As it turns out, a larger than comfortable portion of my retirement is in Ford Motor Company bonds. Why? Because at the time, the contract said the initial principle was guaranteed after 5 years, it paid a guaranteed healthy interest rate, and the bond was payable until 2032. In other words, a guaranteed, stabile income to count on in our retirement!
Today we were informed by both Ford and our financial planner that Ford has stated it is no longer able to pay the interest on the bonds. In addition, they are offering 25 cents on the dollar, a 75% loss on the original principle, take it or leave it! Their letter said they expect to be either in bankruptcy or reorganization by the end of next quarter. . . .either way the bonds are no longer good or payable!
How can they do this? These are bonds, not stock. How can our government bail out AIG, Citicard, GM, Chrysler, etc so they can give their executives multimillion dollar bonuses, but allow Ford to default on their obligations to pay back loans to middle class retirees?
I love my Model T's, but even if Ford reorganizes, I'll never buy another car from them!

Bob, I am real sorry to hear about your Ford Motor Co. Bonds. This is surprising news since Ford has been telling the government that it does not want bail out money.

Jim

This hasn't come up on either AOL news or the New York Times web page. A default by Ford would be major news. Are you sure you're getting the straight story?

Gil Fitzhugh, Morristown, NJ

Yeah....and I just sunk some money into a corporate bond fund...'sunk' probably an accurate word...another good nights' sleep...not!

Jim- Thank you, but that's what surprised me, that they haven't asked for any bailout funds, like Chrysler and GM. Our government has provided bailout money (read "taxpayer money") even to some foreign banks.

oldcarfudd- have the letter in my hands from Ford Motor Co. I meant to say "receivership", not reorganization. It says they expect "to be in bankruptcy or receivership by the end of next quarter", but regardless they will not be paying interest on the bonds from this quarter on, and are not obligated to return ANY of the original principle if this offer is not accepted (regardless of the contract language which says this cannot happen). Unlike a stock, where you realistically MAY lose everything, the wording in the contract of this bond made this supposedly "impossible" to happen, and is being done with the permission of the government.
As I hope you understand, I'm not asking for help, just upset and venting! Thanks for listening.

Bob - even from way down here in New Zealand this is surprising, and disappointing if it's accurate. Of the three carmakers I thought Ford was least at risk. We all did!
Clearly your investment is at risk, which is awful. But the other side of the story is the future of the Ford Motor Co.
Are you sure it is not the financial institute, rather than the Ford Motor Co, that expects to be in receivership or bankruptcy? If it were the Ford Motor Co, presumably the letter you have received will have gone out to hundreds - thousands? and surely the media would be well onto it by now?
John

On the matter of AIG and government bailouts, I realise this is not a political forum, but I do hope the Manchester United fans are appreciative of the on-going £56.5M sponsorship of their favourite club by the AIG.
Something is very wrong!
Looking forward to finding out more about where Bob's problem has come from.
John (again)

Bob - I'm sorry to hear of your misfortune. Hopefully all will turn out ok in the end.

Best wishes, Keith Gumbinger

You can read about Ford's tender offer here (see "Ford Debt Restructuring Plan"):

http://www.ford.com/about-ford/investor-relations

A tender offer is an offer to purchase securities from the current holders.

It sounds like you own debentures that are due 01/15/2032. A debenture is an unsecured bond and is a general obligation backed only by the integrity of the borrower and documented by an agreement called an indenture.

A debenture is not a guaranteed bond. (A guaranteed bond is a bond on which the principal and interested are guaranteed by a firm other than the issuer. A guarantee is only as good as the paying ability of the third party acting as the guarantor.)

ALL securities involve risk. Corporate bonds are neither risk-free nor immune from default of interest or principal payments.

Erik Johnson

"obligation backed only by the INTEGRITY of the borrower. . ."

I think that's an interesting statement regarding Ford Motor Company. I wish I had the option to tell Ford that "I've paid 25% of the amount due on my new Ford truck, times are tough, so I don't think I'm going complete my obligation to you, even tho I signed a contract! But I am going to keep the truck!" I'm losing A LOT more money from Ford than I owe on my new truck. Why can't I cancel my loan from them, like they're doing to me?
I also think it's interesting that Goldman, Sachs & Co., CitiGroup, JPMorgan, and Morgan Stanley (who were responsible for putting this bond in our retirement fund in the first place) are 4 of the companies involved in restructuring and managing the offer to get Ford out of their obligations!
Someone say INTEGRITY???!

Does anyone know why this hasn't made the news??? It sure beats the "Octomom!!"

Mike

Geez,I cant beleive that is happening.I am sorry to read about the money loss.

