(Headlines - scroll down for full stories)
1. Ford on Collision Course With Bankruptcy?
2. Home Prices Slide Once Again
3. Forbes: World's Super Rich Call London Home
4. Durable Goods Orders Plunge
1. Ford on Collision Course With Bankruptcy?
Ford Motor Company yesterday announced plans to procure $18 billion to finance
its "Way Forward" turnaround plan, and details of the financing deal reveal that
Ford is putting up nearly all of its domestic assets as collateral.
Ford is risking its U.S. plants, office buildings, patents, trademarks, and
stakes in its credit division, Ford Credit, and Volvo. That's the first time in
the company's 103-year history that it was forced to mortgage parts of its
business to obtain financing.
Story Continues Below
Ford said in a statement that it needed the funding "to address near- and
medium-term negative operating-related cash flow, to fund its restructuring, and
to provide added liquidity to protect against a recession or other unanticipated
events."
The company arranged the financing with investment banks J.P. Morgan Chase,
Citigroup, and Goldman Sachs. Under the terms, Ford is replacing an existing
$6.3 billion unsecured line of credit with a new $8 billion secured, five-year
revolving line of credit, and it's taking out an additional secured loan for $7
billion. There's also another $3 billion unsecured loan.
Secured debt means that the issuers can seize assets if Ford defaults. That puts
Ford bondholders and stockholders, which are unsecured, at a considerable
disadvantage should the company file for bankruptcy.
That's because in the food chain of bankruptcy, the secured loans get paid
first; the unsecured bondholders rank second; and the stockholders, third.
For example, Fitch Ratings tells The Chicago Tribune that unsecured bondholders
can expect to recover just 34 percent of their investment if Ford defaults,
compared to 68 percent before the new financing deal was made. Standard & Poor's
and Moody's both lowered Ford's unsecured debt ratings on Monday.
"If management fails to make the ailing company profitable, Ford may be left
with little choice but to find a buyer or merger partner or file for bankruptcy
protection," explains The New York Times.
The good news is that experts say Ford's new cash flow could buy it at least two
years before being forced into bankruptcy, according to reports.
"Ford has bought itself some additional time and money," Shelley Lombard of the
bond-analysis firm Gimme Credit tells the Tribune, "but it still has to
execute."
"Completing this financing would considerably strengthen Ford's ability to fund
the large cash requirements it will face through 2008," noted Moody's Investors
Service.
And while Ford "still faces daunting competitive and market challenges, this
plan would give it some breathing room over the next two years," said Moody's.
But Ford lost about $7 billion in the first nine months of this year. At this
pace, the company will have less than two years to stage its turnaround. In
addition, the company says it doesn't expect to turn a profit until 2009 at the
earliest, reports the Times.
Ford should use this opportunity to get its turnaround plan in gear.
Editor's Note:
2. Home Prices Slide Once Again
Sales of existing homes posted a tiny increase in October but the median home
price fell by a record amount.
Analysts forecast more price declines in coming months as the once-booming
housing market undergoes a painful correction.
The National Association of Realtors said Tuesday that existing home sales edged
up 0.5 percent to a seasonally adjusted annual rate of 6.24 million last month.
It was the first increase after seven consecutive monthly declines.
However, the median price for a home sold dropped to $221,000 in October, a
decline of 3.5 percent from a year ago. That was the biggest year-over-year
price decline on record.
It marked the third straight month that median prices have fallen compared with
the same period a year ago, the longest stretch of such declines on record. The
median is the point where half the homes sold for more and half for less.
David Lereah, chief economist for the National Association of Realtors, said he
expected home prices to continue falling for the rest of the year as sellers,
accustomed to the booming market conditions of previous years, reluctantly cut
their prices.
"Many buyers remain on the sidelines," Lereah said. "After a period of price
adjustment, we'll see more confidence in the market and a lift to home sales
should be apparent in the first quarter of 2007."
The once-booming housing market, which had been one of the economy's standout
performers for the past five years, has experienced a significant slowdown this
year, which has dragged down overall economic growth.
Some analysts have worried that the correction in housing could be severe enough
to drag the entire country into a recession. However, those fears have eased in
recent months as a big fall in gasoline and other energy prices has provided
support for consumer spending.
For October, sales were down 2.9 percent in the Northeast and 1.2 percent in the
South. However, they rose by 6.4 percent in the West and were unchanged in the
Midwest.
The inventory of unsold homes rose by 1.9 percent in October to 3.85 million
units, the second highest total on record. It would take 7.4 months to exhaust
the backlog of unsold homes at the October sales pace.
