Ford Motor Co said on Monday it had slashed automotive debt by 38 percent, or $9.9 billion, bolstering its finances amid a deep auto industry downturn and sending its shares up more than 13 percent.

Ford said the debt restructuring efforts would trim its cash interest expenses by more than $500 million per year, providing the latest evidence that Ford is ahead of domestic rivals General Motors Corp and Chrysler in restructuring to survive the lowest U.S. auto sales in three decades.

Clearly it is a strong positive for the company, the ability to reduce liabilities and the interest burden, Fitch Ratings managing director Mark Oline said.

Ford, the only U.S. automaker not operating with emergency U.S. government loans, is using $2.4 billion in cash and 468 million shares of common stock to cut its automotive debt from the $25.8 billion it had at the end of 2008.

Ford also was the first U.S. automaker to reach agreement with the United Auto Workers to slash cash payments for a union retiree healthcare trust. GM and Chrysler remain in talks with the UAW to restructure their healthcare trust obligations.

As with our recent agreements with the UAW, 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.

Ford, in its agreement with the UAW on labor cost cuts and a reworking of the funding of the healthcare trust, a Voluntary Employee Beneficiary Association, had agreed to make efforts to cut its debt over time and make executive pay cuts.

Those reductions had been intended to roughly match the details GM and Chrysler had agreed to in accepting emergency loans from the U.S. government.

SEVERE STRESS

Ford has not sought emergency government loans and Oline said that Fitch believes the automaker has sufficient liquidity to make it through 2009, though it remains under severe stress.

At this point the interest of the bondholders and equity holders are pretty much aligned, Oline said. Both want Ford to survive the current environment.

Ford, through its Ford Motor Credit finance arm, used $1 billion in cash to buy back $2.2 billion of debt at 47 cents on the dollar, and $1.1 billion in cash to purchase $3.4 billion of unsecured notes.

In addition, $4.3 billion of Ford's 4.25 percent senior convertible notes were tendered by April 3, when a debt restructuring offer closed. Ford will use $344 million to pay a cash premium to note holders who tendered.

Ford, which borrowed $23 billion in late 2006 secured with most of its remaining assets, including the familiar blue oval logo, has tried to restructure its debt to slash financing costs at a time of plunging sales and tight credit.

GM, which has been operating with $13.4 billion of government loans since the start of the year, is under pressure to reach sweeping concessions with bondholders and the UAW by June 1. The Obama administration has said the alternative would be a government-controlled bankruptcy.

Ford's shares were up 44 cents at $3.69 on the New York Stock Exchange.

(Reporting by Soyoung Kim and David Bailey; Editing by Maureen Bavdek and Brian Moss)

Ford Motor Company General motors Chrysler