I am so sick of the octomom and the man haveing babies I aint even turned on a tv except for the weather in a long time.

Does your local tv station have an investgative reporter. if so ask if they can look into it and what the deal is. Hate to give ford a bad rap, but I have lost half of my retirement and on disablity have no chance of replaceing it and stories like this hits to close to home. Good luck Robert

Bob,

Not trying to defend FORD, but do think a little 'talk' on how the bond market works is in order for those reading this thread.

There are fancy bonds and hybrid bonds and bonds that can even pay a partial dividend as you go along. These are all permutations, and my advice to everyone is to stay away from the 'fancies',as to me they are always structured to let someone else make money and not the real bond holder.

I think what Bob has is a STANDARD bond and it is a debiture bond issued by FORD and due in 2032 if I'm seeing the right thing on the website offered.

Regardless of what Bob was told, a debiture bond is like lending money to your next door neighbor. There are no guarantees...other than a promise that come 2032 IF FORD is in business, they will 'honor' the face mount of the bond with cash equal to the face amount. Kind of like the old Popeye and Wimpy relationship..."I would be glad to pay you Tuesday for a hamburger bought today."

Now in the boiler plate on the bond itself, there will most ALWAYS be a 'call' provision by the bond offerer that allows them to 'buy back' the bonds. This is because like the guy sitting on an 8% mortgage, when he finds a 5.8% he uses the one to pay off the old.

I don't know the full details of this bond, but the way it should have worked is that the due date is 2032, they told Bob that the yield was 8.9 [or so] and financial planners will always allude that yield is 'return'. That bond probably sold for somewhere in the range of 250 +/- bucks per 1000 buck face value purchased.

Bonds can be traded before maturity and that is another wild ride. When sotcks are up, bonds are usually 'off' and when stocks are usually down, the bond fetches more. It's the old agreeing and willing buyer and seller.

What surprises me is that apparently Bob financial planner never told him that the super high yield bonds, even offered by a blue chip to use the 'old' term, almost never make it to maturity...the bond issuer always finds a way to get his 'call' provision in place...just like in our mortgage example.

So Bob, find out what you bought each bond for...without the broker commissions......looks like Ford is offering 300 bucks per 1000 future note, if it is the bond issue that Erik mentions. Ford already has figured out that is a better price than what you can get for it on the street as they do mention a 3% premium.

Take 300 minus what was paid. Take what is to the right of the decimal point and divide it by the years owned. That is what your average return was from Ford. Now...subtract what was the brokers commision and if you only wind up with the original investment or there abouts, thank your planner and ask him how his new car is...tell him you bought him the tires. Not being cruel here, thats the way these things always go and he should have told you so in the first place in my book!

For those that like the idea of bond yields...my suggestion would be to go the mutual bond fund route.....get a call provision on one in the nestegg? The mutual fund manager should turn and flip it into something with an equal yield, before you even know it happened.

George:

Ford is making a tender offer. A tender offer IS NOT a call.

When discussing bonds, a call provision is the issuer's right to redeem outstanding bonds before maturity. Bonds called before maturity are redeemed at face value (aka par value) and may include a premium as dictated by the terms of the bond indenture. If a bond is called, the redemption is essentially mandatory -i.e., the bondholder has no choice or say in the matter.

A tender offer is an offer to purchase securities. A tender offer is not a mandatory redemption - the security holders are not required to sell (tender) their securities to the party making the tender offer.

Erik Johnson

Erik and George-
Sorry it took me so long to get back on here, but I had to have the company financial planner fax over the original agreement. After having reread and explained to me, I both agree and disagree with some of the things said.
Erik- our bonds are not debentures.

George- these bonds were not bought at discount. The face value of the bonds was the actual amount paid (i.e. $10,000 paid for a $10,000 face value bond, in multiples) with 8.9% being paid as interest, and the $10,000 face value being fully redeemable after holding the bond for at least 5 years. I understand that the value of the bond fluctuates with the market (and if sold before maturity, the value may be less), but we agreed as a group to the purchase of these bonds because RIGHT ON THE FRONT PAGE IT STATES THAT THE FACE VALUE OF THE BOND IS FULLY REDEEMABLE AFTER HOLDING FOR AT LEAST 5 YEARS!. I'm not complaining that Ford wants to get rid of these bonds for cheaper money (the "call provision" as you state), I'm complaining that they only want to return 25% of the paid principle after more than the 5 years stated on the front page! Again, these were not discounted "junk" bonds, we paid face value with the understanding we would receive 8.9% interest and the full paid amount (and the face value amount in this case) anytime after 5 years. Ford is not only refusing to pay the interest they owe this quarter and next, but threatening that if we don't agree to the tender, they will most probably be in bankruptcy or receivership at the end of next quarter and the bonds will be worth nothing. I wouldn't be surprised if Ford did this, then asked for a bailout after getting out from under some debt, and continued on as usual.