Analysts predicted further price declines with inventories of both existing and
new homes hovering near record levels.
By region of the country, median prices were down the most in the South, a drop
of 7 percent followed by declines of 5.2 percent in the Northeast and 1.2
percent in the Midwest.
Lereah said the big price decline in the South could represent not only sellers
adjusting their asking prices, but also a changing mix of sales with
lower-priced areas of the South such as Texas seeing an increase in sales, while
high-priced areas such as the Washington, D.C., area and Florida still suffering
sales declines.
© 2006 Associated Press
Editor's Note:
3. Forbes: World's Super Rich Call London Home
The world's super rich flock to London more than any other city in the world,
says Forbes Magazine. Though New York has more billionaires, most of them are
homegrown.
London is home to billionaires from places like India, Iceland, and South
Africa. Of the 23 billionaires living in London, 12 are British. Forbes says
London's appeal lies in its accessibility, stability, low taxation, and the
global standing of city institutions.
"Low taxation is a big attraction. It is not stretching a point too far to say
that for the super-rich, London is a tax haven," says Forbes' Paul Maidment.
"The U.K.'s tax laws contain provisions that enable non-British-born individuals
who live in London for some but not all the time to be taxed only on their U.K.
earnings."
"There are elegant shops, luxurious private clubs and good schools for the
children, all expensive enough to keep the riff-raff at bay," he added.
According Maidment, "Many cities vie for the title of the world's capital, but
London still attracts the elite of the world's rich and successful. And it can
lay claim unchallenged to one title: It is the magnet for the world's
billionaires."
Lakshmi Mittal is London's richest resident. The Indian steel mogul is the
world's fifth-richest person with an estimated fortune of $23.5 billion.
Russian Roman Abramovich, who owns the Chelsea Football Club, London's
second-richest person. Abramovich is the world's 11th-richest person with an
estimated wealth of $18.2 billion.
Russian-American oil magnate Leonard Blavatnik and Heineken-heiress Charlene de
Carvalho-Heineken are third and fourth on London's richest list.
"Billionaires are, by nature, a peripatetic lot. They can afford to own property
on many continents, and do. Their business interests and their investments are
global," says Maidment.
"Their money travels the world as much as they do. On any day of the year, they
are as likely to be in London or New York or Shanghai or Monaco. In a sense,
they are citizens of no country but the self-contained universe of the super
wealthy. Yet they do have to have the occasional points of contact with the rest
of the world. London offers them a welcoming ecosystem," he continued.
New York has 34 billionaires, mainly Americans. Moscow and San Francisco have 20
billionaires in their midst.
Editor's Note:
4. Durable Goods Orders Plunge
Orders for big-ticket manufactured goods plunged in October by the largest
amount in more than six years, in another sign of a slowing economy.
The Commerce Department reported Tuesday that demand for durable goods fell a
larger-than-expected 8.3 percent last month to a seasonally adjusted $210
billion, reflecting a big drop in demand for commercial airplanes, a category
that had soared in September.
It marked the third month in the past four that orders have either fallen or
shown no gain, providing evidence that the nation's factories are beginning to
feel the impact of the slowdown in the overall economy.
The 8.3 percent drop in orders for durable goods, items such as airplanes and
autos that are expected to last at least three years, was the largest one-month
decline since a 14 percent plunge in July 2000. It followed an 8.7 percent surge
in September.
Both October and September were heavily influenced by demand for commercial
aircraft, which fell by 44.5 percent last month after airplane orders had nearly
tripled in September.
Overall, orders in transportation industries dropped 21.7 percent as a small 1.4
percent increase in demand for motor vehicles was not enough to offset the big
drop in aircraft.
There was widespread weakness in a number of industries with demand for
computers, communication equipment and primary metals such as steel all falling.
Excluding transportation, orders were down 1.7 percent, the biggest decline in
15 months and the third drop in this category in the past four months.
After starting the year at a sizzling pace, economic growth slowed sharply in
the spring and summer as consumers were battered by soaring energy prices,
rising interest rates and a slumping housing market.
The government on Wednesday will release a revised figure for economic growth in
the July-September quarter. Many economists were forecasting a slight upward
revision to a 1.8 percent growth rate in the third quarter compared to an
initial estimate of 1.6 percent.
The slump in housing trimmed growth by 1.1 percentage point in the third quarter
and economists believe that weakness will also pull down growth in the final
three months of this year.
Editor's Note:
Editor's Notes:
