From the November 2010 issue of Treasury & Risk magazine

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Funding for Fuel Efficiency: Ford Motor

Amid the turmoil of late 2008 and 2009, Ford's treasury led the company's efforts to secure a $5.9 billion loan from the Energy Department to develop fuel-efficient vehicles. Applying for the loan required Ford to prove that its technology was viable and that the company was creditworthy. It also had to reconcile the DOE's collateral requirements with the company's existing commitments.

Ford began the process of applying for the loan, part of DOE's Advanced Technology Vehicles Manufacturing Incentives Program, in the fall of 2008. "The key issue that first had to be overcome is, do you have product technologies the government wants to invest in?" says Michael Seneski, assistant treasurer at Ford. The company submitted 13 different projects, providing the DOE with detailed engineering data and other information.

Another hurdle involved the collateral required for the DOE loan, which would only be partly met by the assets Ford acquired with the loan. "We had already pledged our assets, including our trademarks, to our secured creditors," Seneski says.

Lenders of the company's $18 billion secured facility had first lien on Ford's facilities, and $3 billion of the $4 billion second lien had been pledged to the UAW VEBA. Treasury negotiated with its lenders and the UAW to increase the second lien by about $10.4 billion, capacity that can only be used for the government loan.

There was also an operational challenge involved in tracking assets funded with the DOE loan, Seneski says, since some funds will be used for upgrades. "How do you treat those hybrid assets going forward?" he asks. "We needed to come up with a process and system to know which 0f our assets could be claimed by whom."

Ford is paying about 3% for the loan. Seneski notes that when the loan was arranged, the company was basically closed out of the unsecured markets. "It's obviously advantageous funding," he says, but adds that "the government made a loan expecting full repayment with interest, in addition to Ford's commitment to manufacture increasingly fuel-efficient vehicles."

"This is not a grant, it's not a giveaway," Seneski says. It's an investment by the Energy Department "in the technologies that are going to improve fuel economy and lessen our dependence on foreign oil."