What I'm asking all of you, who are definitely more intelligent than myself, is how can Ford Motor/Credit, with the approval of the Treasury, change the contract to their advantage? At least GM and Chrysler used some of their bailout money to continue to pay interest on their bonds. Bailout money is being given to large companies that then pay their overpaid CEO's additional multimillion dollar bonuses (for what, running their businesses into the ground???), but then allow retirement bonds for middle class Americans to be gutted so these same large corporations can stay in business?

It would be safe to assume you arent the only 1 looseing money.And if the contracts are in clear english,there is bound to be a lawyer somewhere looseing his shirt like your self that can take this to court and see what happens.I would be willing to bet Ford will spend more on legal work than they would have to pay for the bonds trying to get thier selfs straightened out.

What is really disturbing to me is this.
How do they think they will be able to get future investors if it is put out in the open they treat their previous 1's like this?
If I were able,I wouldnt invest a dime in stocks or bonds in Ford or other 2.Although until I read this,I would have considered a Ford above the rest if buying because they aint begged for a bailout.IF this is the kind of crap they are pulling over the Investors eyes to get out of asking for 1,they are not better than the rest of the crowd.

Bob & Erik & Others,

Sorry if I confused anyone, was just trying to state a simplified case for trying to explain generally what was offered as a 'situation' and what might be at work. As more info surfaces, it becomes obvious we were not talking about a basic bond structure. I did look at the web page Erik offered, but only saw the date matchup as Eric did and the offer price from Ford.

Erik, I do also apologize for not reading further. I too thought it was probably but a tender, did not read the letters to investors part, but the original post sure made it sound like a 'call'.

What Bob has is a totally different 'instrument' and not a basic bond as such.

Bob, all I can then say is to read the boiler plate your guy faxed over and look keenly for words that may or may not exist such as words we have been talking about. As I learn more about the situation and the actual instrument itself, I'd be happy to comment further.

Bob Bishop -

Ford did not accept or request any bailout money. In any case the US Treasury is not involved in any way. These are high risk instruments. I am sorry to hear what you are faced with. IF it were me I would take the money. I am not a stock broker or a professional gambler........

I believe you have the option of keeping the bond until 2032. If you kept it that long they (Ford or its agents at that date) if they were still in business, would have to honor the original terms.

Royce

"Bonds do not represent ownership; rather an investor who buys a bond is actually lending money to the issuer, to help finance current operations and new acquisitions of property, plant or equipment."

You become a creditor to Ford. If Ford declares bankruptcy, the instrument or bond is handled just like any other creditor account. You could be compensated from the sale of assets but you'll be in line with the rest of the creditors.

It's a tough pill to swallow but corporate bonds have always been considered a high risk. That's the reason they usually pay a higher than average interest rate. They sell bonds when banks back away from the risk or don't care to float an interest only payment schedule. (No payment on principle until the end of the term.)

It's a gamble in any case. You could take the buyout (discount) but if Ford doesn't file bankruptcy, they keep your principle less the discount and owe you nothing more. If you keep the bond(s) and they do file bankruptcy, you could be out the full principle as the liability could be discharged by a federal judge.

Royce - There is no "honor the original terms" in a bankruptcy. The only way the terms will continue is if Ford does NOT file bankruptcy. It's been suggested that bankruptcy could be the way out for many businesses being strangled by liability issues. This includes health care, retirement accounts and labor contracts. It may be one reason why the car manufactures are busy trying to break themselves up. Let the "namesake" file bankruptcy and reorganize. After which they re-acquire the original satellites with a clean slate as far as contracts and liabilities.

I forgot to mention: (On a positive note)
If you take a loss, the loss can be claimed in your tax filing; Albeit, possibly prorated over several years.

The tender offer is for $ 1.3 billion @ 27% of face value, 30% if tendered by the close of business today. There is 8.9 billion debt outstanding so even if the whole i.3 billion is is used up there will still be a billion or so debt left outstanding. I doubt all holders will tender especially those with senior debt securities. If these bonds are held in a qualified retirement account you CANNOT deduct the loss. You can hang on and take your chances or go for a bird in the hand. Sorry for the bad news. John

If it were a Qualified Retirement Account, there would be no loss. QRAs are covered by ERISA and backed up by the Pension Benefit Guarantee Corp. If it were a QRA, Ford would be paying premiums to PBGC and I bet they are NOT! This type of bond normally doesn't qualify for an IRA holding.

