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I
n November 2006, Alan Mulally listened as Ford Motor Company’s chief financial officer, Don Leclair, and treasurer, Ann Marie Petach, went over the pitch the automaker was about to make to the nation’s largest investment banks. Ford was hoping to borrow at least $18 billion to help pay for the company’s turnaround and insulate it against the economic turbulence looming on the horizon. It was a lot to ask for a struggling domestic car company, even in a time of easy credit. But the presentation was persuasive, and Mulally was smiling by the time the pair finished.

“That’s really impressive,” he told them. “Let me know how it turns out.”

Leclair and Petach shot each other a nervous glance.

“We need you to give the presentation in New York,” Leclair told Mulally frankly. “You’re the only new model we’ve got.”

A few days later, Mulally was on his way to New York. It would be his first pilgrimage to Wall Street as Ford’s CEO.

Though he would later claim credit for convincing Ford to take out “the biggest home improvement loan in history,” work on the financing deal that helped save the automaker was already well under way by the time Bill Ford offered Mulally the job. Ford had become convinced that, regardless of who he found to lead the company, they were going to need a huge amount of cash to fund any restructuring.

It was an argument Carl Reichardt had been making for years as Bill Ford’s finance guru. His mantra was “Cash is king,” and he
repeated it often—not just to Ford himself, but also to the rest of the finance team and the board of directors. Even when the company still seemed headed for the big profits Bill Ford had promised Wall Street, the veteran banker had urged him to think beyond the next quarter.

“Earnings are important, but what’s really important is cash—cash, cash, cash. We ought to be looking at our liquidity,” Reichardt told his protégé. “You can never have enough liquidity, particularly if you think you’re going to have to restructure.”

Something else was also becoming clear to Reichardt in the months before he retired from Ford’s board of directors. He told Ford that the days of loose lending were coming to an end.

“You don’t know when that window is going to close,” Reichardt warned Ford before stepping down in April 2006. “You ought to grab as much as you can while you can.”

But the real push for maximum funding was coming from Leclair. Ford’s CFO was becoming increasingly concerned about the company’s finances. Like Reichardt, he was worried about the state of the credit markets. But Leclair was even more worried about Ford’s ability to borrow money. The automaker’s credit rating was falling fast, even as demand for its bread-and-butter pickups and sport utility vehicles waned. At the same time, Leclair was convinced that the sales projections for new models prepared by Mark Fields and other executives were far too rosy. Regardless of what might happen with the broader credit markets, Leclair was convinced that Ford’s own borrowing window would soon be slammed shut by the banks. In a meeting with Bill Ford that spring, he urged his boss to authorize one last, big push to borrow as much money as possible—even if it meant using secured loans. That was something Ford hoped to avoid. It would be seen as a sign of desperation. But Leclair said Ford was desperate, and he was adamant that the company needed to avail itself of every option. Bill Ford told Leclair to see what the banks were willing to do.

B
y the summer of 2006, Leclair and Petach were hard at work on what would become one of the biggest financing deals in the history of the automobile industry. As Bill Ford and Joe Laymon were
wooing Mulally, the finance team had already begun feeling out the big investment banks. The news was not good. If the automaker wanted access to serious money, it would need collateral—and not just a few aging factories or pieces of developable real estate. To get the sort of cash Ford was looking for, the banks wanted the automaker to mortgage nearly everything: Ford Credit, Volvo, and all of its domestic assets. The alternative would have been a bundle of asset-specific loans, but the banks were not particularly keen to end up with the title to, say, a car factory in Wayne, Michigan. If Ford defaulted on its new loans, they wanted everything.

Reichardt and Leclair had been right: The borrowing window was closing. It would still be months before mortgage brokers started turning away unemployed roofers with no proof of income, but for the Dearborn automaker the credit crunch had already arrived.

The man whose name was on the building now faced one of the most difficult decisions of his life. Bill Ford was confident he had found the man who could save his company, but he knew that the sweeping, global restructuring he and Mulally were discussing would not be cheap. Ford also knew that Leclair was right. The company was running out of time. If Mulally had not changed his mind and agreed to leave Boeing, it would have been out of options, too. Bill Ford had to make this count. He hated the idea of gambling with his family legacy, but without sufficient financing they would almost certainly lose the company anyway. He decided to risk everything for one last, heroic effort.

“Do it,” Ford told Leclair. “Get as much as you can.”

