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Ford debt would likely benefit from Jaguar sale

Automotive News | 4:30 pm, June 12, 2007

NEW YORK (Reuters) -- Ford Motor Co.'s debt will likely rally if the company sells its money losing Jaguar luxury car brand, which has been a drag on the automaker's performance.

Ford today confirmed an Automotive News report on Monday that it was working with financial advisers on the best options for its European luxury brands Jaguar and Land Rover.

Last month, however, Ford denied media reports it was selling Volvo.

"It's fantastic news if they can get rid of Jaguar ... just being able to get rid of the burden of it will be huge," said Brad Rubin, senior auto sector trading specialist at BNP Paribas in New York.

Land Rover has said it expects to be profitable this year but Ford has struggled to make money with Jaguar. The brand, known for its leaping cat hood ornament, remains the biggest drag on the results of Ford's luxury division, the Premier Automotive Group (PAG).

"Volvo and Land Rover I'm more indifferent on, it can't hurt, they are never going to add significantly to the overall results," Rubin said. "It simplifies the operation, in which case Ford can focus on North America once again."

The cost to insure Ford's debt fell on Monday on reports the company was looking to sell the two units, though it retraced its gains on Tuesday to around 505 basis points, or $505,000 per year for five years to insure $10 million in debt.

A sale of the units could send Ford's spreads at least 40 to 50 basis points narrower, Rubin said. Ford's debt may also benefit if the automaker can significantly reduce its retiree health care liability, or transfer it to the United Auto Workers union, he said.

"That would be a high positive for Ford and allow them to be potentially competitive once again," he said.

The UAW's current contract with U.S. automakers expires on Sept. 14, and analysts say the UAW faces intense pressure to offer givebacks on health care benefits that the automakers estimate add $1,000 to the cost of an American-made car.

"We view a potential sale of any or all PAG assets as positive, given that Ford does not have a competitive advantage in premium luxury products. A sale of any or all PAG assets would enable Ford to direct greater focus on its core brands," analysts at Barclays Capital said on Tuesday in a report.

"Moreover, a sale of any or all units would enhance liquidity ahead of its restructuring activity," they added. Barclays has a "buy" recommendation on Ford's debt.

Ford is in a four-year turnaround plan announced in 2006 that aims to cut 16 plants and up to 45,000 jobs.
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