Hey, I'm semi-impressed with all the financial smarts I see in this thread. Keith Gumbinger is the only one I've heard quoted on the radio, however. Or was it in print?

rdr

Ken Kopsky - You are correct, however if Ford did not declare bankruptcy between now and 2032 (unlikely) they would be bound to honor the terms.

As I said, I don't gamble and am not an investment advisor. If it were me I would get the cash now.

I wonder if Ford's refusal to ask for bail out funds has anything to do with payment of bonuses? I see that the steps taken are courageous and certainly a creative way to address these payments:

http://news.bbc.co.uk/2/hi/business/7953869.stm

US lawmakers in the House of Representatives have voted in favour of a bill to levy a 90% tax on big bonuses from firms bailed out by taxpayers.

I understand that if the bill becomes law, here are the 12 firms that would be hit:

Citigroup (New York)
JPMorgan Chase (New York)
Wells Fargo & Co. (San Francisco)
Bank of America Corp. (Charlotte, N.C.)
Goldman Sachs Group Inc. (New York)
Merrill Lynch & Co. (New York)
Morgan Stanley (New York)
PNC Financial Services Group Inc. (Pittsburgh)
US Bancorp (Minneapolis)
AIG (New York)
General Motors (Detroit)
GMAC Financial Service (New York)

In addition, Fannie Mae and Freddie Mac would be subject to the new tax.

the new tax is unconstitutional, so forget about it, if the supreme court is worth its salt, it will be overturned--if it isn't, get ready to find yourself taxed for some obscure reason!
T'
David D.
T content--Send a T ea bag to Washingtion on April 1!!

Thanks to all of you for the education in Bonds. I learned a little today at Bobs expense it seams. This is how the finacial advisors takes advantage of the public, they dont tell us the whole story just what they want us to know. Guess I have been to trusting also. Robert

The Constitution of the United States, Article I, Section 9, paragraph 3 provides that: "No Bill of Attainder or ex post facto Law will be passed."

Far smarter "suits" than I have said that the Supreme Court probably would NOT overturn the law--Even if it is an ex post facto law. If the tax becomes law, the legislature could pass another stating all Model T owners pollute the air with their non-attainment autos so they should be taxed at 90% of the car's value per year.

I'm against the use of TARP funds to pay bonuses. I'm also against the tax that's being considered. Shoot, I was against the bailout from the beginning. But if Congress is able to pass this law, there's no end to changes that will be made to the Constitution and no one will be able to stop it. The Constitution is being re-written right before your eyes. And this isn't the first change. Just ask the sitting President.

Here's to the Republic of Texas!

Sorry to go further askew on a hijack....but saw Ken comment and the melody from THE UNICORN was stuck in my head...but by the time I settled the words had changed

A long time ago when the Earth was more green...
There was less kinds of politicians and lobbyist then you've ever seen...
And they'd run around free while the United States was being born...
The grand result was a ‘we the people born’!

There was blacks and whites, and yellows and reds who wanted to have comfort and ease...
Work to be had and benefits to please...
But sure as you're born...
The grand result was a ‘we the people born’!

But the Lord seen some sinnin' and it caused him pain...
He says, "Stand back, I'm gonna make it rain...
So hey, Brother Barrack, I'll tell you what to do...
Go and get out of this deep doo-doo."

"You'll take a few bankers and ignore the sleaze,
Two insurances execs begging on their knees...
Two auto companies, two mortgage houses, and a tax accountant pair...
But as sure as you're born, ‘Barry’, don't you forget my ‘we the people born’!"

Well, ‘Barry’ looked out through the drivin' rain...
but the people born was hidin' playin' silly games...
They were kickin' and a-splashin' while the rain was pourin' in...
Oh them foolish ‘we the people’ born.

"So you'll take a few bankers and ignore the sleaze...
Two insurances execs begging on their knees...
Two auto companies, two mortgage houses, and a tax accountant pair...
But as sure as you're born, ‘Barry’, don't you forget my ‘we the people’ born!"

And the nation tried a movin' and it drifted with the tide...
And the ‘we the people born’ looked up from the rock and cried...
And the water came up and sort of floated them away...
That's why you see less of the ‘we the people born’ to this day.

You'll see a lot of bankers and a whole mess of sleaze...
You'll see insurance and execs no longer begging on their knees...
You'll see American car companies and mortgages to explore, even see some tax counter-reform...
But as sure as you're born…You're gonna’ see less and less of the ‘we the people' born.

Sorry, could not resist...Return you now to the regularly scheduled thread...........