The company began informal negotiations with the major investment banks. People were asked to work their contacts to figure out which ones were most likely to lend. Board members with banking ties—such as Sir John Bond, who had just retired as chairman of HSBC Holdings, and former U.S. Treasury secretary Robert Rubin, who was also a member of Citigroup’s board of directors, also began making calls. By the time Mulally’s hiring was announced, discussions with three of the biggest banks on Wall Street—Citigroup, JPMorgan, and Goldman Sachs—were already well under way. They would become Ford’s loan advisers and the core of the lead lending
group. And they were already making it clear just what they meant by “everything.”

Ford would be required to stake all of its domestic assets: its factories, its office buildings, and its patents. The banks told Ford that its assets were now worth so little that nothing short of an enterprise-wide valuation made any sense. They also wanted Ford Credit and Volvo put up as collateral. They even wanted the Ford logo itself. The banks knew that, even if the company collapsed, some Chinese automaker would pay good money for the right to stamp the Ford name on its cheap subcompacts. If Mulally failed to turn things around, Henry Ford’s worst nightmare would come true: The big banks would finally get his company.

Ford’s finance team tried to keep anything they could sell off the table in case they needed to raise even more cash. They won a few concessions. The Jaguar and Land Rover brands were excluded from the deal. So was Ford’s stake in Mazda, though language was added that would allow the automaker to add its Mazda shares later in exchange for a higher credit limit on the revolving loan that would make up the biggest portion of the package. Volvo could be sold, too, but only with the approval of Ford’s lenders—and half the proceeds would have to go toward paying down its loan.

Bill Ford knew that, if he did use the company as collateral, it would be the automaker’s last chance to save itself. If Ford defaulted on these loans, the game would be over—at least as far as he and the rest of the Ford family were concerned.
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The business-minded members of Ford’s board understood why this was the only option left and were willing to place the bet. So was Alan Mulally. Before accepting Bill Ford’s offer, he asked for assurances that he would have the money he needed to pay for his plan. Convincing the Ford family to mortgage their birthright would be a far tougher sell. They had not cashed in their shares when they were worth a fortune, and they certainly were not going to be eager to bet
them all on a make-or-break gamble. So Bill Ford decided to package his finance proposition with some more positive news. He held off telling the family about the finance plan until the meeting in September when he presented Mulally to them. Ford knew his new CEO made a great first impression, and he believed the fact that Mulally already had the outlines of a compelling turnaround plan would convince them that he was not risking their patrimony on a long shot. Once they had met Mulally and heard him out, Ford made his pitch.

“You’ve seen the plan,” he told his relatives. “If you want us to execute it, you have to fund for it. This is the only option left to us.”

It was a masterful move. In the end, no one in the family opposed the decision. They understood the reasoning behind it. That did not mean everyone was thrilled with the idea. In fact, the dissidents would try to leverage this unease a few months later in one final bid to split the family. But, for now, Bill Ford had the support he needed to send Mulally to New York.

N
eil Schloss, Ford’s assistant treasurer, and other members of the automaker’s finance team spent hours on the telephone with each of the company’s existing lenders trying to persuade them to pony up more cash. They made the same argument to each one. These banks were already major investors in Ford. Subscribing to this new finance offering would increase their exposure to the company, but it would also dramatically improve their position because it would transform them from unsecured to secured lenders. Even if this ended up being a case of throwing good money after bad, they would at least end up holding something more than worthless paper.

Though the banks were already receptive before Mulally’s name was even mentioned, their attitudes toward the deal improved markedly after his hiring was announced. Mulally’s reputation preceded him on Wall Street, and Bill Ford’s decision to get out of the way and bring in an outsider with real turnaround experience telegraphed that this would not be yet another halfhearted attempt to save the automaker. By the time Mulally left for New York, Citigroup, JPMorgan, and Goldman Sachs had already pledged $800 million each to
the company, as had four other banks that would form the lead group in the financing deal. More important, all of the banks had agreed to allow Ford not only to publicize this fact at the meeting but also to use their names. This was key to convincing other banks to sign up, because it showed that some of the biggest names in finance still believed in Ford.

O
n Monday, November 27, Ford announced that it was seeking $18 billion in financing “
to address near- and medium-term negative operating-related cash flow, to fund its restructuring, and to provide added liquidity to protect against a recession or other unanticipated events.”

Specifically, Ford said it would seek a new five-year secured revolving credit facility worth $8 billion to replace its existing unsecured $6.3 billion revolver, a senior secured term loan of about $7 billion, and a $3 billion unsecured note, convertible into Ford stock. As collateral, Ford said it was prepared to mortgage nearly all of its U.S. assets, in addition to all or part of its stock in subsidiaries like Ford Credit and Volvo. The company said it expected to close the deal by December 31 and hoped to end the year with $38 billion in liquidity.