Ford Motor Co. will be allowed to contribute $13.2 billion in company securities to the United Auto Workers’ voluntary employees’ beneficiary association fund under an exemption approved Thursday, March 25, by the Labor Department.
Ford filed its request for the exemption with the Labor Department’s Employee Benefits Security Administration in December. Ford sought the exemption to allow the UAW VEBA fund to hold Ford securities in excess of the amount permitted from an employer under ERISA. The Ann Arbor, Michigan-based VEBA has estimated assets of $44.4 billion, including the Ford contribution.
The exemption will permit Ford to carry out an agreement with the UAW to contribute two notes totaling $13.2 billion, bearing a 9 percent interest rate. Under the agreement, Ford has the option of paying up to half of the notes’ redemption in Ford stock or in cash.
In all, Ford is contributing $15 billion to the UAW VEBA, including $1.8 billion in diversified assets that were in a Ford-controlled VEBA. In addition, Ford will contribute warrants, whose value has not been estimated, enabling the UAW VEBA to purchase 362 million shares at $9.20 a share. Ford stock closed at $13.80 in trading today. Ford has 3.3 billion shares outstanding.
“We transferred all the assets on December 31, so this [exemption] was an after-the-fact blessing, which we needed,” said John Stoll, Ford spokesman.
In its exemption approval, EBSA officials said, “Ford explains that its option to contribute securities instead of cash is itself a form of protection for the VEBA” because Ford’s “continued commercial viability is necessary to ensure that the VEBA trust is fully funded. Ford asserts that permitting it to make contributions in Ford common stock, rather than cash, gives Ford the flexibility to avoid cash payments in low liquidity environments. Moreover, Ford maintains that it is not in anyone’s interest to compel a payment that pushes Ford into insolvency, thereby jeopardizing the new VEBA’s funding going forward.”
With the contributions, Ford will end its obligations to fund retiree medical benefits of its UAW-represented employees under a 2008 settlement agreement between the company and the UAW.