updated 3/4/2009 8:09:22 PM ET 2009-03-05T01:09:22

Ford Motor Co. said Wednesday it will try to eliminate up to $10.4 billion of its debt by offering debtholders cash and stock as the troubled automaker continues to restructure amid a severe automotive sales downturn.

The Dearborn-based company and its financial arm are putting up $2.2 billion in cash and about 500 million shares of stock to entice holders of bonds and secured-term debt into the swap. The company said reducing the debt will cut the amount it pays in interest and put it in better position to compete with General Motors Corp. and Chrysler LLC.

“This is all part of a restructuring plan to make the company healthier in the end,” said Ford spokesman Mark Truby.

GM and Chrysler also are trying to swap debt for equity as a requirement of the $17.4 billion in government loans they have received.

Ford said Wednesday that it still does not intend to seek government loans.

The company said in a news release it will offer to convert up to $4.9 billion in bonds issued in 2006. For each $1,000 bond, the company will offer 108.7 shares of stock that had been set aside when the bonds were issued, plus $80 in cash.

In addition, the company will offer to pay up to $1.3 billion in cash from Ford Motor Credit Co. for up to another $4.2 billion in bonds. Those bonds would be purchased for 30 cents on the dollar, when they are now trading at around 20 cents, the company said.

The unsecured debt swap offers expire at 9 a.m. on April 3. However, the offer of 30 cents on the dollar will drop to 27 cents after March 19, the company said.

Other components of the offer include trading $500 million in cash for up to $1.3 billion in term loans through an auction process, the company said.

Ford also said it will defer dividend payments on its 6.5 percent preferred securities starting in April.

Ford said it is trying to match the debt restructuring requirements imposed on Chrysler and GM under the terms of their government loans. GM’s terms, for instance, set a target for the company to swap two-thirds of its unsecured debt for equity.

Ford had $25.8 billion in debt at the end of 2008.

By converting debt to shares, current stockholders’ equity in the company will be diminished. The 500 million shares Ford is offering will make a large addition to the approximately 2.3 billion shares of common stock that are outstanding.

But Truby said those shares were issued but unsold at the time of the original debt offering, so there shouldn’t be much dilution.

Before Ford announced its offers, its shares closed up 6 cents to $1.87. The shares fell 21 cents, or 11.2 percent, to $1.66 in after-hours trading.

Ford said it has no target amount of debt it wants to swap for equity. It said that all of its offers are worth more than the current market value of the debt.

Ford last year posted the worst annual loss in its 105-year history at $14.6 billion, beating the old record of $12.6 billion two years earlier.

The company’s sales were off 48 percent last month as U.S. auto sales continued to slump.

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