Ford in Uphill Challenge Despite Cutting Debt $9.9 Billion

The good news: Ford announced yesterday that it cut its debt by $9.9 billion.

The bad news: Analysts say the automaker's finances could still crumble later this year despite the aggressive restructuring.

While Ford has strived to set itself apart from its struggling Detroit rivals, who have turned to the Treasury Department for federal loans, it must tackle the same economic slump that has dragged down the entire industry.

"The failure of competitors or key suppliers could further complicate Ford's situation and cause it to ask for the government loans that it is trying to avoid," said Efraim Levy, auto manufacturers and parts analyst for Standard and Poor's.

Ford insists that it does not need government assistance.

"Ford continues to lead the industry in taking the decisive actions necessary to weather the current downturn and deliver long-term profitable growth," Ford chief executive Alan Mulally said in a statement.

For now, the debt restructuring, which reduces Ford's interest payments by more than $500 million this year, "will substantially strengthen Ford's balance sheet," the company said.

Ford shares jumped 16 percent to close at $3.77.

Under the deal, the automaker and its finance arm will pay $2.4 billion and issue 468 million shares. On average, Ford paid 38 cents on the dollar in cash and stock to retire $9.9 billion of its $25.8 billion in debt, Ford spokesman Mark Truby said.

"It was a successful transaction and met all our expectations," said Neil Schloss, Ford's treasurer.

Ford's move comes as General Motors and Chrysler are being asked by the government to reduce their debt by two-thirds in order to receive federal aid. The two companies have yet to reach a deal with their debt holders.

"GM and Chrysler are running to keep up with Ford," said Shelly Lombard, a senior high yield analyst for bond researcher Gimme Credit.