exchange common stock for these higher yielding preference shares. In my opinion, this was done to allow Henry Ford's defendants to keep their income (and lifestyles) by giving up some potentials capital gains. Thus, I believe that these are special protected securities and would not suffer in any capital restructuring that would result from a management, hedge fund or family buyout of the common stock.
Yes, I added slightly to my position in my IRA yesterday.
Notes: *From the Notes to the 2003 Ford Motor Company Annual Report:
Ford Motor Company Capital Trust II, a subsidiary trust ("Trust II"), has outstanding 6.50% Cumulative Convertible Trust Preferred Securities with an aggregate liquidation preference of $5 billion (the "Trust II Preferred Securities"). The sole assets of Trust II are $5,155 million principal amount of 6.50% Junior Subordinated Debentures due 2032 of Ford Motor Company (the "Subordinated Debentures"). At our option, we may redeem the Subordinated Debentures, in whole or in part, on or after January 15, 2007. To the extent we redeem the Subordinated Debentures or upon the maturity of the Subordinated Debentures, Trust II is required to redeem the Trust II Preferred Securities at $50 per share plus accrued and unpaid distributions. We guarantee the payment of all distribution and other payments of the Trust II Preferred Securities to the extent not paid by Trust II, but only if and to the extent we have made a payment of interest or principal on the Subordinated Debentures.
** In the past, I have criticized Ford Motor Company for not doing enough to be on the cutting edge of new hybrid and other energy efficient technology. I believe it is this risk averse attitude that contributes to the company's current problems.
F.PRS 1-yr chart:
F 1-yr chart:
Disclosure: I own [F.PRS] Ford Motor Company Capital Trust II 6.5% Cumulative Convertible Trust Preferred Securities. I also own a bear put spread on Ford Motor Co (F) that expires in January 2008. I am long the 7.50 strike put and short the 5.00 strike put. I added slightly to my position in my IRA yesterday.