Ford 2010 Annual Report Download - page 46

Management’s Discussion and Analysis of Financial Condition and Results of Operations
44 Ford Motor Company | 2010 Annual Report
The Credit Agreement requires ongoing compliance with a borrowing base covenant and contains other restrictive
covenants, including a restriction on our ability to pay dividends. The Credit Agreement prohibits the payment of
dividends (other than dividends payable solely in stock) on Ford Common and Class B Stock, subject to certain limited
exceptions. In addition, the Credit Agreement contains a liquidity covenant requiring us to maintain a minimum of
$4 billion in the aggregate of domestic cash, cash equivalents, loaned and marketable securities and short-term VEBA
assets and/or availability under the revolving credit facility.
With respect to the borrowing base covenant, we are required to limit the outstanding amount of debt under the Credit
Agreement as well as certain permitted additional indebtedness secured by the collateral described above such that the
total debt outstanding does not exceed the value of the collateral as calculated in accordance with the Credit Agreement
(the "Borrowing Base value").
The following table provides detail of Borrowing Base values for various categories of collateral (in millions, except
percentages):
Eligible Value (a)
Eligible Value (a)Eligible Value (a)
Eligible Value (a)
Advance Rate
Advance RateAdvance Rate
Advance Rate
Borrowing Base Borrowing BaseBorrowing Base
Borrowing Base
U.S. receivables.................................................................................................
................................
$ 678 75% $ 509
U.S. inventory. ................................................................................................
................................
1,899 60% 1,139
Pledge of Ford Motor Company of Canada, Limited intercompany notes
(limited to its total tangible assets) ................................................................
................................
391 100% 391
Pledge of equity in Ford Credit and certain foreign subsidiaries (net of
intercompany transactions) ................................................................
................................
19,292 75% 14,471
U.S. property, plant, and equipment subject to indenture limitation
................................
4,101 48% 1,971
Other U.S. machinery and equipment ................................................................
................................
2,901 40% 1,160
Intellectual property and U.S. trademarks (b)................................
................................
7,900 32% 2,500
Eligible value/borrowing base ................................................................
................................
$ 37,162 $ 22,141
__________
(a) Based on formulas set forth in the Credit Agreement, and not necessarily indicative of fair market value (which could be materially higher or
lower); receivables, inventory, intercompany notes, and property, plant and equipment reflect net book value at December 31, 2010; equity of
Ford Credit is based on its book value at December 31, 2010, net of certain intercompany transactions, and equity in other subsidiaries is
based on a multiple of their two-year average earnings before interest, taxes, depreciation, and amortization ("EBITDA") less debt. For these
purposes, EBITDA is defined as statutorily reported consolidated operating income plus depreciation and amortization.
(b) Value reflects independent third party valuation of trademarks.
As of December 31, 2010, the Borrowing Base value and the total outstanding amount of debt and letters of credit
secured by collateral were $22,141 million and $5,298 million, respectively, compared with $24,634 million and
$13,206 million, respectively, at December 31, 2009. This resulted in a collateral coverage ratio of 4.18 to 1 at
December 31, 2010, compared with a collateral coverage ratio of 1.87 to 1 at December 31, 2009. The borrowing base
covenant requires a collateral coverage ratio of at least 1 to 1 assuming the revolving credit facility is fully drawn. The
Borrowing Base value decreased by $2.5 billion over the corresponding value at December 31, 2009, primarily due to the
sale of Volvo. As a result, on a basis that assumes the revolving loan facility is fully drawn, the collateral coverage ratio
at December 31, 2010 (1.82 to 1) decreased from that at December 31, 2009 (1.84 to 1).
In addition to customary payment, representation, bankruptcy, and judgment defaults, the Credit Agreement contains
cross-payment and cross-acceleration defaults with respect to other debt for borrowed money, and a change in control
default provision.
U.S. Department of Energy ("DOE") Alternative Technology Vehicle Manufacturer ("ATVM") Incentive Program. We
submitted to the DOE an application dated November 18, 2008 for term loans totaling $11.4 billion pursuant to the DOE’s
ATVM Program. Our application, which was deemed substantially complete on December 16, 2008, related to ATVM
Program expenditures approved by the DOE to be made by us extending beyond 2011. By mutual agreement, our
application was amended and restated on June 12, 2009 (as so amended and restated, the “Application”) to request,
initially, term loans totaling $5.9 billion to fund up to 80% of the ATVM Program expenditures approved through mid-
2012. The ATVM Program was authorized by section 136 of the Energy Independence and Security Act of 2007, as
amended from time to time, to provide up to $25 billion of loans to automobile and automobile part manufacturers for the
cost of re-equipping, expanding, or establishing manufacturing facilities in the United States to produce advanced
technology vehicles or qualified components, and for associated engineering integration costs. Loans under the ATVM
Program are made by and through the Federal Financing Bank, an instrumentality of the U.S. government created by the
Federal Financing Bank Act of 1973 that is under the general supervision of the Secretary of the Treasury.