UAW Retiree Medical Benefit Trust, Ann Arbor, Mich., received $3.76 billion in cash Wednesday from Ford Motor Co. after the sale of debt securities the company had previously contributed.
“We'll deploy the proceeds to existing managers in accordance with our statement of investment policy,” said Eric Henry, chief investment officer of the $45 billion trust.
The trust's allocation targets approved in May are 50% global equity, 25% core fixed income, 12.5% TIPS and 12.5% long-duration fixed income.
Of the payments to the trust made Wednesday, Ford paid $250 million in scheduled payments due under Note A, one of two company debt securities it originally contributed to the trust, and $610 million under Note B, according to a Ford statement.
In addition, Ford and its Ford Motor Credit Co. unit paid a combined $2.9 billion to retire the remaining obligation of Note A at an agreed 2% discount.
Ford, which had the option to pay Note B with cash or Ford stock, agreed to pay in cash.
The trust has $3.6 billion in present value in the remaining Ford Note B debt obligation, which matures in 2022.
Pending Department of Labor approval of an ERISA prohibited transaction exemption, the trust plans to give Ford flexibility to prepay for cash periodically for three years beginning this year all or a portion of the $3.6 billion in remaining Note B obligations at a 5% discount for payments up to Dec. 31, 2011, and a 4% discount for payments thereafter. Under the current agreement, Ford can prepay Note B once a year at par value in cash or stock at its option.
John Stoll, Ford spokesman, said Ford expects the Labor Department to grant the exemption in the fourth quarter.
Ford contributed the debt securities last year as part of its $15 billion in contributions — excluding Ford's contribution of stock warrants, which the trust sold in March for $1.78 billion — to end its obligations to fund retiree medical benefits of its UAW-represented employees under a 2008 settlement agreement between the company and the UAW.
Samuel W. Halpern, president of Independent Fiduciary Services, an independent fiduciary and manager of the trust's Ford securities, said in a statement, “We are very pleased with this transaction, which continues the process of diversifying the trust's assets at very attractive values.”
Sutter Securities assisted in the negotiation of the transaction and issued a fairness opinion to IFS on the sale.