Ford To Buy Back $5B High-Interest Debt: What You Need To Know

Ford Motor Co F said on Thursday it has launched cash tender offers to buy back up to $5 billion of debt securities. 

What Happened: The Dearborn Michigan-based automaker said it is looking to buy back a series of securities that are due between 2023 and 2047 and that it would fund with cash on the balance sheet.

“Assuming $5 billion of bonds are tendered, Ford expects to incur a charge in the range of $1.0-1.2 billion for debt extinguishment,” the company said, adding that it expects to classify it as a special item in its fourth-quarter results. 

The tender offers will expire on Dec. 3 and are subject to certain conditions.

The repurchase was announced as part of Ford's new "sustainable financing framework," that focuses on vehicle electrification and other environmental and social areas such as clean manufacturing and community revitalization.

Ford reported it had $27.43 billion cash and cash equivalents as of Sept. 30 and long-term debt of $97.25 billion, including Ford credit.

See Also: Ford Raises 5-Year EV Investment Target To $30B After High-Flying F-150 Lightning Launch: All You Need To Know

Why It Matters: Ford is buying back most of the $8 billion debt that it had raised last year from corporate investors at the start of the coronavirus pandemic to shore up its cash reserves. 

The automaker had lost its investment-grade status in March last year as the coronavirus outbreak pummeled vehicle sales and production following which it raised new funds with a three-part debt offering at an interest of between 8.50% and 9.625% on the new debt securities.

Ford had earlier this year announced plans to boost spending on electric vehicle development to $30 billion by 2025 under a new turnaround plan and expects 40% car sales by 2030 to be EVs. 

Price Action: Ford shares closed 4.24% higher at $19.42 a share on Thursday.