DEARBORN, Mich. - Visteon Corp.'s ballooning pension and retiree health-care liabilities could bankrupt the company, some say.
Because of an unusual arrangement with its former parent, Ford Motor Co., more than one-third of the unionized workers in Visteon plants are still on Ford's payroll and covered by Ford's pension fund. But the world's second largest auto parts supplier must contribute cash to Ford for those 21,5000 workers for their paychecks, as well as their pension liabilities. Visteon also must start paying Ford in 2006 for retiree health-care liabilities of those workers.
Visteon and Ford officials declined to discuss how much of Ford's pension shortfall - it had $29.8 billion in pension assets and $37.1 billion in pension liabilities at the end of 2002 - is attributable to the Ford workers leased to Visteon.
Visteon's 2002 annual financial statements report the present value of its pension liability for those workers at $62 million, but some analysts estimate Visteon's hidden liability at $1.5 billion of Ford's pension assets and $2.3 billion in the automaker's pension liabilities, resulting in a shortfall of $800 million.
In addition, Visteon has a $289 million shortfall in the separate pension fund for its own employees. Visteon contributed $30 million last year to that pension fund, which had assets of $562 million and liabilities of $851 million.
Start paying Ford
Starting in 2006 and extending over 15 years, the company also must start paying Ford hundreds of millions each year to fund a special retiree health-care trust fund known as a Voluntary Employees' Beneficiary Association, as well as pay projected medical expenses of $80 million a year for already retired workers.
Visteon contributed $25 million to the VEBA in December 2000, but also is on the hook for a $1.9 billion unfunded liability. The present value of that unfunded liability has been growing in recent years, and is currently estimated to be $465 million, based on health-care inflation and other assumptions made by Ford.
Visteon had $1.3 billion in cash at the end of the year, and Controller Mary Winston says the company expects to have enough cash to cover its pension and retiree medical liabilities, or could borrow money if needed.
But some analysts say the likelihood of flat revenues over the next several years, combined with Visteon's $1.1 billion pension deficit - the total of what it owes Ford and its own pension fund's unfunded liability -could land the company in bankruptcy court in a few years. To avoid that fate, Visteon must radically remake its capital structure through borrowings, selling more shares, or going private.
"They're hanging by a thread," said a securities analyst who declined to be identified.
"It's an unusual burden on the company," said Michael J. Heifler, an equity analyst at Deutsche Bank Securities Inc. in New York, who lowered the rating on Visteon to a "sell" from a "hold" on March 4. Mr. Heifler worries that Visteon has a "looming cash call" to start paying up retiree health-care contributions to the VEBA in 2006, as well as the underfunded pension obligations for workers leased from Ford.
In a report some months ago, UBS Warburg security analysts called Visteon's pension liabilities a "veritable Molotov cocktail." The report cited Visteon as one of five in the Standard & Poor's 500 index in terms of highest pension liability and pension shortfall as a ratio to market capitalization.
"The combination of these factors make Visteon a high-risk equity to own," the three UBS Warburg analysts wrote in their report. At the time, the company was trading at $6.68 a share and they estimated it to be worth only $5.50 a share. Visteon closed at $6.39 a share on April 10.
Visteon also has to worry about the deal Ford can negotiate with the United Auto Workers under a new contract that would increase its pension and retiree health obligations for the workers leased from its former parent.
Ford's UAW contract expires on Sept. 14, and negotiations are expected to begin shortly.
But Ms. Winston, Visteon's controller and until recently its treasurer, said she is optimistic Ford will negotiate aggressively to cut the best deal with the UAW.